By Rajeewa Jayaweera –
Public Enterprises Development Minister Kabir Hashim’s revelations on SriLankan Airlines (UL), published in a leading weekend publication last Sunday, did not reveal anything new. The public have been hearing of excesses of the Rajapaksa administration both at SriLnkan Airlines (UL) and other state owned enterprises since 09 January 2015. What the general public would like to know is what has been done by this government since 09 January 2015 and the present Board of Directors (BoD) appointed on 12 February 2015 to turn around the airline.
Company Law of this country stipulates, BoD will elect a Chairman amongst them. The first Minister of State for Aviation appointed on 09 January 2015 resigned in a huff due to his nominee for Chairman being rejected. The Chairman as well as Board of Directors was appointed by the Prime Minister mostly from amongst his close associates. Last Sunday’s report confirms the rumour of the present BoD being divided into two factions.
Deputy Minister Eran Wickramaratne is on record stating in Parliament, UL had made a profit of Rs 4.4 billion in 2008. He further stated, the agreement with Emirates was “a good decision even if done by a different administration”. The then Opposition (UNP) opposed the privatization deal and its leader handed over a letter to the local UN office stating his intention to abrogate the agreement in the event of his party being voted into office.
UL increased it’s 2007 profit of Rs 568.05 mil by 780% in 2008 to Rs 4.4 bil (exit year of Emirates) and then incurred a loss of Rs 9.3 bil in 2009. Eelam IV was in full swing in 2008. The massive profit was declared by selling off assets (aircraft and engines) and leasing them back and not from airline operations!
There is much talk of the aircraft deal concluded by the Rajapaksa administration. Deputy Minister Wickramaratne speaks of “National Crimes” and “Financial Crimes”. The process of purchasing new aircraft is commonly referred as ‘Re-fleeting’. A plan to Re-fleet involve months of research and hard work by different teams of airline professionals. Some of the key components of such a plan are; Trend analysis for Passenger & Cargo, Growth Plan for Route Network for next five years, Revenue & Yield forecasts and Financing Plan for re-fleeting including lease options. It is also customary for aircraft suppliers to provide a Deployment and Utilization Plan for their respective aircraft. What has befallen to all the supporting material leading to the Board Paper which approved the purchase of six A330 – 300 and four A350 – 900 aircraft? Who were the authors of such documents? Were these reports prepared after research and an in depth study or were they purpose prepared, to justify the purchases? If the government is serious in establishing the identity of those responsible for the now partially completed Re-fleeting exercise, it should unearth all such reports, plans and their authors. It is bound to shed light to the origins of this disastrous aircraft order and identity of the “unqualified political lackeys” referred to by Minister Hashim.
After 13months in the driving seat, it would not be unkind to carry out at least a superficial scrutiny of what is going on at the haemorrhaging airline and the doings of its present BoD.
Minister Hashim and Deputy Minister Wickramaratne continue to refer to misdemeanours of the Rajapaksa regime even after this government has been in office for one year. It appointed a Board of Inquiry (BoI) headed by Senior Lawyer JC Weliamuna. The final report was submitted on 30 March 2015 with recommendations to investigate serious lapses on the part of former Chairman, BoD and even some senior staff such as Head of Human Resources. Whereas some investigations need be undertaken by the Attorney General, other investigations especially on improper and unjustified recruitment and irregular awarding of Tenders should be undertaken by UL. This BoD has failed to initiate inquiries to any of the improprieties on Recruitment and awarding of Tenders highlighted in the Weliamuna Report.
Those recruited during run up to Presidential elections especially of Nil Balakaya fame and highlighted in the Weliamuna Report continue to be ‘un-gainfully employed’. Despite current staff strength in excess of 7,000 and no clue of the direction in which the company is headed, the present BoD are in the process of recruiting 18 Management Trainees. Several ministerial progenies have applied. A very senior staffer is known to take a very keen interest in the matter as he too is desirous of placing a close relative in the program.
The Chairman has been referring to a ‘restructuring plan’ for almost one year. However, no details of any plan are forthcoming. Six months on, the plan is still pending approval by the government. The initial restructuring plan supposedly consisted of discontinuing all supposedly loss making routes to Europe retaining only London, subsequently amended to withdrawing from Paris and Rome. Current status is to retain UK, Paris and Frankfurt with enhanced frequencies, justification being Frankfurt flights connected best with One World partner carriers from USA. The below graph indicates arrival / departure timings and ground time at respective airports:
Standard Ground Time for wide bodied aircraft varies between 40 minutes and 1 hour 30 minutes depending on flight duration. Based on Ground Time in Frankfurt three times a week, Paris four times a week and Rome three times a week, UL keeps an aircraft parked in these cities for a total of 70.5 hours (2 days and 22.5 hours) weekly or 3,666 hours ( 152.75 days) annually. How does the BoD justify keeping an aircraft costing around USD 250 mil parked at European airports for a staggering 152.75 days annually?
