The Sunday Leader

SriLankan Airlines’ Wet-lease Goes Dry

by Wiraj Silva

Board of Inquiry Chairman J. C. Weliamuna handing over the report to Prime Minister Ranil Wickremesinghe, while Minister of Ports Arjuna Ranatunga looks on

Although the public which was pacified by the government that Sri Lanka’s national carrier – SriLankan Airlines, which recorded billions of rupees of taxpayer money during the heyday of Rajapaksa regime; will recover under the Yahapalana, is in for another horror with the newly-hatched Pakistan International Airlines (PIA) deal failing to break even at the least.

SLA which recorded a profit of Rs. 4.4 billion in 2008 under the Emirates management, incurred an accumulated loss of a staggering Rs. 132.6 billion since 2009 with the Rajapaksa and his lackeys misusing the national carrier as his personal fiefdom. However under the good governance administration an operating loss of Rs. 10.6 billion recorded in 2015, compared to Rs. 29 billion recorded in 2014.

Although the government harped much about turning around the national carrier and harped more about Rajapaksa’s brother-in-law NishanthaWickremasinghe running SriLankanAirlines into the brink of bankruptcy, it is learnt that the PIA wet lease will cover only 56% of the cost bourne by SriLankan Airlines.

“Each aircraft will operate for 11 hours per day and will be to earn only US$ 88,000 daily, or US$ 264,000 for all three aircrafts. This comes to around US$ 7,920,000 a month, although Ministry of Public Enterprises Development bragged that the aircraft could fetch in at least US$ one million which is the industry standard. However the cost bourne by Treasury/ SLA is nearly US$ 1.4 million. This means that SriLankan Airlines was unable to lease even at minimum industry benchmark,” a Ministry of Transport & Civil Aviation official told The Sunday Leader on grounds of anonymity.

He added that although some experts advised the present deal with the world’s largest aircraft leasing company –  AerCap, under which SLA is committed to pay US$ 1.4 million a month for these aircraft be terminated under ‘force major’ condition and go for  a renegotiation, both SLA and the government had not been keen towards that end.

“As they failed to heed this opinion the SLA will have to bear a loss of US$ 6,080 a month which adds up to US$ 72,960 or approximately a staggering Rs.10,579.2 million a year. This means for the entirety of the contract period (i.e. 12 years) we have to bear Rupees ten and a half billion each year. By the end of the contract period an additional loss ofUS$ 875,520,000 or a staggering Rs126,950.4 million has to be bourne by SLA in addition to other losses,” the source lamented.

 

PIA wet lease

SriLankan Airlines announced last week that it entered into a “wet lease” agreement with Pakistan International Airlines (PIA), owned by the government of Pakistan, whereby an Airbus A330-300 aircraft will be leased by SriLankan to PIA on Aircraft Crew Maintenance & Insurance (ACMI) basis.

This means that the aircraft will remain under SriLankan registry and be flown by SriLankan/s pilots on behalf of PIA, on the “Premier Service” routes between Pakistan and the UK for a period of three months.

The inaugural flight of this operation will take place on 14th August 2016, from Islamabad to London, following a brief ceremony headed by the Prime Minister of Pakistan, Nawaz Sharif. The government of Pakistan and PIA have invited a delegation from Sri Lanka, including Public Enterprises Development Minister KabirHashim the subject Minister for the airline to attend this event.

Around 100 Sri Lankan Airline crew, pilots, ground staff and engineers have been given Visas by Pakistan authorities to operate the new Airbus handed over to PIA on wet lease, a senior SL Airline official disclosed, Dawn reported.

However, Pakistan Air Lines top official disclosed that Sri Lankan Airlines has sent Cabin Supervisors and Cabin Service Instructors only.

He noted that PIA has not specified that they want only all male crew althoughSriLankan Airlines has sent male Flight Attendants Cabin Supervisors and Cabin Service Instructors .

