By Rajeewa Jayaweera –
‘News in Flight,’ a popular worldwide aviation publication recently carried a news report titled, ‘Emirates refrains from investing in foreign Airlines after a bad experience, Investing in SriLankan Airlines.’
Quoting Business Insider, an American financial and business news website, President Tim Clark is on record as stating, despite a profit of USD 762 million, Emirates decided to stay away from investments.
Clark has justified his decision to stay away from airline investments as buying equities in other airlines takes away management attention on Emirates. He has cited his experience in investing in government-owned loss-making Air Lanka in 1998. He felt political interference made his task difficult.
Emirates paid GoSL, USD 70 million for a 40% stake in the airline. It also received a 10-year management contract.
“I was down there between six and eight times a year. Sri Lankan politics was volatile. There was a war going on, and we had a lot of problems to deal with.”
Clark claimed, by the time the partnership ended in 2008, Emirates had managed to turn Sri Lankan around through great difficulty.
“The experience left a lasting impression on Emirates and its president. In short, he doesn’t think it’s worth it. What it taught us, in the end, was that the management time being soaked up in the M&A activity and the subsequent on-going management of these airlines to protect your investment was disproportionate to the return,”
Clark says Emirates has grown organically to a scale where equity acquisition would no longer make strategic sense for the airline.
Other recent airline acquisitions are; Delta holds significant stakes in Air France/KLM, Virgin Atlantic, China Eastern, AeroMexico, and Gol. American Airlines invested $US200 million in China Southern. United Airlines spent $US100 million on equity in Brazil’s Azul. Etihad purchased large chunks of Alitalia, Air Serbia, Jet Airways, Virgin Australia, and Air Seychelles. Qatar Airways hold major stakes in LATAM, Cathay Pacific, and IAG, the parent company of British Airways but has shunned investing in SriLankan Airlines.
The Yahapalana administration has been sourcing for a strategic partner with a view of offloading loss-making national carrier SriLankan Airlines, since voted into office in January 2015. Having failed to do so, it is now pursuing a Public-Private Partnership format.
It would be prudent to ponder over views expressed by Tim Clark and current logjam faced in finding a reliable investor/partner for the national carrier.
When Emirates invested in Air Lanka and secured management control of the company, other than President CBK and Finance Minister GL Peiris, the entire cabinet of ministers opposed the deal. The UNP led by Leader of Opposition Ranil Wickramasinghe vehemently objected to the partial privatization and handed over a letter to the local UN office expressing his intention of abrogating the deal once voted into office. A majority of staff were not in favor due to misplaced national feelings. Once in office in 2001, the new UNP administration sent a delegation (two of them are senior advisors and another, a cabinet minister today) to Dubai to renegotiate the agreement and returned virtually empty-handed. The government adopted an extremely negative stance towards the investor and the airline thereafter. The Rajapaksa regime which assumed office in 2005 made no secret of their unhappiness of a foreign company having a stake and managing the ‘national carrier.’ Matters came to a head in early 2008 when President Rajapaksa ordered the cancellation of the work permit of Emirates appointed CEO Peter Hill due to a refusal to offload all 28 ticketed Business class passengers in a flight from London to Colombo to make room for a Presidential delegation. Emirates called it a day on March 31, 2008, exactly 10-years from the date of their entry.
Unlike Sri Lankan voters who have very short memories, foreign investors, including airlines have long memories. GoSL’s unsuccessful attempts since January 2015 in finding a strategic partner may have a lot to do with hindrances faced by Emirates from successive governments during their unhappy association between 1998 and 2008. A further drawback may be the government’s insistence on retaining 51% stake in any new arrangement.
Meanwhile, the newly minted ‘Restructuring Board’ is beginning to take shape with the addition of two new directors last week. The new appointees are; Oxford educated Prof. Arjuna de Silva, Chairman of the Anti-Doping Agency and former Chairman of George Steuart Finance and Johann Wijesinghe, Managing Director of Leisure & Aviation at the Hayleys Group. Wijesinghe did two separate stints in the airline’s Commercial Division and is the first aviation professional to be appointed to the Board in 39 years. While applauding the concept in principle, it needs to be highlighted, Hayleys Leisure & Aviation are General Sales Agents in Sri Lanka for All Nippon Airways, British Airways, Hainan Airlines, Qantas, and Oman Air. Oman Air operate flights between Muscat and Colombo and are competitors of SriLankan Airlines in their Muscat, Middle Eastern and London routes. Having their local representative in the national carrier’s Board with access to sensitive data and individual route results could give rise to situations of conflict of interest.