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 Spotlight  

Mihin all set to piggyback on SriLankan


Manoj Gunawardena and Chamal Rajapakse

By Frederica Jansz

SriLankan Airlines has been muscled into agreeing to a bail-out package which will give Mihin Lanka another fresh lease of life despite the multi billion rupee losses this venture has so far incurred.

SriLankan Airlines confirmed to The Sunday Leader that it will be procuring a narrow bodied aircraft to be wet leased to Mihin Lanka.  However Mihin's Acting Chairman claimed ignorance. Kapila Chandrasena, is not only Mihin Lanka's Acting Chairman but also on the SriLankan Airlines' board of directors.

"To my knowledge I am not aware of any type of agreement reached between Mihin and SriLankan. I know nothing about it. But I cannot speak on behalf of the government," he said.

Lies and deception are never too far away when it comes to the government's budget airline. We have it on record that Chandrasena was indeed lying through his teeth when he denied any knowledge of the agreement as unimpeachable sources confirmed to this newspaper that the Acting Chairman was indeed present at a crucial meeting where the modalities of the agreement were discussed.

The groundwork for this deal was done by Chief Executive Officer, SriLankan, Manoj  Gunawardena.  He submitted three options in this regard following discussions he had with Treasury officials.  On February 11, he forwarded a proposal containing the three options on behalf of the board of directors of SriLankan Airlines to his Minister, Chamal Rajapakse.

Aircraft for Mihin

At the high level meeting chaired by Ports and Aviation Minister, Chamal Rajapakse held on Wednesday, February 18, SriLankan Airlines agreed to procure an aircraft to be wet leased to Mihin Lanka. 

SriLankan Airlines (UL) Acting Chairman Nishantha Wickramasinghe was unable to attend the meeting.  However, in a note to Chamal Rajapakse, Wickramasinghe said he recommends the second option out of three stated in a proposal submitted by SriLankan on the matter. It was this option that was agreed upon and finalised at the meeting. 

The other directors on the UL Board are, Dr. U.N.B. Obeysekera, Nihal Jayamanne PC, Sanath Ukwatte, Sunil Wijeysinghe and the current Acting Chairman, Mihin Lanka, Kapila Chandrasena, who maintains he knows nothing of the deal.

SriLankan too has recorded massive losses. The national carrier reported a full-year operating loss of SLR 588 million ($5.5 million) on account of escalating fuel costs in August last year.

Heavy losses

Last Wednesday's decision follows on the heels of Mihin Lanka having spent approximately USD 4.8 million on the wet lease of another 186 seat Boeing 737-800 which was the second aircraft leased for the carrier from Transavia Airlines - a joint subsidiary of KLM and Air France.

Mihin Lanka was re-launched on January 1 this year after the troubled budget airline was grounded since May last year having incurred heavy losses running into some Rs. 3.2 billion.  The cash straddled carrier is the pet project of President Mahinda Rajapakse, reason why billions of rupees of public funds have been channeled to it.

The deal with SriLankan is not without conditions.  Mihin Lanka has to pay USD 8 million (approx. SLR 896 million) up front as a condition precedent.

The government has to also pay the existing debt obligations of Mihin Lanka to SriLankan Airlines amounting to USD 1.35 million (approx. SLR 151.2 million)

Mihin Lanka is to carry out its own commercial operations. The budget carrier has also been told to submit a Business Plan as a condition precedent to enable SriLankan Airlines to calculate wet lease charges.

SriLankan Airlines will hold the right to nominate up to two directors including the Managing Director/CEO to the board of Mihin Lanka.  This condition is to ensure payments due to SriLankan are protected.

The wet lease charge is for one year and will include aircraft lease rental as well as crew, maintenance, and insurance.

Opposition

Flight routes and schedules of Mihin Lanka and SriLankan are to be coordinated to ensure that no cannibalisation of traffic occurs.

Mihin Lanka will remain as a separate company as a merger into SriLankan Airlines cannot be considered yet, due to opposition from shareholders.

This deal however does require shareholder approval as it would involve additional financial exposure for SriLankan as well as diluting its own revenue and branding.

Emirates Airlines which continues to hold a 43.6 percent share in UL and thus have two directors on the board have not been consulted.

The two directors, Tim Clark and Gary Chapman have not attended a single board meeting at SriLankan since Emirates decided to not renew its Shareholder's Agreement last March.

Emirates in fact are currently reviewing its stake in SriLankan Airlines. "We have yet not taken a firm decision to sell all or part of it. We are reviewing our options," an Emirates spokesperson was quoted telling Emirates Business.

In January 2008, Emirates' President Tim Clark had said the airline would consider selling its 43.6 per cent holding in SriLankan Airlines, and that it would seek about $150 million (Dh551m) for the stake.

Bailout

SriLankan's bailout package for Mihin is despite the fact that Mihin Lanka still owes the Bank of Ceylon over Rs. 1 billion, the CPC over Rs. 640 million and SriLankan Airlines Rs. 500 million.

In November last year, Chamal Rajapakse in a bid to keep alive one of the most purposeless projects of this government submitted a cabinet paper which suggested using for Mihin Rs. 1.1 million out of unutilised funds from the 2008 budgetary allocation from the Ports and Aviation Ministry or from Airport & Aviation Services Ltd.

Mihin intends to commence flights to Trichy and Trivandrum, though landing rights to India have still to be cleared.

In its inaugural flight to Dubai on January 1, this year with some 143 passengers it was alleged that the flight was a mere turn around flight which carried no revenue yielding passengers but were all 'guests' of Mihin given an all expenses paid about trip.  Mihin Lanka denied it was so, insisting the flight carried revenue passengers.

At last Wednesday's meeting Minister Chamal Rajapakse had voiced "concern" that currently no one on the board of Mihin has any expertise in aviation.

Internal squabbles

In addition to its disastrous financial history internal squabbles have also plagued the troubled carrier. In January this year Mihin Lanka Chairman Raja Edirisuriya resigned from his post citing his inability to work with what he termed was an inexperienced management team which oversaw the operations of the budget airline.  Edirisuriya in fact cited differences with Kapila Chandrasena who thereafter took over as Acting Chairman.

Raja Edirisuriya was hand-picked by Defence Secretary Gotabaya Rajapakse and recommended to his brother Chamal Rajapakse. Edirisuriya lives in the US and has worked as an engineer in Los Angeles, California.

Meanwhile, SriLankan Chief Executive Officer Manoj Gunawardena was overseas when contacted by The Sunday Leader.  Though initially saying he did not know if a final decision had been taken in this regard, Gunawardena later confirmed that the deal was indeed sealed on Wednesday, February 18. He said SriLankan would lease the aircraft to Mihin at regular commercial rates.

Acting Chairman, SriLankan, Nishantha Wickramasinghe could not be contacted for comment.

 


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