He declined to reveal as to whether the PIA will operate the new Airbus leased out from Sri Lankan airlines under PIA logo or as a joint service, he added that the aircraft will be operated for PIA by Sri Lankan crew and it will be based in Islamabad and Lahore.The all maintenance of the Air craft will be carried out by Sri Lankan engineers.

“It will fly from Islamabad and Lahore and we are also in talks to take over three more Airbus A330 planes from them ,” he said.

The cash strapped PIA has stepped into lease out a Sri Lankan Airline Air bus to fulfill a pledge given by Pakistan Prime Minister Nawaz Shariff to his Sri Lankan counterpart RanilWickremasinghe during his tour of Sri Lanka several months ago.PIA Premier Service was launched on Saturday, August 14, initially only to London.

SriLankanAirlines announced that it was currently in negotiations with PIA with regard to leasing a total of three aircraft on “dry-lease”, without crew, in the coming months. This is part of the company’s “red to black” campaign to bring the airline back to profitability by exploring all commercially viable avenues.

 

From ‘Red to Black’

With the aim of turning SriLankan Airlines into a profit making venture, the new management of Airline in September 2015 launched a Company-wide interactive campaign titled, ‘Red to Black’ where the Senior Management of the Airline has invited the Airline’s staff to share their innovative ideas and thoughts on initiatives that can be taken to reduce losses and optimize cost as the Airline seeks to make progressive steps towards profitability. The Campaign was initiated to foster closer relationship with the staff and make a collective effort to drive the Company towards its financial targets.

SriLankan Airlines launched the ‘Red to Black Campaign’ twelve months backunder the aegis of RakhitaJayawardena, pro-tem Chief Executive Officer of SriLankan Airlines during the Hundred Days Programme.

“When the new management took over in February, we were faced with the challenging task of reversing the adverse financial situation and making gradual progress towards reducing our losses. The ‘Red to Black Campaign’ was initiated as an effort to create Company-wide awareness and collectively drive the Airline towards its financial targets. Credit should go to the Airline’s staff as they are working with one purpose and one direction to realize the financial targets set by the Senior Management.”

 

KPIs improved

As a result to all the above efforts, some of the vital Airline Key Performance indicators (KPI’s) improved.

 

Key Performance Indicator

Overall Compliments received Up by             150%

Cabin Crew rating for friendliness and

courteousness                                      89%

Cabin Crew rating for continual satisfaction 90%

SriLankan’s on-time performance in August was ranked 16th out of 50 international airlines rated by the global flight data service Flightstats. Punctuality for both arrivals and departures improved from 66 percent six months ago to the current percentage in the high 80’s, due to the relentless efforts of Mr. Jayawardena and his team. In August 2015, the Airline ranked 7th for on-time arrivals and departures amongst the oneworld carriers beating giants in the industry.

 

SLA operating loss declines in 2015

Furthermore, the passenger kilometers collectively flown by Srilankan Airlines (along with Mihin Lanka) recorded a marginal growth of 0.1 per cent against the 2.7 per cent contraction in 2014. Moreover, the freight ton kilometers flown by Srilankan Airlines and Mihin Lanka further contracted during the year. In

SLA’s operating loss declined in 2015, largely due to the drop in operating expenditure supported by declined fuel prices, despite its accumulated losses. As per provisional financial statements, SLA recorded an operating loss of Rs. 10.6 billion in 2015, compared to Rs. 29 billion recorded in 2014. This was largely due to a decrease in total operating expenditure by 12.3 per cent, to Rs. 126.6 billion while the total revenue increased by 0.5 per cent to Rs. 116.1 billion, in 2015. The total expenditure decreased as a result of the significant drop in expenditure on fuel with low global fuel prices, while the increase in total revenue was supported by increased passenger load factors and expansions in operations to key routes. However, SLA incurred an accumulated loss of Rs. 132.6 billion since 2009 while total gross liabilities to the banking sector also has increased by Rs. 24 billion to Rs. 33 billion during 2015.

