The national carrier’s ‘restructuring’ history

By Madhusha Thavapalakumar

President Maithripala Sirisena appointed a 10-member committee on Monday (7) of last week to make recommendations for a restructuring plan for SriLankan Airlines.

This is the latest attempt to restructure the national carrier, since its fortunes took a turn for the worse following the departure of Emirates group from its management in 2008, prior to which it was a profitable entity.

The committee headed by the State Minister of Finance and Mass Media Eran Wickremaratne, comprises; Central Bank Senior Deputy Governor Dr. Nandalal Weerasinghe, University of Sri Jayewardenepura Professor Dissa Bandara, Association of Public Finance Accountants of Sri Lanka President V. Kanagasabhapathy, Deputy Auditor General L.S.I. Jayaratne, Attorney General’s Department Senior Deputy Solicitors General Viraj Dayaratne, Senior State Counsel Mahen Gopallawa, The Finance Company PLC Chairman Wasantha Kumarasiri, former SriLankan Airlines officials Dr. Dharmadatne Herath, Ajith Amarasekara, and Non-Cabinet Minister of Public Distribution and Economic Reforms Dr. Harsha De Silva.

The committee is to submit its report to the President in two weeks.

The Sunday Morning Business decided to look back on the other committees that have come before it to reverse the fortunes of SriLankan Airlines.

Expanding business plans

According to the Presidential Commission of Inquiry (PCoI) the then SriLankan Airlines management assigned Chief Financial Officer (CFO) S.A. Chandrasekara to formulate two business plans in 2008 and 2010, neither of which were implemented.

Former SriLankan Airlines Chairman Nishantha Wickremasinghe appointed S.A. Chandrasekara to formulate a strategic business plan for SriLankan within three months for four financial years in April, 2010.

Focusing on sales of SriLankan shares rather than obtaining loans from the Treasury, Chandrasekara prepared a four-year (2010/11-2014/15) business plan amounting to $ 300 million, with subsidiaries for ground handling, catering, and engineering by enabling entities eligible for entering into agreements and also enabling them to sell shares.

SriLankan Airlines Management paid Rs. 50.7 million to Via Capital Company in 2010 to evaluate the business plan formulated by Chandrasekara at a cost of Rs. 750,000. The particular company went through Chandrasekara’s proposals and came up with its own five-year proposal in May, 2011.

Expanding Chandrasekara’s proposal of $ 300 million to $ 510 million, Via Capital suggested a number of proposals including the expansion of the SriLankan fleet to 23 aircrafts comprising of nine narrow bodies and 14 wide-bodies.

The Weliamuna Report

Fast forward to February, 2015, the then Minister of Ports, Shipping and Aviation Arjuna Ranatunga appointed a four-member committee, headed by Attorney-at-Law J.C. Weliamuna to look into the alleged corruption that took place at SriLankan Airlines during the Rajapaksa regime.

The other members of the committee were U.H. Palihakkara, B.A.W. Abeywardana and M.K. Bandara.

The committee’s report which is referred to as the “Weliamuna Report” was officially handed over to Prime Minister Ranil Wickremesinghe on 1 April, 2015.

In its report, the committee revealed a large number of corruptions including security breaches and recruitment of unqualified staff.

The report in its starting reveals that the questionable appointment of Kapila Chandrasena as the CEO of SriLankan Airlines was void of a competitive interview process.

Referring to the former Chairman Nishantha Wickremasinghe and CEO Chandrasena, the report noted blatant disregard of procurement and tender procedures in 2011/2012, laid by SriLankan Airlines.

SriLankan Catering, the fully owned subsidiary of SriLankan Airlines made donations to political functions involving the Presidential Secretariat.

The report further highlights illegal granting of fuel reimbursements to the former Minister of Aviation amounting to Rs. 2.8 million and the release of a cabin crew member to work at the presidential secretariat, at a high monthly remuneration.

During its dire financial circumstances back in 2011, SriLankan Airlines chose sale and leaseback options when re-fleeting of aircrafts, when they had an option to choose operational leases.

The committee report recommended a criminal investigation to be launched in this regard.

By 2015, the national carrier’s accumulated losses stood at Rs.128 billion with a debt of Rs.76 billion and balance sheet discrepancies of Rs.74 billion.

The staff members, amounting to 5,113 in 2008, also increased to 6,987 by 2015 which increased the operating costs of the airline.

The loss incurred in the seven years, from 2008 to the end of 2014, under the local management appointed by the previous regime was around Rs. 107 billion.

Broad framework for restructuring

In October, 2017, President Maithripala Sirisena appointed a Cabinet Committee and a State Officials Committee, which were given the task of deciding on the fate of the airline, with options which ranged from finding an equity partner to the closure of the airline.

