28 September, 2020

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What Ails Our National Carrier – III

By Rajeewa Jayaweera

Rajeewa Jayaweera

Rajeewa Jayaweera

Details of the report of the Board of Inquiry (BoI) headed by Senior Lawyer J.C. Weliamuna is now in the public domain. It contains a sizable inventory of instances of mismanagement and abuse of position attributed to the former Chairman Nishantha Wickramasinghe and former Director/CEO Kapila Chandrasena ranging from irregular appointments and promotions, blatant external interferences and abuses, awarding of contracts without following proper procedures, matters related to Air Lanka Catering, politically motivated Advertising & Sponsorships, the failed Air Taxi Operation, an unaffordable re-fleeting program without being phased out, air-craft configuration and poor Corporate Governance. The first two chapters are dedicated to the recruitment, conduct and remuneration of former Chairman and former Director/CEO. Comments have been made of the former Chairman’s inappropriate interest in Cabin Crew and attitude of Head of Human Resources on sexual harassment.

At this point, the writer would like to go back in time to 1986 when President JR Jayawardena in August 1986 set up a ‘Presidential Commission of Inquiry into the Affairs of Air Lanka Ltd.’. The final report was submitted in April 1987. It was a thorough and comprehensive report delving into all major areas and highlighting the many instances of mismanagement and dereliction of duty by then Chairman and Board members.

Cover of Presidential Commission 1986The first Board appointed in January 1979 consisted of Chairman/Managing Director Rakitha S Wickramanayake who was a Pilot by profession, Secretary to Cabinet GVP Samarasinghe, Solicitor General VC Gunathilake, one time senior Civil Servant and UN Administrator Rajendra Coomaraswamy who passed away shortly afterwards and was replaced by ANU Jayawardena, a Lawyer and a Director of several leading companies in Sri Lanka and DC Wijesekera, a very senior Chartered Accountant and a former President of the Institute of Chartered Accountants in Sri Lanka. The Solicitor General resigned in 1979 and was replaced by Secretary to Treasury Dr WM Thilakeratne. The Government spared no efforts in providing then Chairman/MD assistance and expertise of some of Sri Lanka’s best in the fields of administration, law and finance.

The Commission’s investigation into the workings of Personnel, Finance, Flight Operations, Advertising & Promotions Departments and Computerization, Age Analysis of Trade Debtors, Salary Structures and Aircraft Acquisitions revealed administrative irregularities and financial impropriety of a very high level. The Chairman/MD and all Directors were required to appear before the commission with benefit of Counsel. The Commission found sufficient grounds to fault the Chairman/MD and Board of Directors of the manner in which they conducted the affairs of the airline and made strictures on their performance. The commission also made a series of recommendations, one being (9.2.2) “the two posts of Chairman and Managing Director be separated and Managing Director not be a member of the Board”. CEO being modern day equivalent of Managing Director, same would apply to the post of CEO.

The writer wishes to briefly compare one of the many issues dealt with by the Presidential Commission in 1986/7 with one of the many issue investigated by the BoI. The purpose is to highlight lack of progress in implementing sound Corporate Governance despite the lapse of 29 years. Both examples involve Procurements. The manner in which both issues have been disposed of underlines the similarity in mismanagement and dereliction of duty by both Chairmen and members of both Boards of Directors.

On 28 November 1984, Ai Lanka signed a Letter of Intent with British Airways to lease out the two L1011-500 at a monthly rental of USD 350,000 per aircraft. It was a straightforward deal between Air Lanka and British Airways. On 29 November 1984, a company named Aero Space Finance became a party to the transaction. The Board was informed by then Chairman/MD of a ‘Gentleman’s Agreement’ to pay Aero Space Finance a sum of USD 25,000 as a one shot payment for ‘services provided’, upon the successful conclusion of the lease agreement. Board approved the payment. The lease agreement was concluded on 12 March 1985 with the lease charge per aircraft being USD 350,000 for a period of three years. On the same date, an agreement was entered into by Air Lanka and Aero Space Finance to pay the latter a commission of half the amount in excess of USD 325,000 per aircraft during the lease period for ‘assistance provided’. The ‘Gentlemen’s Agreement’ to pay a ‘one shot payment’ of USD 25,000 payment in reality became an agreement to pay USD 900,000 over 3 years and was approved by the Board.

Below are some comments made by the commissioners on the performance of the Directors.

2.2.9 “The major shareholder of Air Lanka was GoSL. It is our considered view that the presence of the Secretary to the Treasury, Dr DM Thilakeratne and the Secretary to the Cabinet, Mr GVP Samarasinghe on Air Lanka’s Board of Directors constrained and inhibited the scrutiny of profitability and accountability that would normally have been affected on behalf of the major shareholder”.

2.2.13 “We have also come across instances in our examination of documents and in the evidence given before the Commission by Dr Thilakeratne, which compel us to comment on his own effectiveness as a Director of Air Lanka as well as a responsible Government official.

