By Rajeewa Jayaweera –
In terms of publicity, last Sunday was a bad day for the national carrier SriLankan Airlines, its Board of Directors and the major shareholder, the state of Sri Lanka. Articles were published in all major English language Sunday publications and Colombo Telegraph. They all contained the many negative aspects of the lossmaking airline besides condemnation of the Board of Directors and CEO. Wide publicity was given to the meeting between the Chairman, Directors and CEO of the airline with the President, Prime Minister and several cabinet ministers.
The only exception was the state-owned English language Sunday publication. Chairman Ajith Dias was quoted stating “A restructuring program of our own is needed, if there is no foreign interest in this airline. We want to propose steps on how to bring the company back to profitability in two years, by consolidating the airline’s operations, shedding lossmaking routes and focusing on profitable ones.” It is pertinent to question, what was the airline doing during the last two and half years whilst waiting for PPP to happen? Was there no Plan B in case Plan A failed? Foresight and proactiveness seems to be alien to the carrier.
The Chairman has further stated, “If we take the political interference out, and commit to implement this (restructuring plan) over the next two years, it will be possible to make it a profitable airline again.” His close relationship with the Prime Minister being no secret, it is difficult to understand how ‘political interference’ can be taken out when his own appointment was for the purpose of carrying out political directives, as observed in his many decisions, at times even over-ruling decisions by a majority of Board members.
Dias is being disingenuous in promising profitability in next two years. This writer, in an essay titled “Brighter or Darker skies over SriLankan Airlines’ published in Sunday Island and Colombo Telegraph last Sunday wrote of Net Operating Profit (Surplus) / Loss (Deficit) derived from the airline’s core business activity. During the two financial years under his stewardship, the airline suffered Net Operating Losses (deficit) of USD 87 million in 2015/16 and USD 111 million in 2016/17, a 26% increase, despite more favorable fuel prices from previous year. Cost of loan servicing, penalty charges for cancelled aircraft and exchange losses does not apply to calculation of Net Operating Profit / Loss in USD.
Nevertheless, abusing and mismanaging the national carrier is not the sole prerogative of the Board and a few staff as evidenced in the Weliamuna Report. The major shareholder as well as various other interest groups carry their share of blame.
When the decision was eventually made to discontinue traditionally loss-making flights to Paris, Frankfurt and Rome, several interest groups protested, especially the travel community. Some stated, French, German and Italian tourist markets to Sri Lanka would collapse as a result.
Given below are tourist arrival figures from the said three countries, obtained from Sri Lanka Tourism Development Authority website.It is a comparison of tourist arrivals during winter months of November to April immediately before and after discontinuation of flights. Readers please note, figures from Italy are those of 2014/15 and 2016/17 as flights to Italy were discontinued in March or April 2016 whereas Paris and Frankfurt flights were discontinued in October 2016. Rather than collapsing, all markets have shown a positive growth, a clear indication other carriers have filled the void created by the national carrier’s withdrawal. Had flights continued, losses in 2016/17 would have been greater. It is a win win situation with the national carrier reducing losses and the country not losing tourist markets from France, Germany and Italy. Had the withdrawal been implemented shortly after the unity government took office, losses too could have been reduced earlier.
It is understood, Minister for Public Enterprises Development, line minister for SriLankan Airlines had taken exception to the carrier’s failure to keep his ministry informed of the agreement signed by SriLankan Airlines on October 4, 2016 to terminate the purchase agreement for three Airbus A350-900 aircraft. However, in view of the decision taken by Committee on Economic Management (CCEM) chaired by Prime Minister Wickremesinghe on September 28, 2016 to cancel the three aircraft (one had been cancelled previously with a penalty charge of USD 17 million) and related correspondence between Prime Minister’s office and the airline being copied to the line ministry, the line minister cannot claim being kept in the dark. His broadside of being “kept in the dark” is of extreme pettiness. If feeling aggrieved, he should rightfully take up the issue with his Prime Minister, the head of CCEM for communicating directly with an institution under his ministry.
