this the end of SriLankan Airlines?
Ultimately the blame for the airline’s effective
destitution lies with Emirates but also with the
current management which failed to implement vital
cost cutting measures.
By R. Wijewardene
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).
drastic reversal of the situation just a year ago when
the airline’s assets exceeded its liabilities by Rs.
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
colossal loss by any standards but crippling for a small
third world airline.
allowing for the generally difficult conditions faced by
airlines worldwide as a result of the global economic
crisis the situation at SriLankan Airlines is
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.
survival of the nation’s flag carrier established as
Airlanka in 1978 is now in doubt.
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?
could possibly be to blame for mismanagement on such an
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
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
Emirates Airlines responsible
insiders in fact hold Emirates Airlines responsible for
the present state of the airline.
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.
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.
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.
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.
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.
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.
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.
SriLankan Airlines employs approximately 400 staff per
aircraft while the industry average is closer to 100.
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.
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
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.
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.
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.
—‘Usually Late’ began to apply again and services
declined with passengers complaining of shoddy treatment
and unpalatable food.
Skywards rewards system
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
of all flights began once again to be diverted and
delayed to accommodate ministers and government
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.
SriLankan Airlines therefore meant paying more for
inferior service and regular delays.
fewer people chose to endure the poor service occupancy
at the airline fell still further and profitability
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
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.
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.
priority now is retuning the airline to a state of
financial stability if not profitability.
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.
is the only way to enter or leave what is in fact a very
only a handful of international airlines still operating
in and out of Colombo SriLankan Airlines is the
umbilical chord that links Sri Lanka to the outside
world. Without SriLankan this island would become one of
the most isolated countries on Earth.
the government’s plans for development would vanish
overnight if people; businessmen, tourists, migrant
workers are unable to cheaply and easily enter and leave
SriLankan is simply a vital part of the nation’s economy
which means that ultimately the airline cannot and will
not be allowed to fail. That the government will step in
and provide the relevant handouts from the Treasury is
However beyond bailouts from the Treasury and the usual
trick of purchasing fuel for credit from the much abused
Petroleum Corporation, SriLankan Airlines desperately
requires a long term plan if it is ever to provide the
service this country desperately needs it to.
All is well....
Speaking from the PATA conference in Zhejiang the
CEO of SriLankan Airlines, Manoj Gunawardene assured
The Sunday Leader that SriLankan Airlines would
continue to function as a going concern and stressed
that the airline’s management had already
implemented a number of successful cost-cutting
measures that it believed would in the medium term
return the airline to profitability.
eNIC tender cancelled
By R. Wijewardene
multi billion rupee tender to upgrade the National
Identity Card to an electronic card has been halted. The
Cabinet last week cancelled the awarding of this
controversial tender following charges that the tender
had not only been awarded to a favoured party but also
fell short of requirements which would prevent doctoring
of the card.
week The Sunday Leader revealed the inconsistencies and
contradictions behind the government’s eNIC programme.
Following the The Sunday Leader’s report which
highlighted the fact that the original specifications
for the card’s security requirements had been watered
down to suit the interests of a favoured bidder, it
emerged this week that the tender for the implementation
of the eNIC project had been cancelled.
from the diluted security requirements, The Sunday
Leader also highlighted the huge expenditure scheduled
for the programme — several billion rupees — at a time
when, in a post war era, there are surely more urgent
priorities than a new NIC card. For now anyway the eNIC
tender has been cancelled and we can only hope this
particular project remains on the back burner until it
returns in a more transparent and rational form.
A smart(er) more up to date card
2008 the government announced plans to modernise the
flimsy piece of plastic on which our right to free
movement is today contingent by introducing a smart(er)
more up to date card capable of storing more data and
incorporating enhanced security features.
the importance of the NIC the introduction of an
entirely new card system, and a new database containing
information on every citizen in the country should of
course be a matter of intense debate.
However for the most part the government’s announcement
regarding the new eNIC passed largely un-remarked on,
failing to capture the interest of the press or the
bothered to question what security features would be
included in this new eNIC card and there was little
debate regarding how much personal data a government
notoriously keen on unviable databases — mobile phone
registry, citizen registry, should legitimately require
its citizens to provide.
people cowed by threats to security and the old and
unfortunate mantram of totalitarianism — ‘if you have
nothing to hide you have nothing to fear’ are not
particularly interested in matters of privacy or data
However from a more practical perspective — security,
there are real concerns about the eNIC project.
Outmoded and too easy to forge
new cards were deemed a necessity as the existing NIC is
regarded by the country’s immigration and security
agencies as outmoded and too easy to forge.
Therefore when tenders were issued seeking bidders to
implement the eNIC project a number of advanced security
features were stipulated as mandatory. Bidders wanting
to implement the project were required to provide cards
featuring micro text printing, optical variable ink and
ultra violet visible print — all to make the card more
difficult to forge.
Crucially it was stipulated that the new card would have
to feature multiple laser image printing — the latest of
the various anti fraud techniques available and
considered at present to be virtually un-forgeable. And
it was also stated in the original tender that cards
would have to be made of durable composite material —
i.e. not paper based, or laminated.
the specifications issued by the Ministry of Internal
Administration were for an extremely secure card
incorporating the latest security features, on May 14
and 26, 2008 the Ministry issued circulars both
extending the time available to bidders and crucially
altering the original security specifications.
Multiple laser imaging
the new specifications the requirement for multiple
laser imaging was dropped, as was the requirement that
the card be made of an advanced composite rather than
Therefore the Ministry was calling for a card that was
less secure — which seems unusual as the stated purpose
behind the new NIC project was enhanced security.
accusation in this case is that the bidding period was
extended and security specifications lowered in order to
suit the interests of one of the parties bidding; that
one of bidders was from the outset a favoured candidate.
Allegations have been raised claiming that Hitec Padu/Epic
Lanka the company that currently supplies the Sri Lankan
passport is the favoured bidder — and that changes were
made to suit its bid which complied with the terms of
the amended/relaxed bidding requirements but not with
the original specifications.