 

Refleetingprogramme

Hence, there is a need to take urgent measures to improve the operational efficiency through required reforms to convert SLA into a financially viable entity. Under the refleetingprogramme, five new A330- 300 Airbuses were added to the fleet during 2015, increasing the total number of A330-300 Airbuses to seven and enabling the retirement of the long-served and low fuel efficient A340-300 Airbuses. The gradual replacement of the existing aircraft by acquiring a new fleet would result in a superior service with enhanced fuel efficiency, which is essential to compete in the global markets. Further, SLA commenced negotiations with an Asian based air service company to begin a Maintenance, Repair and Overhaul (MRO) centre at the MRIA. Meanwhile, operating profit of Mihin Lanka which is to be merged with SLA, increased to Rs. 1.3 billion in 2015, compared to a marginal profit of Rs. 0.7 billion recorded in 2014. During the year 2015, ML added one additional aircraft to its fleet, increasing the fleet count to four, while launching more cost effective air routes and increasing flying frequencies to existing destinations.

Accordingly, the re-fleeting programme of SriLankan Airlines (SLA) that was initiated in 2014, by replacing the entire wide body fleet with a new fleet in order to improve operational efficiency and to provide modern passenger comforts, was continued during the year.

 

Wickremesinghe to the rescue 

Prime Minister RanilWickremesinghelast April announced that the United National Front for Good Governance (UNFGG)  decided to absorb the SLA’s debts amounting to a staggering US$ 3.2 billion, in a last ditch attempt to salvage carrier. In an effort to save the carrier from further losses, Wickremesinghe has also ordered the airline to immediately cancel the order of four A350 aircrafts.

 

Weliamunareport thrown to the bin?

Even though Wickremesinghe appointed aBoard of Inquiry led by good governance crusader –  J. C. WeliamunaBoard of Inquiry which found shocking details of corruption running into billions of dollars, manipulations of service contracting, recruitment of unqualified staff and major security breaches at Sri Lankan airlines under the former government, it is learnt that certain Rajapaksa confidantes were blocking its implementation. (See http://www.thesundayleader.lk/2015/12/20/turbulence-continues-at-srilankan-airlines/ )

Although it is over one and  a half years since the report was submitted to the government but any action taken to implement the Weliamuna recommendations is yet to be seen.

“Although some say actions have been taken to implement the Weliamuna recommendations and they are being carried out very slowly, some are accusing Chairman Ajith Dias and the Board of Directors of not taking any steps to hold inquiries against those who were involved in corruptions hand in glove with the Rajapaksa family,” sources at the airline said.

According to the sources, other than removing Captain DruviPerera who was once accused of a serious flying mishap and was later promoted to a newly created position – Chief Operations Officer – by the former Chairman NishanthaWickremasinghe, no other transfers or disciplinary actions have been initiated to date.

According to the Weliamuna report, a young cabin crew member had allegedly been released to work at UPFA MP NamalRajapaksa’s Colombo office but had been paid by the airline including allowances for cabin work.

“Although she was attached to the NamalRajapaksa’s office and never stepped into airline work, the report says, she had been paid Rs. 4.2 million. The airline has failed to recover the overpaid salary so far, and they had not even questioned the officers who released her for Rajapaksa political work,” the sources alleged.

“Although the Weliamuna inquiring panel recommended terminating the services of those who have been recruited on the request of members of the former regime without following the stipulated requirements, none of them have yet been removed. It is these employees who are now jeopardizing the airline activities and giving inside information to the Rajapaksas. When selecting cabin crew members, those who repeatedly failed the tests were allegedly employed as the airline had to accommodate the names on lists sent by several like NamalRajapaksa, Sajin Vass Gunawardena, and former SriLankan Chairman NishanthaWickremasinghe. There are about 25 cabin crew members from the Hambantota District who cannot converse in English with foreign travellers. Even to date, the pre-flight briefings are conducted in Sinhala for these crew members if they are going on board. This is the plight of SriLankan Airlines today. Although we expected this to be changed after Yahapalanaya government came into power, nothing has been done up to now,” the sources alleged.

