• Bungling by two govts. cause massive losses
• Millions lost in Airbus agreement and termination
By The Sunday Morning News Desk
Plagued with multiple controversies, the country’s national carrier SriLankan Airlines has been slapped with a fresh scandal after details emerged of an alleged corrupt deal involving a former SriLankan Airlines executive, his wife, and European planemaker Airbus.
The devastating revelations of the controversial deal initially came to light on 31 January after judges in a UK court approved a record $ 3.9 billion settlement to be paid by Airbus over allegations that consultants, whose services had been obtained by the company, paid bribes in Sri Lanka, Malaysia, Indonesia, Taiwan, and Ghana between 2011 and 2015.
Former SriLankan Airlines Chief Executive Officer (CEO) Kapila Chandrasena and his wife Priyanka Niyomali Wijenayake were arrested and remanded last week after investigations revealed that they were involved in the corrupt deal with Airbus.
Documents seen by The Sunday Morning revealed that SriLankan Airlines had incurred huge losses both at the signing and termination of the controversial deal with Airbus, which could have been averted by successive governments.
The documents revealed that SriLankan Airlines had entered into an aircraft operating lease agreement with International Lease Finance Corporation (ILFC) to lease four A350-900 Airbus aircraft on a long-term basis on 27 September 2013 during the previous Government, and these aircraft were due to be delivered in October and November 2016.
According to Cabinet Paper 2013/07 dated 27 March 2013, then Minister of Civil Aviation, under the Mahinda Rajapaksa Government, Piyankara Jayaratne had recommended purchasing six A330-300 aircraft for delivery between 2014 and 2015, four A350-900 aircraft, leasing three additional A350-900s for delivery in 2017, and replacing the A330-200s on a sale and leaseback method. The A330-300 aircraft were to be fitted with a VIP kit at a cost of $ 15 million to be used for official visits by the Head of State.
When contacted by The Sunday Morning, United People’s Freedom Alliance (UPFA) MP Jayaratne denied ordering a VIP aircraft, claiming that he had no idea how it had been mentioned.
“We never ordered a VIP aircraft. There was a proposal, but the Cabinet never gave the green light. That proposal was to order a VIP kit for the Head of State. The then Government never approved such a decision,” he stressed.
In addition, MP Jayaratne stressed that the airline could not fix a cockpit without the permission of Airbus.
Cabinet Memorandum No. 2017/02, submitted by then Minister of Public Enterprise Development Kabir Hashim, revealed that on 24 June 2015, the Cabinet of Ministers had approved the restructuring plan to transform the loss-making airline to a profitable public enterprise, but the plan did not include the four A350-900 aircraft, as the operational capabilities of the said aircraft were not sustainable in line with the plan.
Accordingly, a report submitted by Nyras and Skyworks – the consultants to the airline – had also indicated that the operations of these aircraft would cause an additional loss of $ 30 million per year and hence did not recommend the purchase.
Fourth A350-900 to terminate first
In April 2016, the Cabinet Committee on Economic Management (CCEM) had approved the termination of the lease on the fourth A350-900 aircraft, which was leased by the airline and was due for delivery in November 2016. The estimated cost of the termination of the aircraft lease was $ 17.6 million. Although the Ministry was not provided with any documentation pertaining to any Cabinet approval received for the same, it was stated that an agreement had been entered into for the early termination of the fourth aircraft and an amount of $ 17.7 million had already been paid as compensation.
However, according to former Minister Hashim, the Ministry had neither been provided with any documentation concerning the terms and conditions of the termination nor any copy of the early-termination agreement.
Thereafter, on 7 September 2016, the early termination of the lease agreements of the remaining three A350-900 aircraft was taken up for discussion at the CCEM.
Controversy behind termination fees
The CCEM had then authorised the national carrier to negotiate a lease termination cost for the three aircraft within the range of $ 75-85 million in order to finalise the issue and was also given the directive to finalise the agreement by 9 September 2016.
SriLankan Airlines, by a letter dated 21 September 2016, brought to the notice of the CCEM the fact that they had negotiated a reduced termination fee – down from the original $ 154 million to $ 98 million.
However, the CCEM approved further negotiations that were to be conducted with AerCap – an independent aircraft leasing company that acquired ILFC in 2014 – and instructed that the agreed upon final termination fee should be brought to the notice of the CCEM.
As revealed to The Sunday Morning, the Ministers of Finance and Public Enterprise Development at the time were of the opinion that the termination fee was too high and the maximum fee should amount to between $ 75-85 million.
Furthermore, the airline had stated that there had been a discussion with the then Finance Minister and representatives of AerCap.
The termination fee had been reduced to $ 98 million with conditions that the airline would lease another aircraft and also extend the lease of another aircraft currently in use, but on lease by Mihin Lanka.
The Minister of Finance at the time had then instructed AerCap to submit a written proposal to the Finance Ministry with their conditions. Further instructions were provided to SriLankan to first obtain legal advice from the Attorney General (AG) and based on that advice to receive verification from the International Monetary Fund (IMF) on whether the proposed payment for the early termination was on par with the IMF conditions.
