4 December, 2020

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What’s With 2015/16 Annual Report Of SriLankan Airlines?

By Rajeewa Jayaweera

Rajeewa Jayaweera

Rajeewa Jayaweera

Almost nine months since the end of the 2015/16 financial year, the national carrier is yet to publish its Annual Report. Therefore both, shareholders and tax payers are at sea of the airline’s performance during the last financial year.

A media release in October 2016 was followed by a Press meet by the Chairman and CEO. The media release stated “In the Financial Year ending 31st March 2016, the airline recorded a significantly improved performance compared to the previous year”. It further stated, “At the end of the last financial year, without the ‘one-off’ payment relating to cancellation of the lease of one A350 aircraft, the airline’s Group Loss stood at LKR 9.03 billion, which represents a 45% improvement for the 2015/16 financial year compared to the previous year. The net loss after taking the ‘one-off’ item into consideration (Rs 2.56 billion) is LKR 11.59 billion, compared to the net loss of LKR 16.33 billion during the previous year”.

Announcements regularly refer to ‘Company Losses’ and ‘Group Losses’. The current Board and CEO undoubtedly cannot be held responsible for the monumental losses accrued over 35 years.
However, a yardstick which could be utilized to evaluate the success or the lack of it by an airline during a given financial year is the profit or loss resulting from its core business operations. Even though performance in core business operations is generally not referred to, it is a useful yardstick to gauge if an airline with a loss-making history has affected course correction.
Core business activity of an airlines is ‘Passenger & Cargo Transportation, carriage of Mail & Excess Baggage, ad hoc flights (charters) and Frequent Flyer net accruals. Ancillary activities such as Ground Handling, Engineering Services, Duty Free Sales, Catering, Training Centre etc. do not belong to core business activity.

Debt servicing charges, USD 17.7 million. (Rs 2.56 billion) paid for the cancellation of one A350 aircraft etc. has no relevance to the airline’s core business operations. They, along with revenue and related expenses of ancillary activities belong to the net profit / loss of the company.

In 2015/16, revenue from core business operations has dropped by 8%, losses in core business operations has reduced by 33% and Fuel Costs have been 41% less than previous year. Here is the rub. Aviation fuel costs are directly related to the airline’s core business operations. Notwithstanding a 33% reduction in losses in its core business operations and 41% reduction in Fuel Costs amounting to over USD 150 million from previous year, the airline failed to record a profit from its core business operations in 2015/16.

The losses in core business operations during 2015/16 includes a 7% drop in Passenger Revenue and 15% drop in Cargo Revenue from previous year. The reduced revenue need be attributed to the Sales and Marketing strategies and efforts of the present team. In this backdrop, the self-gratifying claim in the October media release ‘In the Financial Year ending 31st March 2016, the airline recorded a significantly improved performance compared to the previous year”, cannot be sustained. The current Board of Directors, the interim CEO and current CEO need be held accountable for the airline’s losses in its core business operations in 2015/16.

The current Board of Directors were appointed commencing January 2015. A board member who had previously worked for Air Lanka in mid 1980s in charge of Duty Free operations not related to the airline’s core business functioned as CEO, in total violation of the company’s Articles of Association. The current CEO, a pilot by profession and zero relevant management experience came on board in October 2015. It is pointless to whine of the “benefit of lower fuel costs being significantly eroded with the airline’s declining revenue due to the addition of capacity to the Colombo market by other airlines and a dramatic drop in airfares in certain markets”. Air Lanka / SriLankan Airlines operated for over three decades under similar conditions. This Board and CEO should consider themselves extremely lucky they did not have to contend with very high fuel costs as done by many previous boards and a civil war impacting tourist arrivals and air fares negatively.

It must be noted, most major operating expenses such as Fuel Costs, Aircraft Lease charges etc. are incurred in USD and not Sri Lankan Rupees. Currency loss as a result of the depreciation of the Sri Lankan Rupee has no bearing when evaluating performance in USD.

