19 November, 2019

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Total Privatization – Only Solution For SriLankan Airlines

By Rajeewa Jayaweera

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.

Foot note

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.    

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Latest comments

  • 6
    2

    Agree that privatization is the way forward.

    Ideally need to partner a middle eastern airline to maximize potential.

    Need to break up ground handling and engineering.

    300 pilots and 7,000 staff for 25 aircrafts is not sustainable and hence a few thousand staff should be given a golden hand shake.

    Salaries should be reviewed. At present avg monthly salary of a pilot is Rs 2 m and a stewardess is costing Rs 500,000 with allowances which is not sustainable.

    All long haul flights should reviewed including Japan, Australia and UK.

    Restructure the board and bring in professional management.

    As a tax payer not willing to bail out a state owned airline any more.

  • 3
    0

    Rajeewa Jayaweera, Thanks for the insightful article.
    The airline has a flow on effect via tourist spend and so need not be very profitable on its own.
    Total privatization entirely Lankan owned or overseas owned and operated?
    Chairman Ajith Dias was quoted stating “A restructuring program of our own is needed, if there is no foreign interest in this airline……………..”.
    The notorious endemic corruption will deter foreign interest – unless corruption, nepotism and culture of impunity is bridled but this is impossible. Ajith Dias is showing interest in restructuring with him as the hub. What the hell was he doing all these days?
    The privatized airline must be literally private. Not the Avant-Garde model which had state backing – if there is a loss state bears it but the directors kept the profit! Or the way the armed services run their venture in hospitality industry – state provides the machinery, manpower and material but the upper echelons keep the profit.
    Gona be a futile search Rajeewa.

    • 7
      0

      Harry Jayawardena is the main contender being supported by 2 Japanese with wherewithal that can compete the Emirates who want nothing but full too. Being a close relative of both CBK and Ranil should not stop this man of some stature and cleanliness compared to the carpetbaggers.

  • 0
    1

    Rajeewa- If the table you have included above shows that tourist arrivals have not fallen post closure of the Rome, Paris and Frankfurt routes, it surely makes the even stronger case that closure of other Sri Lankan routes from major tourism markets will not cause a dent in tourist traffic, despite leading tourism leaders saying otherwise. Indeed one can only imagine that arrivals must grow if the Government decides on an open skies policy as is practised by many our of competitors. If this is the one major stumbling block to taking the obvious decision to close the airline, then there must be other reasons such as status, jingoism, political, jobs for the boys and girls, and personal that outweigh the burden of public debt to keep these planes in the air in the current livery. Havent we have proven beyond any doubt that we are incapable of running an international airline profitably, except for a brief flirtation with Emirates?

  • 5
    1

    So what is the difference between closing loss making Paris, Frankfurt & Rome and openning Melbourne soon?😁 historically Aussie (mostly multicultural migrants) favourite destination is Bali not Colombo but traditionally Sri Lanka attracts many European traffic not Aussies so seems another loss making route is on the cards!… further evidence of mismanagement or incompetent management.

  • 2
    0

    —- and stop corruption?

  • 5
    0

    As with many other state-run or state-owned institutions, Sri Lankan Airlines has been dogged by the dictates of impetuous secretaries of defence wanting their pets transported with hand-picked and inappropriate pilots (ie larger planes have different requirements of pilots), to chairmen wanting flight routes altered to pick them up after shopping tours and entire families of kith and kin, hangers-on of state presidents getting free trips (totalling several hundreds of free-loading scum on each trip) when the big chief is attending a business meeting overseas, unpaid airfares from government buffoons to drunk pilots disobeying landing and take-off protocols.

    In other words, UL has been abused like a common whore entertained at MPs’ official residences in Colombo. In that context, if the investments in the airline are to return profit, it has to be operated by a foreign entity who will not brook favours from political parasites that plague Sri Lanka.

    • 6
      0

      “”In that context, if the investments in the airline are to return profit, it has to be operated by a foreign entity who will not brook favours from political parasites that plague Sri Lanka.””
      every foreign entity so far has had to pay that kappama starting with malwatte and up to 10% or nothing takes place. Or else how do you account Lankas standing in world stage of corruption. Recently M/s Patel Minister for International Development UK (this itself is corrupted by moving with corrupt 3rd world) said there won’t be development AID unless the nation is prepared to trade back (that is hinting at low priced China) but the locals have wisened up and said all we get is corruption so please invest that £12 billion on the forces which has to go to America for training as it has no modern planes etc and others say deposit iti in the NHS. May is holding forth …let’s wait and see. India has refused UK AID as it has reserves but UK is force feeding it via state actors.