However, another group of employees said they are happy with the way the present management is carrying out the Weliamuna recommendations, but they added that it will take few more months to conclude implementing the recommendations.

The sources praised the management for posting the penalized airline official to Dubai as Sri Lankan country manageress. “This lady officer who worked in London was genuine but was brought back to Sri Lanka by President MahindaRajapaksa as she wanted to stop YoshithaRajapaksa’s motor spare parts being sent to Sri Lanka for free from London. After the fall of the Rajapaksa regime, when the new management took over office, this officer was posted to Dubai as the airline country manager,” the sources said.

The sources further said the airline website which was earlier maintained by a company owned by UPFA MP NamalRajapaksa was taken back by the airline and is now operated by the IT Department. “The airline call center – Hello Corp – too had been operated by this same company, but the management cannot take it back as the agreement lapses only in October 2016. Until then this company will carry out the call center work and once their contract lapses, new contracts would be offered to,” the sources claimed.

However, Senior Advocate J.C. Weliamunatold The Sunday Leader that although he submitted the report to the government in early 2015, he knew nothing whether the recommendations were implemented.

“Whatever the task I was entrusted, I carried out to the best of my ability with the help of the airline staff. It is now up to the Ministry and the Chairman and Board of Directors of SriLankanAirlines to do the needful to bring the culprits to book and recover the unnecessary expenses done by the respective individuals,” he added.

When asked whether he thinks that the report had been ignored by the SriLankan Airlines Board of Directors, Weliamuna said it is possible as nothing can be seen to suggest that the recommendations are being implemented.

 

Rajapaksa lackeys continue to haunt

The Sunday Leader reported in February that that certains quarters within the Director Board is allowing Rajapaksa loyalists who mismanaged the airline during the previous regime with the then infamous Chairman NishanthaWickramasinghe, to further ruin the institution. (http://www.thesundayleader.lk/2016/02/21/storm-clouds-hover-over-national-carrier/)

 

Partnership fails

Although it was speculated that the Airlines was likely to strike two breakthrough deals with Qatar Airways and the Maldivian Government, with sources claiming to The Sunday Leader that Qatar Airways CEO Akbar Al Baker was keen to ink the deal and that discussions were progressing, the deal failed to come through.

However during a previous interaction with The Sunday Leader, SriLankan Airlines Chairman Ajith Dias was negative about privatization or a strategic partnership.  “We are not to speaking to anyone. In fact who is going to invest?”

5 Comments for “SriLankan Airlines’ Wet-lease Goes Dry”

  1. Chamara Perera

    //“As they failed to heed this opinion the SLA will have to bear a loss of US$ 6,080 a month which adds up to US$ 72,960 or approximately a staggering Rs.10,579.2 million a year. This means for the entirety of the contract period (i.e. 12 years) we have to bear Rupees ten and a half billion each year. By the end of the contract period an additional loss ofUS$ 875,520,000 or a staggering Rs126,950.4 million has to be bourne by SLA in addition to other losses,” the source lamented.//

    Can you explain how USD 72,960 per year loss became 10,579.2 million rupees (which is 10.5 billion rupees) ??

    • Ajantha

      You are totally correct Chamara. I think that the lamenting source’s Arithmatic Teacher passed away when he was very young.

  2. daggy

    Its yahapalanaya maths.
    Hoodwinking the masses.

  3. Shaul

    Sri Lanka airlines was operated like a family owned business by Rajapakse family causing colossal losses to the country. I wonder, If readers could recall, an incident which was later played down by the Rajapakse Govt when the public learned of Gota authorizing one of his family members to pilot a Zurich bound Sri Lankan airplane just to fetch a poodle to Gota’s wife from Switzerland.

  4. The staff who were appointed by the previous government without proper qualifications/skills should be thrown out.

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