SELLING STAKE IN CATERING, GROUND HANDLING THE ONLY OPTION?

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The National Carrier, SriLankan Airlines turned 43 years this year. It has also racked up a shocking total debt of USD 1.126 billion, or Rs 401 billion and Minister of Aviation Nimal Siripala de Silva, last week stressed about selling shares of SriLankan Catering and Ground Handling in a bid to restructure the airline and minced his words about any investor coming forward to buy it out. Due to high levels of corruption and mismanagement, this loss-making enterprise has reached a point where there is no other option but to sell it, as it makes staggering losses daily, while burdening taxpayers.

Despite SriLankan Catering and Ground Handling making substantial profits, other loss-making units are draining revenue and dragging the airline down.

President Ranil Wickremesinghe, in May this year said, SriLankan should be privatised and as of March 2021 the total debt was Rs 372 billion. Even if the airline is privatised, the country must bear this loss, he said.

The Minister of Aviation hinted the Government would only sell SriLankan Catering and Ground Handling that is presently managed by SriLankan, however, no buyers will purchase these two companies without taking over SriLankan, as it is a State-owned loss-making entity.

Ceylon Today checked with reliable sources at the Ministry of Aviation and they said if there is a party willing to buy out SriLankan, that would be considered as well.

According to the Government, it is prepared to sell a 51 per cent stake in the airline as well as a 49 per cent stake in both the Catering and Ground Handling units. On 29 August, the Aviation Minister said due to Sri Lanka’s severe economic crisis, the Government could no longer afford to fund loss-making SriLankan Airlines.

At present, SriLankan Catering is a private company, whereas Ground Handling is managed by SriLankan. The Ground Handling services comprise airport security, check-in counters, baggage handling, porters, engineers, flight operations, and airport supervisors.

According to sources, the Ground Handling unit would be first declared as a private company before selling its shares.

The backbone of the airline is Ground Handling and Catering and if that is handled by a different management, obviously the selling of the parent company would come into play, said senior officials at the Ministry of Aviation. Partial privatisation may not be feasible, as the loss is enormous.

Cabinet Paper on SriLankan

The Cabinet Paper on SriLankan was approved, and states the following:

Restructuring of SriLankan Airlines and its subsidiary companies

SriLankan Airlines Limited (SLA) was incorporated in 2010 and a majority of the shares of the Company is owned by the Government since 2010. SriLankan Airlines has been a severely loss-making company since incorporation. However, as a result of cost restructuring and revenue enhancing strategies adopted by the management, SriLankan Airlines has made a slight operational profit during the first quarter of 2022. SriLankan Airlines operated jointly with Emirates Airline from 1998 to 2008 and it has made a profit of Rs 22 million during the said term. SriLankan Airlines presently serves 37 destinations in 23 countries, being the only Asian airline which operates direct routes to Australia, France, Germany, Japan, South Korea, and United Kingdom from Sri Lanka.

SriLankan Airlines does not have absolute ownership to any of the aircraft it possesses and SriLankan Airlines operates leased aircraft. SriLankan Airlines operated direct flights to 26 countries and the airline holds the landing rights of each destination which has become an invisible asset to SLA.

SriLankan Catering Limited is a subsidiary of SriLankan Airlines, which was incorporated in 1979 and it has been successfully supplying food and beverages to airlines flying in and out of Sri Lanka since 1979. Table mentioned below demonstrates profits and losses derived by SriLankan Catering Limited for the past 10 years:

SriLankan Airlines also holds the ownership for ‘Ground Handling’ of all airports in Sri Lanka and it has derived profits during the past 10 years. Although SriLankan Airlines has made profits through SriLankan Catering Limited and ‘Ground Handling,’ SriLankan Airlines as a whole has incurred severe losses annually. SriLankan Airlines has defaulted to pay its service providers for the services rendered to SLA to operate.