As of late, those in government and UL have suddenly woken up to the fact, the first Airbus A350-900 is due for delivery in June 2016 (now pushed back to September). Would the present BoD who assumed office on 12 February 2015 enlighten the general public of actions they undertook during the last twelve months to address this looming crisis? Had any attempts been made 8 – 10 months ago, could UL have avoided this dilemma? Interestingly, one Director has been paid a retainer of Rs 2 mil and provided with a company maintained vehicle. The same Director has supposedly exceeded his quota of free tickets for personal travel but continues to receive free tickets. This new category of tickets is termed “Tokens of Appreciation”. Unlike staff free tickets which are on Space Available basis, free tickets of Directors and family members are in Business Class on Firm basis, thus often depriving the airline of desperately needed revenue passengers.
The Weliamuna Report highlighted the ambiguity in the awarding of a contract for the Supply and Delivery of Wines and Champagnes to M/S Phoenix Rising Ventures Ltd., a start-up company registered in Canada with no prior experience and a local businessman as its Chairman / MD, in complete violation of Tender / Procurement procedures of UL. The BoI report recommended a complete review of this appointment. Nevertheless, one year after submission of the BoI report, M/S Phoenix still continues to be the supplier. It is hoped Minister Hashim and Deputy Minister Wickramaratne would at least now seek explanation from the Chairman and BoD for the continuation of M/S Phoenix Rising Ventures Ltd., appointed by Rajapaksa henchmen, as a supplier. With such serious matters pending attention, the Chairman was recently seen attending the ITB Tourism Fair in Berlin and an awards ceremony in Delhi, events which should at best be attended by the CEO or Chief Commercial Officer (CCO). His panache for upgrading close friends and donating raffle tickets for Royal functions is now being discussed in the corridors of the East Tower at the WTC.
The BoD at UL seems to have a strange and unorthodox approach towards recruitment and manpower deployment. When turning around loss making companies the world over, the usual modus operandi is for the BoD to recruit a high profile CEO with a proven track record in turning around companies and task the person with the preparation of a suitable Recovery Plan. Once approved by the Board, the CEO is required to put together a management team and proceed with implementation. All these actions will have specified time lines. At UL, having submitted a Restructuring Plan in mid-2015 which is yet to be approved by the government, the BoD proceeded with recruitment of a CEO and CCO. The BoD had been divided in the case of both recruitments. In the case of CEO, it had been a tie of four each and the Chairman supposedly exercised his casting vote to recruit a pilot. His management experience is limited to that of a part time Sectional Manager at Emirates. In the case of CCO, the BoD had been divided three for and five against. BoD decision was overturned by Royal command. The five Directors who voted against the recruitment continue to serve on the Board. The recruitment procedure adopted for both positions leave much to be desired. There were no short lists. The two selected candidates were not subjected to Psychometric Tests as is customary in most reputed companies worldwide. It is believed neither CEO nor CCO have been issued Key Result Areas (KRAs). In such a back ground, one wonders of the basis on which they would be evaluated for confirmation to their positions, at the end of their respective probation periods. That said, it is understood he divided BoD by a majority vote have voted to extend probation period of the CEO which ends on 15 April. The lack of experience in Corporate Governance of Board members is obvious. Only one Director in the present Directorate can boast of hands on experience in an international corporate environment. The others are astute businessmen / lawyers but not corporate leaders with international exposure. It may perhaps be the reason the company now require a Chairman, Executive Director (with pay and perks including company vehicle) and CEO to steer the company, not heard of even during the abusive days of the Rajapaka administration. A former CEO exiled to UK by the Rajapaksa administration after creating a dubious post as Direct Promotions – Europe with a five figure sterling salary recently completed his five year term. He is a grade 13 – a grade reserved for Divisional Heads. His term was recently extended for a further two years albeit a marginally reduced remuneration package. He now functions as Regional Manager Europe based in London which is a Grade 11 position. A question being asked in certain circles is the reason he could not have functioned as Chief Commercial Officer for which he is eminently suited, thus saving millions of rupees. Meanwhile, the former UK Manager who is a grade 10 now functions as Sales Manager, a grade 9 position with a grade 10 remuneration package. The post of Sales Manager was earlier ear marked for the brother in law of a Cabinet Minister, living in UK with no proven skills in Passenger Sales. The appointment has now been stalled and efforts are under way to accommodate him as a Sales Executive in the London office. A Senior Manager due to retire in May is supposed to be appointed as a Consultant for two years due to intervention of a retired politician. It is already causing much heart burn amongst staff.
Last Sunday’s report refers to a decision to provide UL with a life line for another six months. Various options are to be considered, including a possible tie up with another airline. As the writer recollects, a similar exercise in mid 1990s took around two years. The Due Diligence study and preparation of Bid Document took around one year. Meanwhile, the airline underwent a ‘stand still’ situation. All recruitments, promotions, transfers etc. were frozen. To undertake a similar exercise in a six months period, to say the least, is overly ambitious. In the meantime, what does the government and the divided Board intend doing with the Airbus A350-900 aircraft due for delivery commencing September? If they are to be deployed, are new routes being introduced? Or else, are frequencies to be increased in existing routes? If that be the case, are such routes spilling traffic at present? Whatever the case may be, it is hoped the new A350s will not be kept parked at airports around the world with extended ground time.
The time has come for Ministers and UL BoD to stop chattering of the misdeeds of the Rajapaksa regime. Time has come to prosecute the miscreants and get on with the job at hand. Time has also come for All the King’s Asses and all the King’s Men to concede their inability to turn around the airline and hand it over to the private sector.