Is this the end of SriLankan Airlines?
SriLankan Airlines’ 2009 Annual Report contains a query from the company’s auditors regarding the viability of the airline. In the face of what is effectively a Rs. 10 billion loss Ernst & Young have expressed “doubts that the company (SriLankan Airlines) will be able to continue as a going concern.”
Figures in the 2009 Annual Report reveal that the company’s liabilities now exceed its assets by an extraordinary Rs. 8,159 million (Rs. 8.1 billion).
A drastic reversal of the situation just a year ago when the airline’s assets exceeded its liabilities by Rs. 3,074 million.
The turn around from Rs. 3 billion in the black in 2008 to Rs. 8.1 billion in the red in 2009 represents a Rs.11 billion year on year decline in the position of the company’s assets — a 100 million dollar change of fortunes.
A colossal loss by any standards but crippling for a small third world airline.
Even allowing for the generally difficult conditions faced by airlines worldwide as a result of the global economic crisis the situation at SriLankan Airlines is exceptionally dire.
Company’s viability
That the company’s own annual report expresses remarks from auditors questioning the company’s viability is an indication of just how critical the situation is at the national airline at present.
The survival of the nation’s flag carrier established as Airlanka in 1978 is now in doubt.
But how could what appears to have been a healthy profit making company in 2008 have become a loss ridden hulk in the space of a year?
Who could possibly be to blame for mismanagement on such an extraordinary scale…
Of course the immediate responsibility for the airline’s losses must fall on the shoulders of the company’s CEO Manoj Gunawardene and the government that recklessly took the decision to expel Emirates under whose management the airline appeared to be functioning profitably.
However while the current management and the Rajapakses administration have certainly played their part in the mismanagement of the airline the reality behind the catastrophe at SriLankan airlines is not quite so simple.
Emirates Airlines responsible
Many insiders in fact hold Emirates Airlines responsible for the present state of the airline.
After its effective takeover of SriLankan Airlines in 1998 Emirates is accused of running the airline extravagantly, making no attempt to cut costs while turning apparent profits by selling the airline’s assets including aircraft, spare parts and even extra engines.
It is claimed that Emirates recovered the value of its original $70 million investment in Sri Lankan in less than a year and subsequently continued to extract profits by selling additional assets.
Even during 2001-2007 period during which the airline seemed reasonably stable insiders claim that Emirates continued to spend recklessly and that the airline survived financially only as a result of the massive, several billion rupee, insurance payment Sri Lankan Airlines received after the attack on Katunayake Airport.
The fundamental accusation is that Emirates consistently turned profits only by selling assets and effectively exploited SriLankan Airlines in order to make a significant profit over its $70 million investment. It is also alleged that the salaries of senior management staff during the Emirates era were paid by a third company in such a way that there was no transparency regarding the wage structure at the company. This practice of payments through a third party in order to conceal the full value of the payments received by higher management is said to continue today.
Haemorrhaging money
The reality therefore is that SriLankan Airlines has been haemorrhaging money for years and the impressive profits turned during the period of Emirates management were only achieved through the sale of assets.
By the time the airline balance sheet began to look less healthy in 2008 (when Emirates was kicked out) Emirates was able to blame rising fuel costs for the deteriorating finances, though in reality over staffing, limited automation and poor route rationalisation were the principle factors behind the airline’s losses.
However once Emirates was evicted from the management of the airline the situation at SriLankan Airlines far from improving only got worse.
Severe over staffing — a staff of over 5200 staff for a fleet of just 12 aircraft has left the airline bearing an exceptionally high cost per air mile flown.
Industry average
SriLankan Airlines employs approximately 400 staff per aircraft while the industry average is closer to 100.
By comparison Kenyan Airlines, the flag carrier of another developing country and an African success story employs just 4000 staff and maintains a fleet of 22 aircraft.
As a result of its exceptionally high costs the airline launched a cost cutting programme, however rather than shed staff — a politically charged issue particularly as SriLankan Airlines is stuffed with various political appointees and cronies the management attempted to reduce overheads by rationalising the airline’s route network.
Flights to several less profitable destinations were stopped. However as this rationalisation was not accompanied by any downsizing the airline’s financial situation only deteriorated further.