It is understood, the line Minister has also taken umbrage of being kept in the dark over the recruitment of some 1,100 staff that has taken place since January 2015. No airline can operate seeking ministerial permission to recruit staff. On the other hand, the line ministry could be found fault for not issuing a blanket directive freezing all recruitment in view of the due diligence conducted by Accenture PLC for a fee of USD 500,000 after the American investment company TPG was shortlisted for the PPP exercise. TPG finally informed “After careful consideration, we conclude the availability of greater potential and opportunities in India.”
The line minister’s ire in all probability may be due to not receiving a quota of the vacancies to provide employment for his henchmen. All ministers now consider such quotas in state institutions under their purview as a matter of right.
During the recent meeting between the airline’s Board members and CEO with the President, Prime Minister and cabinet ministers, questions have been raised on salaries paid to the CEO and another senior executive. The amounts quoted may sound excessive by Sri Lankan standards. Loss making SriLankan Airlines competes in the international arena and require a qualified, highly skilled and competent CEO (and a few other senior executives). The remuneration packages of those holding similar positions in comparable airlines elsewhere are in excess of USD 25,000 – USD 30,000 upwards per month (LKR 3.87 – LKR 4.65 million). A reputed turnaround specialist would cost even more. As the age-old adage goes, ‘when you pay peanuts, you end up with monkeys’. What is required is the ‘right man for the right price’. Current situation is ‘wrong man for the wrong price’. That said, no ‘right man’ will consult nor accept diktats from cabinet ministers, Prime Ministers or Presidents on recruitment and other administrative matters for ‘any price’. Neither will the majority shareholder recruit the ‘right man for whatever price’ it cannot control, manipulate and arm twist.
Cabinet Ministers are supposedly shocked at the remunerations of Board Members. Director’s fees for attending 36 board meetings during three years, excluding air tickets amounts to Rs 2.7 million per director. It is less than 15% of what Ministers and MPs earn by selling their duty-free vehicle permits.
Directors, motivated by political loyalties and self-interest, has been the misfortune of the airline since its inception. Only exception was the 1986/89 Board which included industry stalwarts such as DS Jayasundera and MTL Fernando. Nevertheless, such directors, is but the symptom and not the root cause for the disease. The disease is the government, major shareholder of the airline. Members of government have been involved in all major decisions such as aircraft purchases and even routine decisions such as recruitment of senior executives since the days of the Premadasa presidency.
Consequent to the recent meeting and its tone, the stage appears to have been set to make the national carrier another government department. A competent authority would be the icing on the cake.
Pragmatic governments the world over have divested its ownership in national carriers. Commercial aviation is a globalized and highly competitive industry. An airline need be commercially driven, devoid of politics and managed by professionals rather than by politicians and their retainers. Judging by the failure of successive Sri Lankan governments in managing the nation’s garbage and planning / responding to natural disasters, governments and state actors do not have the competence to handle a task as complex as overseeing an international airline.
Following twin major aviation disasters of MH370 and MH17 in 2014, Malaysian Airlines underwent huge financial losses. On the verge of bankruptcy, the Malaysian government undertook a major restructuring program which saw the recruitment of two foreign aviation specialists as CEO and COO and 6,000 job cuts besides some other drastic measures. According to current CEO Peter Bellew, the airline is now about to conclude a deal for six or seven Airbus A330 aircraft to replace narrow bodied aircraft to meet growing demand. Such is the power of professional management.
Unlike in Malaysia, political culture in Sri Lanka prevents the recruitment of a team of foreign turn around specialists and giving them the required support and independence to do the job. Therefore, the only remaining solution is total privatization.
Even at this late stage, let the government divest its interests and hand over SriLankan Airlines to the private sector.
Critics of the airline quite rightly condemn the many billions wasted due to corruption and mismanagement. That said, they should also remember the many billions contributed to the national economy by the national carrier in keeping the tourism industry afloat and facilitating exports during thirty years of terrorism, when other airlines were reluctant to operate to Sri Lanka. Operating lossmaking flights during those difficult years also kept many thousands in several industries, in employment. However, that is no reason to continue losing billions each year for the benefit of a few, after May 2009.