The October media release also referred to “Stringent cost controls underscored by heightened accountability and transparency have been cornerstones of the new strategy”. Yet, the carrier’s modus operandi reflects otherwise. For example, the discontinuation of unprofitable European routes was first proposed sometime in the first half of 2015. Operations to Rome ceased in May 2016 whereas operations to Paris and Frankfurt did not cease till end October 2016. Even though flights to Paris and Frankfurt ceased in end October 2016, both offices continue to be in operation today. French and German staff were not issued termination notices till a few weeks ago. Meanwhile, a high-powered five-member team consisting of Head of Human Resources, Head of Group Legal Affairs, Group Legal Affairs Manager, Performance Management & Administration Manager and Regional Head of Europe & Americas paid two visits to Paris recently to sort out termination issues of French staff. It is indeed a strange form of ‘stringent cost controls’. However, judging from the number of participants at the ‘Hospitality Suite’ at Lords cricket grounds last summer, the culture of ‘group travel’ on company business seems to be contagious and prevalent from top down.

It is relevant to refer to a similar exercise during the Emirates management era. The Colombo Airport was attacked by LTTE in the early hours of July 24, 2001. Four of the fleet’s twelve aircraft were destroyed and two others badly damaged requiring months for repairs. By August 01, a decision was made to discontinue eleven stations which included Amsterdam Berlin, Frankfurt, Milan, Rome, and Stockholm in Europe, besides a reduction in weekly flights to London from 13 to 7. Operations to Milan, Rome and Frankfurt continued till mid- September due to prevailing peak season and inability to obtain seats from other carriers for the carriage of ticketed passengers. Flights to Paris was suspended from 25 June till mid-September due to lack of aircraft time and resumed subsequently. Flights to Amsterdam, Berlin and Stockholm were discontinued from 25 June. The speed in decision making was commendable in comparison to more than one year required by the current board to decide and implement discontinuation of three stations considered economically unviable. Staff compensation and office closures in 2001 was handled by a team of two, an Emirates General Manager HR from Dubai and Snr. Manager HR from SriLankan Airlines in Colombo. Suffice to state, they completed their tasks and all foreign staff in said countries were compensated and terminated by end September 2001. Only the Managers in respective stations remained in the capacity of liquidators. Labor regulations in Germany, Italy, Netherlands and Sweden at the time were as complicated as current labor regulations in France and Germany.

The laid back and inefficient decision making process, may it be investigating the wrong doings in the airline highlighted in the Weliamuna Report, discontinuation of unprofitable routes, publication of Annual Report for 2015/16 or keeping shareholders informed of the inordinate delay in publishing the annual report seems to be the national carrier’s current management style.

On a personal note, this writer wishes to declare of having applied for post of CEO in June 2015, long after the commencement of the publication of a series of articles titled ‘What ails our national carrier’. The Chairman, in his interview to the Daily FT on August 11, 2016 referring to critics including former employees has stated “the most vociferous is the one about 55 who applied for the post of CEO, but was not even shortlisted. I can only assume this had not gone down well and is the source of many distorted and untruthful allegations about me and the senior management”. Not being ‘about 55’, the cap does not fit the writer. Suffice to state, the insinuation is typical of the mindset of those beholden to politicians for their positions rather than professional qualifications and experience.

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Latest comments

  • 4
    2

    Almost 2 years have passed and putting right of at least some of the findings of Welimune report are eagerly awaited.
    The present administration who are also nearing 2 years in office cannot continue to tell stories. Finally, it is the ordinary tax payers in whatever form has to face these burdens as well.

    Time is ripe to act and something dramatic to be done.

  • 3
    1

    The current Srilankan formula of Chairman – Jungi Mudalali – Cofee shop owner + CEO – No Management Expirience = a ready recipe for disaster in this once promising enterprise.Soon Srilankan will go the way of good old Air Ceylon at this rate.The moment employees ( Pilots and senior management) begin to enjoy for free amenities such as the Buissnes Class lounge and Buissness Class travel for Free ,something that that is the entitlement of paying passengers, what more can you expect but disaster.

  • 1
    1

    The Day SriLankan goes the way Mihin had is what most of Sri Lankans await.With the new Investor(including a prospective Joker) it should not be that far away

  • 1
    0

    Sri Lankan has no future but we need to keep it going to keep ticket prices in check.

    A strategic partner is a must and management control should be handed over so that proper commercial decisions world be made rather than political decisions.

    There is no doubt Sri Lankan is losing ground to the middle eastern airlines and South East Asian airlines. Sri Lankan performance is always blurred due to ground handling and catering operations. Happy to note that both divisions will be carved out going forward to expose the bleeding of the passenger and cargo business.