Former Minister Hashim, in his cabinet memorandum, had stated that the agreement to lease the three aircraft had been with ILFC, but the paper stated that negotiations were held with AerCap in purchasing the said aircraft.
“I am unaware of the reason as to why the negotiations were held with AerCap and not with ILFC as reasons had not been stated for same. The initial lease agreements entered into with ILFC do not provide any mandate for SriLankan Airlines to discuss any matters arising out of these agreements with AerCap,” he had stated.
Furthermore, it was revealed that the airline, in reply to a reminder sent by the then Ministry Secretary requesting for a response to his letter dated 26 October 2016, had stated, referring only to the letter of 27 December 2016, that since the Finance Ministry had informed SriLankan Airlines that it had no objection to it entering into the early termination agreement, and since the then Prime Minister’s approval had also been obtained, SriLankan Airlines had signed the early termination agreement on 4 October 2016.
A copy of the said agreement hadn’t been previously provided to the line Ministry headed by Hashim and it wasn’t attached to the said letter from SriLankan Airlines either, The Sunday Morning learnt.
The detailed report by SriLankan Airlines submitted to the CCEM on 2 October 2016 (20 days after the signing of the early termination agreement on 4 October 2016), which, for whatever reason, did not contain the signed early termination agreement, specifically stated that the termination payment was agreed at $ 98 million, it is revealed.
However, as SriLankan Airlines, although having sent many documents to the Ministry concerning the matter under discussion, failed to send a copy of the early termination agreement, the Ministry had to request a copy. This was provided on 23 January 2017, nearly three months after the signing of the said agreement.
Concerns in the agreement
On perusing the said agreement, the following discrepancies were noticed by the Ministry:
The agreement was in fact signed for the full termination fee of $ 146.5 million, together with an extra $ 7.5 million that was the security deposit paid by SriLankan Airlines being forfeited on the execution of the said agreement and hence forming part of the agreed termination fee, totalling $ 154 million being payable as a termination fee.
However, it also stated that the final instalment of $ 56 million would be waived off in the event SriLankan Airlines meets certain other condition precedents (CPs) on or before 30 November 2016. Failure to meet a single one of these CPs on the due date would result in SriLankan Airlines having to pay a total termination fee of $ 146.5 million, together with an extra $ 7.5 million, being the security deposit already paid by the airline.
In his memorandum, then Minister Hashim had stated: “However, I observe that SriLankan Airlines has not submitted any report or certificates that they have fulfilled the above PCs on or before 30 November 2016, or whether the concurrence of the Cabinet had been obtained for the terms and conditions to be incorporated into the said lease agreements for the leasing of one new airplane and the extension of two others (paper submitted states only), including on lease, by Mihin Lanka (sic).
“Consequently, I am further unable to confirm to the Cabinet whether the early termination fee is in fact $ 154 million or $ 98 million. Accordingly, if SriLankan Airlines fails to fulfil any of the above PCs, it shall be required to incur a total expenditure of $ 154 million with interest calculated at 3% per annum, plus a default interest calculated as the ‘prime rate’ announced by JPMorgan Chase bank in New York accordingly.”
As learnt by The Sunday Morning, the papers submitted by SriLankan Airlines to the Cabinet stated that the first instalment should be paid within five business days from the signing of the agreement. However, the stated first instalment, as revealed by the memo, was the “second” instalment, as AerCap had already taken the $ 7.5 million paid as a security deposit as the first instalment.
It was also revealed that the said termination fee may have to be paid by the Treasury and so would add to its burdens.
Abuse of power
Following the damning revelation made by United National Party (UNP) MP Hashim in Parliament last week, questions have been raised on who had actually operated SriLankan Airlines during the Wickremesinghe Government, as it was revealed on many occasions that the line Minister had been sidelined while taking important decisions on the airline.
Hashim’s all-revealing cabinet memo was in fact presented to the Cabinet through then President Maithripala Sirisena.
The Prime Minister, it seems, was not an option for Hashim since the SriLankan Airlines board was in the habit of dealing directly with Premier Wickremesinghe.
The SriLankan Airlines board at the time comprised Chairman Ajith Dias, CEO Suren Ratwatte, and board members J.M.S. Brito, Chanaka De Silva, Mahinda Haradasa, Rakitha Jayawardena, Sunil Peiris, Harendra Balapatabendi, and Neranjan De Silva Devadithya.
Responding to a question raised by Janatha Vimukthi Peramuna (JVP) MP Anura Kumara Dissanayake in Parliament last week on the controversial aircraft deal, Hashim said: “After I took over as the subject Minister in November 2015, we consulted Nyras and Skyworks to assess whether purchasing A350-900 aircraft would be a loss for the airline. We not only discussed this matter, but presented a detailed report to the CCEM as well.
“We said if we had to pay a penalty, we would try to reduce the penalty to less than $ 58 million. The Weliamuna Report clearly mentions all the corrupt activities that took place at SriLankan Airlines during the previous regime.
“All of this was handed over to the Financial Crimes Investigation Division (FCID). I was not the minister in charge of the Police. But as the subject Minister, I took all the legal measures possible within my capacity.