Operating fewer routes
SriLankan Airlines was operating fewer routes and flying fewer miles but maintaining its previous staff levels.
As routes and flights had diminished revenue streams declined but expenses remained the same on account of the bloated staff.
Ideally aircraft should spend 14 hours a day in the air — which allows for optimum revenue generation, after cut backs SriLankan Airlines’ aircraft were spending just eight hours a day in the air.
To make matters worse once management of the airline reverted to the government from Emirates, matters that had been rectified through the expertise of a major international airline — food, service, punctuality soon returned to their pre-Emirates state.
UL —‘Usually Late’ began to apply again and services declined with passengers complaining of shoddy treatment and unpalatable food.
Skywards rewards system
The loss of the Skywards rewards system which allowed passengers on SriLankan to claim air miles they could use anywhere on the vast Skywards network was another setback.
Worst of all flights began once again to be diverted and delayed to accommodate ministers and government officials.
While standards dropped however the airline’s oversized staff prevented SriLankan from reducing costs and ticket prices remained high.
SriLankan Airlines ticket prices for a range of destinations in Europe and East Asia were higher than competing airlines operating the same routes yet its service was now markedly inferior.
Flying SriLankan Airlines therefore meant paying more for inferior service and regular delays.
As fewer people chose to endure the poor service occupancy at the airline fell still further and profitability plummeted.
High costs, and poor service lead only to further falls in demand, creating a cycle of diminishing revenues which added considerably to the woes of an airline already reeling from the dual blows of the financial crisis and high oil prices.
Airline’s effective destitution
Ultimately the blame for the airline’s effective destitution lies with Emirates but also with the current management who failed to implement vital cost cutting measures.
Fundamentally the airline’s current management has failed to define a vision in terms of how it intends to take the airline back to long term profitability.
The government of course is also to blame particularly for treating the airline as a personal plaything of the country’s leadership rather than a genuine national airline run for and in the interest of all the country’s people. The fact that the government has continued to flirt with the empty prestige of Mihin Airways instead of making a sincere effort to address the problems of the nation’s only real airline is almost criminal.
However apportioning blame for the effective failure of the airline is simply irrelevant at this juncture when the nation faces the real challenge of keeping the national carrier alive.
The priority now is retuning the airline to a state of financial stability if not profitability.
While the idea of national carriers has become somewhat outdated with several developed countries — Switzerland for example — allowing their national carriers to fold the reality is that Sri Lanka simply cannot function without SriLankan Airlines.
this is a shame
sajin, manoj gunawardenas are the traitors
they and there suwaris families are making millions
manoj was only a sales person how did he become a ceo
The country is being ruined in every way due to sheer incompetence of the govt. who doesn’t care two hoots.
It is the same Sajin who ordered to spend Rs1400 million on MR’s 5 day joy trip who was the previous CEO. These are the culprits with no proper accountability and who’s sole purpose is to keep the Raja clan happy while letting the country bleed to death. The vast monies they have accumilated from govt. corruption is being used to buy politiciens to be yes men to keep Raja in power.
Every national institution is being ruined and run at a loss. Last year losses are ( billions)- Sri lankan 9.98 Mihin air 3.8 Electricity board 39 Ports authority-3.5 Petrolium co-op 7.1 Road development authority-9.9
etc.
Almost all are headed by presidential henchman and family. But who cares… they are getting richer….. that is the most important thing !!!!
The hora thakkadi vas gunawardena brothers. Is the Prez so blind that this family is thieving the country in to bankruptcy? How about the father ah..he was the chairman of Lankaputhra bank when sajin was ceo Mihin. Don’t forget the Rs.300 million loan the father gave to son from Lankaputhra bank..the taxpayers money..all gone now-in Sajin’s pocket.
MANOJ AND SAJIN ARE RICH POOR AIRLINES ARE POOR
why is sajin so popular with prez – is he bringing girl friends and a pimp
Sajin Vas Gunawardene may be a pimp, but more importantly he may be distributing what he robbed from various governmental establishments amongst Sahodara Samagama. Don’y you know, equel distribution of national wealth?
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Sri Lankan will be something in the history soon. The brothers Inc have taken this national asset as their inheritance and destroyed one of the profitable ventures in the Island.