The six-member Cabinet Committee which was headed by Prime Minister Ranil Wickremasinghe included Minister Kabir Hashim, Minister Mangala Samaraweera, Minister Dr. Sarath Amunugama, Minister Nimal Siripala de Silva, and Minister Malik Samarawickrama.

Secretary to the Ministry of Public Enterprise Development Ravindra Hewawitharana, Chairman of the National Agency for Public Private Partnership Thilan Wijesinghe, Chairman of Sri Lankan Airlines Ajith Dias, Senior Advisor to the Ministry of Finance and Mass Media Mano Tittawella, and Director of the Central Bank of Sri Lanka and Ministry of Public Enterprise Development Dr. Roshan Perera were the members of the State Officials Committee which was headed by Secretary to the Ministry of Finance and Mass Media R.H.S. Samaratunga.

The committee was expected to compile a preliminary report by December, 2017 as the entire way forward for the airline had to be implemented on or before 31 March, 2018.

In November, 2017, Nyras Consulting Company, a British firm, was hired by the Government to advise it on initiating a restructuring programme and securing an investor for the loss making national carrier.

They presented their preliminary report in December, 2017 outlining the broad framework for restructuring.

The consultants outlined a restructuring programme under five broad areas – managing the right size and type of aircraft fleet, debt restructuring, tax concessions, and network rationalising and fuel price – to restructure and improve its financial position.

SriLankan Airlines continuously recorded losses since 2009 and recorded an annual loss of $ 181.2 million for the financial year ending March, 2017 compared to the previous year’s $ 78 million, according to a statement issued by the airline.

In February, 2018, President Sirisena appointed a five-member Presidential Commission of Inquiry (PCoI) to investigate allegations of fraud and corruption at SriLankan Airlines, SriLankan Catering (Pvt.) Ltd. and Mihin Lanka.

Court of Appeal Judge Gamini Rohan Amarasekara, Retired High Court Judge Piyasena Ranasinghe, Retired Deputy Auditor General Mallawa Arachchige Don Anthony Harald, and the Director General of the Sri Lanka Accounting and Auditing Standards Monitoring Board Wasantha Jayaseeli Kapugama were appointed members of the commission while Retired Supreme Court Judge Anil Gunarathna was appointed Head of the commission.

The commission investigated irregularities that took place between 1 January, 2006 and 1 January, 2018 and so far revealed numerous irregularities that took place during the period.

Procurement guidelines violated

According to the Additional Solicitor General Neil Unamboowe, the investigations carried out so far have uncovered that SriLankan Airlines made a loss of Rs. 143 billion from 2006 to 2018 and Rs. 167 billion in liabilities while Mihin Lanka had made a loss of Rs. 17 billion with liabilities of over Rs. 10 billion.

At the beginning of this month, the PCoI revealed that the management of SriLankan Airlines signed an agreement, violating the procurement guidelines, to buy two flight simulators in 2011 at a cost twice the market price.

Issuing a gazette notification under Section 8(1) (a) of the Commissions of Inquiry Act (Chapter 393), as amended by Act No. 16 of 2008 in December, 2018, President Maithripala Sirisena conferred additional powers to the commission enabling them to obtain bank account details of persons under investigation by the commission.

President Maithripala Sirisena extended the term of office of this Presidential Commission to 15 February, 2019 which was to expire on 31 December, 2018.

New Chairman optimistic

Following the appointment of the latest committee to restructure the national carrier, The Sunday Morning Business spoke to the recently appointed Chairman of SriLankan Airlines G.S. Withanage to inquire as to his expectations of the committee.

Withanage was optimistic that the new committee would pay attention to SriLankan Airlines’ recommendations and provide a positive response.

“The management already submitted their proposals to the committee. The committee may go through the proposal and they might submit their recommendations to the Cabinet of ministers. We should wait and see what will happen because they have given only two weeks. Most probably they will listen to us and provide positive responses to the President to take it up with the Cabinet of ministers,” he said.

Withanage also stated that as a temporary measure, SriLankan Airlines requested the government for a capital injection of $ 100 million to ensure the smooth functioning of its operations.

“That is a temporary measure. The Cabinet paper, which was put up through the Transport Ministry should to be re-evaluated by the committee. It should be proposed to the President to get Cabinet approval,” he added.

However, the PCoI revealed last year that four loans amounting to over $ 100 million obtained from state banks by SriLankan Airlines since 2015 are yet to be settled.

It is notable that in its last financial year (FY) (2017/18) SriLankan posted a $ 105 million loss (over Rs. 16 billion then) and as at end FY17 had Rs. 170 billion as accumulated losses.