Colombo Telegraph

All Is Not Well At SriLankan Airlines

By Rajeewa Jayaweera

Rajeewa Jayaweera

At the request of Shareholders, Chairman of SriLankan Airlines called for a Shareholders’ meeting on 19 January, at the BMICH. The agenda consisted of an update on Travel Privilege Policy for Shareholders, an indication of share price expected from GoSL and an update on the progress of the Company. Shareholders were requested to make written submissions, on any other matters they wished to discuss.

The Chairman commenced the meeting by announcing three sugar candies. He was applauded when he announced the removal of Fuel Surcharge Tax for all Shareholder tickets granted last year, on the basis of two tickets every two years. Shareholders could henceforth transfer their two free tickets to children up to the age of 24 years, provided they were students. Shareholders could transfer their shares to children below the age of 18 years combined with a nominee, and directly to those over the age of 18 years, as per the law of the land. Such persons would be eligible for all Shareholder privileges. On the progress of the company, the Chairman stated; the company continued to make losses, but the level of losses had been substantially reduced (the reality being the reduction of losses are chiefly due to dwindling fuel prices rather than any other factors); profitability could become a reality in two years; It was being contemplated to close unprofitable routes; increase capacity in profitable routes and explore new routes; efforts were being made to dispose of the Airbus A350 aircraft ordered by the previous Board, which both the airline and Treasury could not afford.

The floor was then opened for questions by Shareholders. In the course of responding to questions, the Chairman made some startling revelations.

A group of Shareholders had formed a Shareholders Association. It’s President had requested for a reasonable price to be paid for shares currently held by Shareholders. The Association’s President demanded the company pay the ludicrous amount of Rs 5,000 per share, originally given to employees in 1998 free of charge. Subsequently, Emirates purchased shares from staff willing to sell, at the price of Rs 245 per share. A representative from the Treasury, who was present, stated emphatically, the amount on offer was Rs 50 per share. The Chairman was then requested by the President of the Association to facilitate a meeting with President Sirisena to take up their grievance, to which he agreed.

The Chairman graciously accepted a suggestion by a Shareholder to commence a Suggestions Box. Since all Shareholders have airline experience, they may be able to make constructive suggestions for the improvement of the airline.

In response to the question how the airline had fared in the peak month of December 2015, Chairman stated the month had been profitable. A staff member from the Finance Division present informed the Frankfurt, Paris and Rome routes had incurred losses. The Chairman emphasized the airline had made a NET profit of USD 2 million in December. Net profit is arrived at after deduction of all expenses, including Finance Charges. However, clarification could not be obtained if Net Profit in this instance was before or after deducting Finance Charges. The national carrier has not had a net profit in airline operations in decades!

During an Emergency General Meeting held on 16 June 2015, the Chairman had stated a Recovery Plan had been submitted to the government for approval. The airline did not have a professional CEO or a Chief Commercial Officer (CCO) at that time. He declined a request by Shareholders for details of the Recovery Plan to be shared, prior to approval and agreed to share same, once it was approved. When requested for details of Recovery Plan on 19 January 2016, he explained 80% of the plan had been approved by GoSL but remaining 20% was still pending, and hence details could not be divulged. He further stated some parts of the approved 80% of the Recovery Plan were currently under implementation.

In response to a question from a Shareholder on the benefits derived from the One World Alliance, Chairman stated One World Alliance was vital for the carriage of passengers from USA and Canada in the transatlantic sectors of the journey. He further stated, since flights from USA and Canada do not connect with SriLankan Airlines flights at Heathrow, and its inability to change airport slots, it may be necessary to retain Frankfurt which has favourable connections. This is indeed a strange theory. Frankfurt, Paris and Rome have traditionally been loss making routes, despite around 80% of its traffic being 3rd and 4th freedom traffic. Revenue from such traffic belongs totally to SriLankan Airlines. Passengers from USA and Canada is 6th freedom traffic. Revenue derived from such traffic has to be shared with One World carriers for transporting them in the transatlantic segments of the journey. Therefore, net retention to the airline from 6th freedom traffic would amount to much less revenue than from 3rd and 4th freedom traffic at European points. It is mind boggling to understand the need to close loss making stations earning higher revenue, but maintain one station to cater to markets, in which net retention is lower, and hence will further increase losses in the route.

It is indeed a strange situation. The airline is heavily burdened with cumulative losses in excess of Rs.90 billion, as stated by the Chairman. Seven months on, GoSL is yet to approve or reject the proposed Recovery Plan, despite no change of government. There seems to be no sense of urgency for a ‘recovery’.