The county do not have any future without a UNP Govt. as things are falling down like a pack of cards.
Quite true, if UNP govt. prevailed in the country, Prabhakaran would have been the king of Sri Lanka not MR.
With that sort of vibes you called yourself a ‘Dr’? No wonder the country is in such a mess. You can’t always blame politicians when the so called educated worship politicians one way or the other.
Ruwan… in the first place I cannot understand why you don’t start from the top. When the top are rogues , thugs and corrupted what do you expect the others around them to be. MR & family loot today could be expressed as a % of GDP or nations debt. Time will come when all of them should be stoned or hang in Galle face green.
In any country the democratically elected leader has the responsibility of managing the country, the people and its resources effectively.He is accountable for the overall management.I n Srilanka the elected leader “OWNS’ the country, and its resources. By Virtue of OWNING the country, he does not have manage the country and its resources. He can do anything that he wants. Mihin and Srilankan Airlines are now owned by the leaders, so they can do everything unrealistically, Quite unfortunately the people in srilanka have not understood the difference between a leader who can manage a country and a leader who owns the country. This is the grand result of revoking English from the constitution, now people are forced only to think with a regional language, which has no international significance or competition. So will be our governance of the country – Sorry where there is governance, when someone owns the country ?
It is so sad that a very pragmatic leader like HEP Mahinda Rajapakse who had served the country with vigor and honesty in the past; after becoming the CEO of the country had allowed very cunning opportunistic people like Sajin and Mervyn t to hoodwink him with their flattery and ego boosting ventures which are ruining the country’s assets. As The head of state when a national carrier fails or are forced to close it is the leader who have to take the responsibility by allowing nincompoops to run the show and the looser will be not only the citizens of Sri Lanka but also the Head of state himself as people will very soon forget the gratitude they have shown for destroying the LTTE. It is high time HEP showed the way out to those controversial figures and start looking for efficient qualified people and start making some prudent,decisive some times may not be pleasent decisions, to pull the country back from the dire straits it is in now and allow the savings from the defence expenditure and funds acquired by other means to trickle down to the masses and enrich them in order to make the economy viable by increasing their purchasing power. I write this hoping this will serve as an eye opener to HEP as I am one of those who really appreciate the service he rendered to the nation by liberating us from the clutches of ruthless terrorism.
Agree in toto with Ravi. It’s just a total mismanagement and ripoff by ‘friends of the family’. Instead of installing capable persons in management who have proven themselves in their fields, the home-spun econ masters in the GoSL puts a sales rep as CEO ! The management team of Pilots are the same jokers who were playing ball with the Emir not so long ago and their true loyalty is with Peter Hill and the Emir. Also heard recently that several Sri Lankans pilots with a huge amount of experience are kept unemployed at home while some 40 odd expatriates are being protected at high expence to the govt and the people of Sri Lanka. What economics is this? This is stupidity and no other country would dream of doing such things. Someone making a buck somewhere for sure !
the whole blame goes to former lady president of the country.
Obviously the Finance Minister who is also the self made KING is too busy traveling the world with his henchmen while the kingdom is crumbling, even after winning the war! Operation successful but patient died????
Not dead yet! But will be in five years time! Slow death!
In the eighties,the Board of Management of the airline,passed a unanimous resolution that enabled all of them and their family members,free air tickets each year,for LIFE !
They and their children were already availing of free trips yearly,but only until they remained board members.
This shows how taxpayers’ money was spent by political psycophants a.k.a board members as if it was theirs.
Later this decision was rescinded,but the mentality remained.The demise of the airline was more due to over recruitment of staff than any other reason – like in most other state enterprises.Of course Emirates had to recoup its investment,but the airline was run into the ground by malpractice and overstaffing.
Compare Singapore Airlines which became a leader in the industry due to efficient management and fiscal/personal discipline.
Even now the reports on state enterprises by the auditor general conveyed to the Committee on Public Enterprises lie ‘buried’. tThe chairman of COPE resigned in disgust.
Justitia,
One guy attended an interview at Srilankans and they have promised with 5 free Airtickets. I think it is still they are practicing the same. Think about this 5200 staff x 5 tickets Each year = 26000 Tickets. Each ticket 30,000LKR means LKR 780,000,000 (Man….. it is 780 Million). It is just one way of draining the resources!