  • 3
    1

    $ 600 Million Dollars has been spent on drying out the up countryer’s water supply and take that water to Medamulana by Uma Oya Project. A crime of the century. That is a crime of the hell. This is how Old Brother Prince diverted Colombo water supply to feed his water parks too. But this is much more damaging to the poor estate workers. This may soon start to bring a chain reaction of mountain slides and new flooding zones. Foreign Expert’s opinions are being thwarted by inserting local engineers into those evaluation projects. In the history of Lankawe no investigation or commission reports are published. That is how the successive governments saves the previous governments’ frauds.

    Last time Mr.Modi opened a hospital for these workers. Soon after there were news that the patients beds, furnitures and medical instruments at the hospital has vanished and looted.

    Yahapalanaya is dealing everything through Secret Solutions to make sure that the Old Royals are not hurt or losing a penny in the court, but not minding the suffering of the common.

    The biggest employment opportunity in Yahapalanaya Government is only standing on the roads and fruitlessly protesting against a deaf and blind government for their amenities and for their basic rights. But the Yahapalanaya, while protecting all past criminal, it is also looting and up the last strorage, the Central bank. That is what the nature latest protests of Bandarawela.

    These individual deserve nothing but Thirukkai Vaal whipping.

  • 4
    1

    A ministerial bunch of empty headed pigs were surprised on the salaries and allowances of Srilankan Airlines board members and staff. These pigs have up to date failed to find a solution for the cursing issue of garbage , SAITM etc. These pigs think that they know everything under the sun and they will keep their mouths shut when commissions from the deals starts coming through to their pockets. Whatever these pigs say the present Chairman AND the CEO are very honorable people who will never bend their backs to corrupt politicians. Rajitha , well vidane etc want to see the end of the proud national carrier of the country by getting involved in its administration. Vel vidane is jobless. please find something for him

  • 2
    0

    Other than Sampanthar nobody else will but a Yahapalanaya’s Secret Solution. All Business Organizations have their evaluation methods. They are not interested in to undertake another one’s Uma Oya and make it profitable then the Joint Comedies now vigorously save by Yahapalanaya will come back and nationalize it. Where are those army commanders dismantle KKS factory and sold it old Iron merchants? Their national pride is preventing them to do the same job to Sri Lankan Airlines. ?

  • 3
    1

    Great contribution , time to privatise 100 % . Srilankan not the only problem in the country , one of many , no one cares to address the others , which are of a much higher magnitude . Several aviation experts commenting . New board and new CEO needed , perhaps Rajeewa Jayaweera as CEO ? No salary until he turns the airline around ? Time to understand how much he had in mind as his remuno package when he applied for the job .

  • 1
    0

    Still too many of you thinking SriLankan is a business – it’s not. There is nothing about it that resembles a business in any way.

    It looks more like a Mafia family – a dysfunctional one!

    The Corruption, Racketeering and Political Appointees infest this Airline like a cancer, from top to bottom.

    There is a culture of impunity and zero accountability – people do whatever they want because they know they can get away with it. The result is what we have now – complete Anarchy!

    There is no way to privatise this. I understand Aircraft are leased at above market rates for 12 years with no termination clause in the contract. Another one of these Aircraft arrived just yesterday and there are more to come.

    We are talking about several Billion Dollars in forward liabilities.

    Much better and a lot cheaper to declare bankruptcy and close this down imho.

    A new Airline can be started from zero with a much smaller investment and with the proper safeguards in place.

    The “profitability” plan is just the same garbage I’ve been hearing since the days of CEO Kapila Chandrasena (where is he hiding?).

    • 4
      0

      Well Dr Mahathir sold all those wide bodied to Tony Fernandez AirAsia and even baggage boys flew planes for it to grow as the leader of asia.
      Here’s how Tony Fernandes built a thriving airline with less than a dollar …AirAsia grow into Asia’s largest low cost carrier, flying approximately 45 million passengers a year to more than 80 destinations. AirAsia has grown from a Malaysian domestic airline to the largest low-cost carrier in Asia in terms of fleet size and passengers carried. The story of redemption has been truly exceptional: the budget airline has been named the world’s best low-cost airline for seven years in a row, according to the aviation ratings agency Skytrax. And what began with an initial investment of less than a dollar is now an airline group with a market cap of $2.1 billion.
      https://qz.com/539184/heres-how-tony-fernandes-built-a-thriving-airline-with-less-than-a-dollar/

  • 4
    2

    Negotiate with Harry Jayawardene and hand-over 55% to hi, retain 10% for the State and the balance offer in the CSE. H.J has PROVED his business acumen so go with him, NOT with foreigners who will only want their own interests of financial recovery many times over, as we saw with Shell Gas who, in that instance acquired a PROFITABLE venture!

  • 0
    0

    The only option would be to cut down on certain department’s which making a huge burden to the. Air line eg – Product Development
    Change of staff at Procument

  • 0
    0

    sell it , why we need this dinosaurs ,

  • 0
    0

    Harry J played out Sri Lankan while he was Chairman. He will take the treasury for a ride. He should not be allowed to be part of any state ventures.

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