Management text books state, a plan is required to be approved and implemented in its totality. The nucleus of a Recovery Plan of an airline is it’s Route Network, which is critical for its core business of passenger and cargo carriage. Other key factors such as Fleet type and size, Manpower to name a few, depend entirely on the Route Network which, as per the Chairman, is yet to be finalized. According to him, some parts of the approved 80% of the Recovery Plan are currently under implementation, despite the lack of a finalized Route Network. i.e. which of the current routes are to be discontinued, retained and what new routes should be introduced. One is bewildered to understand, if route rationalization amounts to less than 20% of the proposed Recovery Plan, what constitutes of the approved 80%? Equally bewildering are the parts of the approved 80%, currently being implemented, without the vital component of a Route Network.

When turning around loss making concerns the world over, the usual modus operandi is for the Board of Directors to recruit a high profile CEO with a proven track record and task the person with the preparation of a suitable Recovery Plan. Once approved, the CEO is required to put together a management team and proceed with implementation. All these actions will have specified time lines.

This does not seem to be the case at SriLankan Airlines. Having submitted a Recovery Plan to the government for approval, recruitment of senior staff has begun with a vengeance. Advertisements were placed for posts of CEO and COO in May 2015. An impressive array of qualifications and experience consisting of Master’s Degree for the CEO and Bachelor’s Degree for CCO coupled with a minimum of 10 – 15 years senior managerial experience were listed in both advertisements. A former Air Lanka pilot who subsequently worked for Emirates in a similar capacity with no senior managerial experience was recruited as CEO on 01 October 2015. A onetime CEO of the airline, exiled to UK with the meaningless designation of Director Promotions Europe, by the previous administration with a five year contract at great cost to the company was brought back to Colombo as CCO to assist the new CEO. We now hear, this CCO with over 30 years’ experience in the airline has been sent back to UK with a further extension and has been replaced by another former Air Lanka / SriLankan Airlines employee, who had been working for a private airline in Nigeria. It is rumoured, both selections had been opposed by a majority of Board members; they had been over ruled by Royal edict. There are serious doubts if both selected persons possess the requisite educational qualifications and professional experience specified in the respective advertisements. At least one of them is over sixty years of age. A new position of Chief Technical Officer (CTO), scrapped after the departure of Emirates Management, is to be reintroduced shortly. It is expected to be filled with an expatriate. Based on another Royal edict, the post of Chief Marketing Officer (CMO) is being kept open for an Emirates employee, due to retire upon reaching 60 years next May. This would be the third time he would be joining the National Carrier.

With such Royal edicts, the much hyped about Temasek type holding company, based on the Singapore model is obviously meant for public consumption only. Recruitment does not seem to be based on the relevant qualification matrix specified in respective Job Descriptions and advertisements. It would also appear greater weightage is attached to membership of the Royal clan and cronyism.

It is but natural to wonder of the need for such a top heavy structure at a time when the much awaited Recovery Plan is yet to be approved and the Route Network is yet to be finalized. It is obviously a case of cart before the horse. It behoves the Chairman to explain the logic and reason to send back the former CEO to UK and recruit an additional person as CCO, who has passed the airline’s retirement age. In light of the Engineering Division having functioned with its incumbent head during last several years without any mishaps, it behoves the Chairman to explain the need to recruit a CTO in addition to a former Snr. Manager Engineering already on board as a Consultant. It behoves the Chairman to explain the need to recruit senior management staff that have exceeded the company’s retirement age. Does an airline with 21 narrow and wide bodied aircraft warrant such a management structure? Would it be correct to estimate the price tag for all these recruitments to be far in excess of Rs 100 million annually? Can the airline afford it? Should not all these recruitments other than that of CEO been held back till clarity is established by way of a fully approved Recovery Plan and Route Network?

From a different perspective, the CEO of Qatar Airways Akbar Al Bakar obviously did not meet with Prime Minister Wickramasinghe a few days ago to inquire of his health! In the event of handing over the airline to a foreign carrier, who would compensate all these heavy weights, currently joining the national carrier?

Meanwhile, merry making in the National Carrier, notwithstanding monumental losses, continues. Even though the heads of the infamous former Chairman and CEO have rolled and replaced by two others, there is no change in corporate culture. It continues to be a paradise for joyriders. Another case of ‘same wine, new label’.

Obviously, all is not well at SriLankan Airlines!

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