2.2.22 “When we evaluate the performance of Mr DC Wijesekera and Mr ANU Jayawardena as Board Directors, we find their presence had resulted in conflicts of interests to the detriment to the airline”.

The commissioners opined “combination of posts of Managing Director and Chairman of the Board resulted in the incumbent being in a position to control to a large extent the topics discussed at Board Meetings. With a submissive, although eminent Board, this control became absolute”. They further concluded “the high standards of integrity expected by Your Excellency and the Government from this eminent group of persons have not been achived”.

28 years after the 1986 Presidential Commission, the BoI headed by senior lawyer JC Weliamuna has completed investigating misdeeds of the former Chairman and former Director/CEO. The allegations of corruption and passivity of Board Members in both reports are similar.

Chapter 4 Section 4 of Weliamuna BoI deals with ‘Supply and Delivery of Wines and Champagne for on-board use” by M/s Phoenix, a company based in Canada. On 29 May 2011, the airline advertised Tender No 201130129. A 30-60 day credit period was required. Guidelines specified ‘offers not available during the public tender opening will not be accepted’. 46 local and international bids were received by closing date 15 July 2011. 17 Bidders were shortlisted on 16 August 2015. Sometime in August/September, M/s Phoenix (holders of contract to provide ‘Duty Free Services’) met former Chairman and former Director/CEO. A proposal followed on 14 December 2011. A Wine and Champagne Assessment was conducted on 27 January 2011 based on items submitted solely by M/s Phoenix. The selection panel had been chosen by Managing Director/CEO of M/s Phoenix and not by the airline. Wines and Champagne list submitted by M/s Phoenix was selected by the national carrier on 05 March 2012.

On 27 March 2012, former Director/CEO submitted Board Paper FIN 2012/03/18 titled ‘Award for the supply and delivery of Wines and Champagne for on-board use to M/s Phoenix’ and Board Paper no FIN2012/03/19 titled ‘Cancellation of Tender No 201130129 for the Supply and Delivery of Wines and Champagne for on-board use in order to source for vendor/s who could provide more attractive financial terms’. Both Board Papers received Board approval and M/s Phoenix, not in the original list of 46 bidders was awarded the contract on 27 June 2012 for the ‘Exclusive Supply and Delivery of Wines and Champagne for on-board use’. The BoI report refers to ‘gross suppression and misrepresentation of facts’ in Board Papers submitted by former Director/CEO and Head of Finance of the airline.

Unlike with the 1986 Presidential Commission, the BoI has neither questioned nor interviewed members of the previous Board. Besides former Chairman and Director/CEO, the previous Board consisted of Mr Nihal Jayamanne – PC, a leading lawyer, Chairman of Law Commission of Sri Lanka and of Seylan Bank, Mr Susantha Ratnayake – Chairman/CEO of John Keels Holdings and Chairman of Ceylon Tobacco, Mr Manilal Fernando – one time Chairman of Holcim Lanka and currently a Director of Aitken Spence Plc, Mr Sanath Ukwatte – Chairman of Mt.Lavinia Hotels Group, Mrs Lakshmi Sangakkara – Director of Peoples Travels and Mr Shamindra Rajapaksa – relative of former President. Since no information is available of any dissent to Board Papers FIN 2012/03/18 and FIN 2012/03/19, it must be assumed approval of both Board Papers submitted by the Director/CEO by those present was unanimous. It is left to readers to conclude if any of these Directors would approve board papers of a similar nature and in a similar manner in companies they hold substantial interests. Their passivity and submissiveness can only be attributed to the former Chairman’s family connections.

In both scenarios in 1985 and 2012, two aspects are identical. Firstly, Board Papers submitted by one time Chairman/MD and former Director/CEO seeking approval for transactions resulting in financial loss to the company. Secondly, the manner in which members of both Boards, despite their high standing, granted ‘Rubber Stamp’ approval to Board Papers resulting in financial loss to the company with scant regard to the trust placed upon them.

From the airline’s inception, some of the country’s top administrators, former Civil Servants, eminent Lawyers, Industry Captains including some from blue chip companies, one retired General, two retired Air Marshals and some political loyalists and lackeys have functioned as Chairmen and Directors of the national carrier. Despite some of the best brains in the country being involved, the airline has gone from bad to worse and continued to incur losses of Himalayan proportion.

Responsibility for corruption in the national carrier lies primarily with GoSL. Being the largest shareholder, GoSL is responsible for the appointment of the Chairman and Board of Directors. Most appointments of Chairmen and Directors indicate partiality towards political loyalists, cronyism and family connections rather than ability to make a contribution towards improvement of the national carrier. Bureaucrats appointed Directors fare no better due to their subservience to cabinet ministers. Such a group of persons whether Professionals, Bureaucrats, Businessman or any other are well aware that their survival as Chairmen and Board members is solely dependent on their willingness to carry out politically motivated and commercially unviable directives from their political masters.