    The inflight service has deteriorated over the years and deportment of cabin crew staff is also downhill. Until recently the take home pay of a cabin crew was approx Rs 500,000 per month with allowances. Pilots are also overpaid with most of them being in the range of Rs 1-2 million per month and the argument being foreign airline pilots are being that amount!! With Paris and Franfurt being closed down the overpaid A 330 pilots are now being asked to fly the narrow bodied A320 aircrafts and they are very unhappy.

    As long as Sri Lankan is owned and managed by the Government, it will never get out of this black hole !!!

    Credit for this government for closing down MIHIN.

  • 2
    1

    The only logical reason for not publishing an Annual Report is that something is being hidden.

    The only thing that makes sense is that the financial results are not what has been publicly stated.

    According to Reuters the A350 cancellation cost U$170 million – a much higher figure than what has been published in the Sri Lankan papers.

    That’s more liabilities for the Sri Lankan people.

    It also appears that the lease rates on the entire fleet are too high.

    Still no word on what happened to the commissions on the U$2.3 Billion aircraft order – U$100 Million +

    Some people made a lot of money on this deal.

    No investigation – no accountability.

    @Rajeewa Jayaweera

    Keep asking the tough questions. The fact that you are being attacked by the current UL Management indicates you are getting too close to the truth.

    Time to drain the swamp!

  • 0
    1

    Should be sell it outright,keep the BIA good revenue for govnt.
    BA is pvt ltd co British govnt don’t own them,doing very well,

    As long as creating jobs for the local and ban the foreigners take employment,some one mentioned here that nearly 1000 Chinese working in Colombo port,why are we short of workers here,even for hambantota port jobs should only for Sri lankans apart from director or above.

    Land rover/jaguar sold it to Tata but condition was not shutting down British plants,safeguarding the jobs.

    Indians may do the same open up a hospital then doctors nurses porters ,,,,all from India.

  • 0
    1

    This Annual Report can be “bisected” in any way and argued for and against the facts presented. The question is: Will that in anyway SOLVE the problem that we have been made to inherit viz the colossal indebtedness to the country. In the way that this entity is currently managed, there is nothing to see at the end of the tunnel. The whole trouble, as I see, is this newly downed “Management Culture” introduced by the previous Regime and very piously continued by the present Regime, in that, the “Culture” of Beg, Borrow and Steel. Unless and until we relinquish this hypocrisy, not only this entity, but all other Public ventures cannot be resurrected. There must be a complete CHANGE in the system of Management, especially devoid of Political interference and introduce a No Nonsense style. If that changed culture is not introduced, we will for ever and ever bisecting, analyzing, faulting without reaching the desire goals.

  • 0
    1

    Who is abusing the power to cause this corruption?

  • 1
    1

    Excellent article by a person who knows the actvities of the inside and outside of the Airline.
    I am a believer that History repeats.
    During the King Rajasinghe 1, time, having killed his own father, king had
    very disturbing nights.
    To sort out king’s malady some cunning guys came from Kerala and suggested to the king to perform a great Pooja, near Kelani River.
    Having no other solace king facilitated the Pooja.
    The guys who started the Pooja did not know what they were doing.
    So they appeal to the Gods.” RAJA HO , GANGA HO OR MAA HO.LITERALLY MEANING EITHER THE KING SHOULD DIE , OR THE RIVER TO OVERFLOW AND DISTROY EVERYTHING OR I SHOULD DIE.
    The present Srilankan Board is like the guys came from Kerala, do not know what they are doing.

  • 0
    1

    Rajeevas article presents an in-depth Analysis. Account statements can always be glossy, and far from truth, but such analysis unfolds what a non-accounts person will not see. Sri Lankan should respond. People who approves such accounts should be aware, that they are answerable and responsible. This Airline should be saved, once it was a threat to many Airlines. Are we going to accept theres no one in this Country, to turn this business round…?

  • 2
    0

    Rajeeva Jayaweera is a liar, in Germany the result of the ‘two member’ team which included his since jilted lover was that all staff ended up in courtsThe airline paid them in millions year later. Ask Jay, Susi, Hiran, Pradeep….So much for speedy decision making. France was never closed, the employees in France as all long serving, some as long as 30 years, the imbecile ought to know, he was the manager there, thanks to Wimala Akka and Seelan boss.he should know As much as I hate current Head of HR at least they travelled there for meetings legally required and it was no holiday. All returned same day or next day. Less hate Mr Loser, no one in the right mind would have appointed you as CEO of the airline, Capt Suren with all his faults is not a gold digger

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