“I did not appoint Kapila Chandrasena to the position of CEO of SriLankan Airlines. Chandrasena was appointed by your Government. The Chairman during our time was Ajith Dias. I did not appoint Suren Ratwatta. When I took over as the Minister in charge, he was already appointed.
“Evidence pertaining to the purchase of six aircraft at higher rates was submitted to the Presidential Commission. The AG’s Department too was informed of this in order to obtain legal advice on cancelling the purchase. We acted upon that opinion. There is written proof of that. I informed the Finance Ministry that the Executive Board of SriLankan Airlines had acted in an unfriendly manner at that time. I was not given documents I requested as a minister. I was left helpless. But I could not do anything about it,” he added.
Attempts made by The Sunday Morning to contact former SriLankan Airlines Chairman Ajith Dias were futile as he was overseas.
Purchase of second-hand aircraft
Meanwhile, speaking to The Sunday Morning, SriLankan Airlines Union Chief Janaka Wijayapathirathna stressed that the airline had incurred millions in loses, both before entering and after cancelling the Airbus deal.
According to him, almost all aircraft used by the airline were from Airbus.
“We have around 24 aircraft which are from Airbus, and the airline always prefers to go with same kind of aircraft as it is easy to maintain and they need not spend additional costs on maintenance and technical equipment,” he stressed.
Wijayapathirathna stressed that the union opposed the said deal from the beginning and had also given statements to the commission appointed to investigate SriLankan Airlines’ losses.
“Even after cancelling the deal, the airline still incurred huge losses as it had purchased second-hand aircraft at a lower cost instead of brand-new ones. The monthly instalment is lower than the brand new aircraft, but massive costs had to be spent on repairs and fuel,” he stressed, pointing out that even though there were no safety issues, the aircraft were not in good condition when it came to its quality, and therefore the airline finds it difficult to attract high-end customers, thereby making it difficult to earn profits.
Meanwhile, when The Sunday Morning contacted then Finance Minister, UNP MP Ravi Karunanayake, he said the airline was under the Ministry of Public Enterprise Development and all decisions were taken by that Ministry.
However, he denied any involvement of his Ministry at that time in the cancellation deal, saying the Ministry of Finance had been supporting the procedure initiated by the line Ministry.
One of the senior officials of the previous Government, who wished to remain anonymous, told The Sunday Morning that SriLankan Airlines CEO Ratwatte and his brother were directly involved in the cancellation deal.
SriLankan Airlines CEO Ratwatte’s brother was an advisor to then Prime Minister Ranil Wickremesinghe.
Drama unfolds
While astonishing revelations of abuse of power under the previous two governments began to get exposed through the SriLankan Airlines deal which has caused multibillion-dollar losses to the taxpayers, more drama unfolded last week, with President Gotabaya Rajapaksa first deciding to take action against the deal last Sunday (1).
He directed the relevant authorities to conduct a full inquiry into the allegations that the company owned by ex-CEO Chandrasena’s wife was paid $ 2 million through a Brunei shell company by Airbus in order to obtain or retain business or garner advantage in the conduct of business for Airbus with SriLankan Airlines during the period from 2011 to 2015.
A few hours after directions were given by President Rajapaksa, the AG’s Department directed the Criminal Investigation Department (CID) to obtain an arrest warrant from the Magistrate’s Court to arrest former SriLankan Airlines CEO Chandrasena and his wife due to their alleged links to a $ 2 million bribe from French planemaker Airbus.
This followed investigative material being submitted by the CID to the AG’s Department which revealed that a Standard Chartered Bank account maintained in the name of Biz Solutions in Singapore, of which the only director and shareholder was Chandrasena’s wife Priyanka Niyomali Wijenayake, was paid $ 2 million (around Rs. 363 million) by the European Aeronautic Defence and Space Company (EADS) NV, the parent company of Airbus SAS, in December 2013.
The details were released by the AG’s Department last week after it directed CID Director W. Tillakaratne to obtain an arrest warrant from the Magistrate’s Court to produce Chandrasena and Wijenayake as suspects on charges of money laundering in the SriLankan Airlines-Airbus re-fleeting deal. Following the AG’s order, an arrest warrant was issued by the Colombo Fort Magistrate, but no arrests were made until midweek.
Details of the Singaporean bank account were obtained by the CID last year after the former Minister of Justice had written to the Singapore Central Authority, which comes under the Attorney General’s Chambers (AGC), making a formal request for assistance in connection with investigations into the Airbus transaction under the provisions of the Mutual Assistance in Criminal Matters Act.
However, several days after the order was issued, Chandrasena and his wife surrendered to the CID on 6 February, and statements had been recorded from the duo. Following that, they were arrested and produced before court.
Nishantha Wickremasinghe was the Chairman of SriLankan Airlines at the time of the controversy, while Kapila Chandrasena was the Director/Chief Executive Officer. Others in the Board were Nihal Jayamanne PC, Shameendra Rajapaksa, Manilal Fernando, Lakshmi Sangakkara, Sanath Ukwatte, and Susantha Ratnayake.