By Rajeewa Jayaweera –

Rajeewa Jayaweera

According to a circular received by all staff of SriLankan Airlines, based on a recommendation of the Sub-committee on Economic Affairs, the government has decided to handover ground handling activities at Bandaranaike International Airport (BIA) to Airport & Aviation Services Ltd. (AASL), operators of the Colombo and Mattala International Airports. Ground Handling Services, hitherto handled by the national carrier SriLankan Airlines includes handling of Passenger and Cargo related services at the airport for all carriers operating into BIA. Sri Lanka’s different national carriers since independence have held a monopoly in ground handling.

According to the circular, employees of the national carrier currently involved in ground and cargo handling (Terminal, Ramp and Cargo staff amount to around 2,550) along with all assets and liabilities if any in respect of Ground Handling will be transferred to the new company. Employees have been informed, the employment terms and privileges of those transferred will remain unchanged. The new company will be a Joint Venture between AASL and SriLankan Airlines. Whether equity contribution by loss making SriLankan Airlines will be by way of transfer of equipment or include capital infusion is not known.

In a separate development, it is reliably learnt, a delegation from the largest handling agent at Dubai International Airport, DNATA, had visited Colombo last week for discussions with AASL.

With the advent of deregulation in the 1990s, most countries privatized their national carriers and opened up ground handling, engineering and catering operations to private companies. Privatized airlines too were permitted to have their own handling arms thus competing with private handling companies. The resulting competition ensures service levels far superior to those provided by national carriers in a monopolistic environment. In a few countries especially in South Asia, national carriers remained state owned and retained a monopoly in these fields especially ground handling, which is a cash cow.

The national carrier’s net income over expenditure derived from ground handling services also known as Airport Services amounted to USD 38.6 mil in 2015/16 and USD 28.6 mil in 2014/15 which no doubt lessened the impact of negative figures in the carrier’s balance sheet.

As a result of the decision by GoSL, SriLankan Airlines will lose a percentage of its net income, proportionate to the equity holding of AASL in the JV, which is to yet to be announced. Other players may become shareholders at a later date.

The benefit of this exercise to SriLankan Airlines would be the reduction of its staff strength from its current level of around 7,000 to around 4,450.

Yet another possibility is the parcelling out of the engineering division to the private sector.

GoSL has also announced its intention of converting the national carrier into a public-private enterprise. Towards this end, preparation of Request for Proposals (RFP) is currently underway. A 35% reduction in manpower would no doubt be viewed favourably by prospective investors.

However, any serious investor, during the processes of a due diligence would notice the absence of the lucrative ground handling services hitherto enjoyed by the airline. It could result in diminishing both the bid price and sale price of the airline.

A deputy minister recently stated GoSL was in the process of ‘dressing up the bride’ (Sri Lankan Airlines) prior to being given away in marriage. On the contrary, parcelling away ground handling services amounts to undressing the bride prior to being given away in marriage. The bride with lesser attributes would be less attractive to prospective suitors.

SriLankan Airlines is yet to announce its annual report for 2015/16. A loss of USD 120 mil from airline operations is anticipated besides a 3.7% drop in revenue compared to previous year. Based on unaudited figures, the airline in a media release stated “the addition of capacity to the Colombo market by other airlines, accompanied by a dramatic drop in airfares in certain markets, largely contributed to declining revenues. The performance was further impacted by the depreciation in the exchange rate compared to the previous year.” These factors had supposedly negated the substantial advantage resulting from the drastic decrease in fuel prices.

A little over 80% of passengers carried by the national carrier are third and fourth freedom traffic, which is point to point traffic travelling to and from Colombo to / from other destinations. The responsibility for additional capacity in the Colombo market and dramatic drop in air fares to Colombo in certain markets, especially Europe and Middle East lies squarely on the shoulders of the national carrier’s major shareholder, GoSL. This sorry state has arisen due to the lack of a coherent and well thought out national aviation policy and the ad hoc granting of traffic rights based on vested interests and whims and fancies of past and present inept leaders.

Countries such as UAE, Qatar etc. despite their small home markets are governed by competent and dedicated leaders and are able to sustain an open sky policy and yet have airlines able to compete globally with success. Their airlines are professionally managed and are commercially driven.

Sri Lanka on the other hand has its inherent weaknesses such as small market size, backward economy, an extremely price sensitive travelling public, a laid back labour force accustomed to working less than half the year to name a few. These factors are further compounded due to the national carrier not being managed professionally and being politically driven.

The decision to hand over ground handling services to AASL which comes under the purview of the Ministry of Transport & Highways is rumoured to be part of political horse trading.

Our leaders failed to develop a bi-partisan national aviation policy to prepare the country to meet the challenges of deregulation taking place elsewhere in the world, commencing early 1990s. Instead, Sri Lanka continued with the dying concept of a ‘national carrier’ and kept underwriting the carrier’s losses it could ill afford. At the same time, traffic rights to foreign carriers were granted liberally without any consideration of its impact on the national carrier. The two policies were contradictory.

The undercapitalized and poorly managed national carrier was no match to carriers such as Emirates, Qatar Airways and Etihad to name a few.

It is hoped GoSL even at this late juncture will develop a sustainable aviation policy based on what is best for the country. If it is the contention of GoSL Sri Lanka does need an airline, it must necessarily be privately owned with the state as a minority shareholder. Considering the traffic rights already granted, such an airline will need a certain degree of protection, from the state, especially in its formative years. The other alternative would be to have no airline and open our sky to all airlines who wish to operate to this country.