Don’t worry in the feature we will go true the boats. And we also do have a good airline call the MIHIN AIR where you do not have any food or drinks, So i wish all the srilankans a good feature, Till the RAJAPAKSA brothers are there nothing will go right, So if all of you srilankans want to have a good life you need to kick the RAJAPAKSA family out if the country, But where can the rajapaksa brothere go they have no place to go ,
Well there is always hell waiting for them!
Sri-Lanka a small miracle & a big debacle!
Its a fact that Rajapaksas and their henchman like Sajin Vaas robbing the public funds and organizations in broad daylight and government propaganda machiene spearheaded by “Lemon puff” Weerawansa is telling us to work hard in order to develop the country.
If this pachawansa can reduce even half the waste and corruption led by ruling and the party members that dream could be achieved without much trouble! within 5 years!
Bravo! The credit goes to one and only MR, who sacked CEO Peter Hill dispute of his personal trip to London. Dont worry Mihir air making millions on daily basis, we can settle SLA debt. Well done MR. President, keep up and continue your hard work until Lanka become another Somalia.
oh noooo , very soon it will be renamed AIR RAJAPKSA OR
RAJAPAKSA AIR LINES – (LIKE NO OTHER)
– FULL OF STOOGERS
– GALORE OF CORRUPTION
– EASY WAY TO HELL.
This is done purposely to dtage the company to bankruptcy and then it’s easy to buy emirate shares for a song. Who are the advisers? PB jayasundara and Cabral?
Dont forget who bundled the national airline and gave it to Emirates on a silver platter all for the big commisss she got. Today she has bought Prince Andrews castle in uk with some of that hora money.
Sajin Vaas, Hi how much money U transfered in to UR Boss;s account. Denwath anaachaaraye hasirenne nethuwa Go Home. Aasiyawe Aischarya?
I agree wholeheartedly with your report. The highflyers in the company had been hired not for their business acumen but because of whom they knew. They could never justify their premium fares, except for the non-stop long distance flights, demands for which were not that exceptional. These so called experts would rather fly their planes half empty than give a discount and fill them.
Blame every one except ourselves.What a country??????????.Wait until a Minister comes and tell that this happened because we were under British rule for 100 yrs and plus.Then we call idiots who put present idiots rule can blame the suddas.
Roshan
When premadasa was in power he got a special weekly flight to Fukuoka japan to transport his business son-in-laws flowers. When the Chola Queen was in power she diverted a civilian flight en-route from an official assignment in europe to land unscheduled in Dubai because she was yearning for a taste of pol-sambol. Now, this aiyya-malli farce with our national asset. And I dont have to tell you about peter hall. this is our karumaya.
Ambo, Know your facts before you accuse Sri Lankan having expat (foreign) pilots, while local pilots are at home. The local pilots ( through various methods -intimidating strikes , political favourins etc – got the same US $ salary to be flying for UL. Their demand was why pay US $ only to the foreign pilots when UL is earning US$ ? So very soon their will be a movement in the tea industry where as the tea pluckers in the hill country and elsewhere asking for dollar salaries. Why ? they also sell tea and get US $. Good idea . Isn’t it ? So any industry getting foreign $$ should be paid US$ just like the bankcrupt Sri Lankan Airlines do. The blame should be on those executives including the board who approved these USD salaries . Eg on average , a Sri Lankan pilot earns Rs. 4 lakhs per month whereas a UL counter person at katunayake has to work 5 years to earn that. – What a joke ?
If there is corruption and mismanagment , no enterprise can make profit. The salaries paid to the executives including pilots ( local) are alarming. Is the media reporting everything ?
The two Gunawardane brothers ruined both airlines. This is what happens when you appoint individuals to the head chair to run when they do not know anything about management. This country has so many intellectuals who can easily drive an establishment to make profits. Why did they appoint these two fools.
An old fleece blanket may be used as a motor vehicle blanket. Keep the existing fleece blanket in your particular motor vehicle and if an emergency arises where of course you’ll demand it you should use it. Hopefully you will not want that fleece blanket and it’ll just take up space in your own car.