The questions that begs to be answered are; firstly can GoSL manage an airline commercially viable and profitable manner and secondly does it have the will to manage an airline within the norms of good Corporate Governance or is it beyond its remit ? These are more fundamental issues that need be addressed than misdeeds of a former Planter and a Telecommunication / IT specialist of sorts with questionable academic and professional qualifications to manage an airline. Successive governments commencing 1989 have demonstrated their inability to appoint competent Chairmen and Boards to manage the national carrier. Further, Governments have repeatedly abused and misused the national carrier for its own benefit through politically rather than commercially driven policies implemented through subservient and submissive Chairmen and Board members willing to heed the government’s bidding for their personal gain. Unless and until the government of the day is willing to address these fundamental questions by appointing a Chairman and Board with requisite expertise, experience and integrity and empowering them to make commercially sound business decisions without interference, the national carrier will continue on its path of becoming a bigger burden to the exchequer and tax payer.

Opportunities for misuse by GoSL reduced drastically during the period 1998 – 2008 when Emirate managed the airline but resumed in April 2008 after the departure of Emirates management.

The BoI had a much shorter period for investigations than the 1986 Presidential Commission and faced a time constraint. One aspect not investigated is the critical examination of the viability of the routes added during last five years. A case in point is government directives to operate commercially unviable flights to Mattala, Rome and Moscow. An examination of individual Board Papers and related feasibility reports would have divulged the justification or lack of it for such operations. This would rightfully fall under Chapter 5 in BoI Report – Instances of External Interference and Abuse, as these were politically motivated operations/routes.

It is too premature to predict if the current administration will continue the practice of abusing the national carrier. It is also premature to predict if the current Board will follow a policy of good Corporate Governance. According to the BoI Report, appointment of a Director as CEO is a violation of Article 82 of the airline’s Articles of Association. It is hoped for the sake of good Corporate Governance, the current Chairman will take note of contents in Pages 20/21 in the BoI Report and initiate steps to replace the recently appointed Director/CEO with an aviation professional without delay after advertising the post both locally and internationally and/or by way of Head Hunting. It is also hoped that the current Board of Directors will function with the best interest of the airline at heart, will not subvert principles for private gain and refrain from rubber stamping board papers without evaluation. Let it not be a case that five years hence, yet another Commission will be required to investigate allegations of mismanagement and corruption of the current Board.

*The writer worked for SriLanakn Airlines and Qatar Airways for over 20 years

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Latest comments

  • 0
    0

    Who is the present Minister responsible for the Sri lankanair lines ?

    Did he contact any of these writers, in here, who wrote about wastage, corruption, womanization by top bureaucrats ?

    did he make any any statements about this airline ?

    Or he is another DUMB – Sloth who does not know what to do. So, he keeps his mouth shut.

  • 3
    1

    JS

    The reality is that Ranil is running Sri Lankan from behind the curtain. His close pal was appointed Chairman by Ranil.

    Mustapha was jettisoned as the minister-in-charge by Ranil (to enable him to appoint his pal) and then passed the ball to Ranatunga. Now he has brought in another player Reginald Cooray to the same subject to obfuscate matters further.

    Everything else is smoke and mirrors!

  • 0
    0

    Does Sri Lanka have the laws in place to prosecute corporate negligence? If so-called businessmen and women simply occupy positions to enrich themselves and their firms, there has to be consequences when they have knowingly facilitated corruption.

    I joined Mackinnnons a year after Susantha Ratnayake was recruited as an Executive Trainee. He [Edited out]. Over the years I have observed his rise up the ranks. Kudos to him for managing his meteoric rise up the ranks, despite lacking qualifications. Today, he might have a couple of degrees hanging on a wall somewhere. They did not come from sitting in a lecture room at a recognised university anywhere.

    When Mr.Ratnayake was Director of Mackinnon’s Travel [Edited out]

    Compare this example to the boards of ANY Indian multi-nationals or conglomerates. Even where families like the Ambani’s, Hinduja’s and Tata’s hold sway, their off-spring have received an excellent education from premier universities and business colleges.

    There is a value to real education. Those who dismiss it, are ones who do not even have the basics. It is time the SEC enacts requirements about a minimum qualifications standard. And, it better not be the one year MBA standard with just 2 passes in A/Ls. How did we allow MBA’s without a 4 year Bachelors in the first place??

  • 0
    0

    Rajeewa should be commended for a well researched article which highlights the challenges that are faced by the Authorities in trying to remedy(if willing) the pathetic situation that SriLankan is currently bogged in.However looking at the present Board of Directors and their pedigrees it may very well be a lost cause.If there is any valid reason for this country to have an Airline of its own,then let it be managed by the Private sector.

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