The Government also said SriLankan Airlines does not have the financial ability to repay the mortgages and loans it has obtained as the operation of the airline was severely affected for the past few years. Major drop back in tourism industry and the reduction in the number of passengers due to Easter Attack, Covid-19 pandemic, global economic downfall, severe economic crisis, and unstable political and social status in Sri Lanka have had an impact on SriLankan Airlines. Restructuring of SriLankan Airlines and obtaining Capital Investments is critically vital and if such capital infusion does not happen, SriLankan Airlines will certainly collapse and the company will have to be closed down, which will end up creating social distress, as 6,370 local and foreign employees who are working for SriLankan Airlines covering areas of Administration, Cabin Crew, Aircraft Maintenance Engineers etc. will lose employment. It is the responsibility of the Government to safeguard the employment opportunities of SriLankan Airlines and its subsidiaries without creating an environment for retrenchment, the Cabinet Paper said.

It is observed that SriLankan Airlines was making profits when it was operating on a joint venture with Emirates Airline with a considerable quantum of shares and management vested with Emirates and SriLankan Airlines was not a burden to the Government of Sri Lanka (GoSL) back then, the Government said.

SriLankan, in its 43rd Anniversary official statement, said its contribution to the economy of Sri Lanka as the country’s flag carrier cannot be understated. The airline has been the ultimate gateway between Sri Lanka and the world. With a current all-Airbus fleet of 24 aircraft, SriLankan has been connecting Sri Lankans to 119 cities in 60 countries across continents through direct and codeshare operations. Moreover, SriLankan Airlines is the only airline to operate direct flights between Colombo and several global power cities including London, Paris, Frankfurt, Melbourne, Sydney, and Tokyo, enabling socioeconomic ties with these markets. SriLankan has served over 89 million passenger journeys for both local and foreign passengers – a number that is equal to the population of Sri Lanka, four times over. The airline is, unquestionably, a key foreign currency earner for Sri Lanka, as over 85 per cent of its revenue is earned in foreign currency from international markets.

However, the airline never achieved great heights in terms of financial success. Instead, it was gripped by political catastrophe, and many issues relating to politicians’ use of the National Carrier were covered up. The media had to pursue officials appointed to top positions in the
Sri Lankan Government who were “up close and personal” with the political families in order to expose their corruption.

Additionally, Sri Lankans suffered every time the Government changed and incompetent politicians were chosen to lead the aviation sector. With political appointees running the show seated at the top, the experienced professionals working at management level had no role to play.

Airlines and bankruptcy

In the present scenario, many airlines are up for sale and recently Jet Airways was grounded for some time until a buyer showed up. The airline’s new owner, the Jalan-Kalrock Consortium, has committed to a funding of USD 180 million as part of the airline’s bankruptcy resolution process. Of this, about USD 60 million will go towards clearing the dues of Jet Airways, the Economic Times reported in April 2022.

Also, the Italian Government has sought parties to take over their national carrier, ITA Airways.  On 4 August, the International Air Transport Association (IATA) announced passenger data for June 2022, showing that the recovery in air travel remains strong. In 2020, IATA statistics showed that 25 million airline jobs were at risk due to the coronavirus pandemic. According to their assessment, 11.2 million jobs in the Asia Pacific region are at risk, followed by in Europe 5.6 million.

Sri Lanka in the post-pandemic era has to revive local industries and there’s no time for political debates. In this context, the Government has also formed eight task forces consisting of heads of public and private sectors. This was announced at the President’s Office and aims to create good investment opportunities and secure investors.

The President’s Office said the task forces are empowered under the leadership of President’s Secretary Saman Ekanayake.

These task forces are empowered to cover all the procedures, regulations, and actions implemented by government agencies that provide services related to business activities based on eight areas, such as starting new businesses, obtaining construction permits, registering a business property, obtaining loans, protecting small-scale investors,
cross-border trades, paying taxes, etc.

SriLankan Airlines has also invited tenders for many undertakings and one being the Provisioning of a Customer Feedback Solution for SriLankan Airlines for a period of two years. They have also called for bids for the Security Service Provider for all SriLankan Offices in Colombo among many other tenders.

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By Sulochana Ramiah Mohan