Investors back off
Unwilling to take over losses
Deputy Minister of Transport and Civil Aviation and Member of the Committee on Public Enterprises (COPE), Ashok Abeysinghe spoke to the Nation regarding the latest situation with regard to the state of affairs concerning the SriLankan Airlines (SLA).
Q : Last year, there was a loss of approximately Rs 6.49 billion which constitutes a Rs 2.9 billion increase from 2015. In the last quarter of 2016, the runway resurfacing project at the Bandaranaike International Airport (BIA), Katunayake, had an impact on the revenue. That however does not explain the loss. What is the reason for this predicament?
Since the day the management of the SLA was given to The Emirates Group, there was no loss but only a profit. The 21 flights in operation were obtained on lease, for which debt had to be paid. Emirates and Qatar Airways are among the few airlines in the world that consistently make a profit. However, former President Mahinda Rajapaksa had issues with the management and the SLA was taken back. Then one of Rajapaksa’s wife’s brothers was appointed to helm it. All of this happened due to the mismanagement that resulted afterwards.
For the five year period from 2009 to 2014, the loss was Rs 150 billion. The management was the sole reason for this.
In the case of the Mattala airport, we could have initially told investors that we would make available the land for an airport on certain conditions including the amounts, the lease and the shares. The latter two could be in our possession. They would do the construction. Then, we would not have had to pay off debt.
The construction cost of Mattala was USD 225 million. Mattala’s monthly revenue is Rs 3 million, its monthly cost is Rs 25 million and the debt in the form of the interest on the loan to be paid off monthly is Rs 300 million. The latter amount has to be paid for a further eight years at Rs 3.6 billion a year. The seven year grace period was from 2009 to 2016. Now the period is over. There is no income to make such a payment.
With regard to the runway at the BIA, since 1986 there hasn’t been an overlay. There must be overlaying every 15 years. The 30 years came to an end in 2016 during which period the Sri Lanka Freedom Party governed the country and Rajapaksa ruled for approximately just under a decade. The International Civil Aviation Organization stated that the runway was not suitable for use. We had to overlay. Instead of shutting down the BIA, we closed it from 8 a.m. to 4 p.m. and this was done to ensure that only a small number of flights would be affected. In total, there were 48 to 49 flights in question. We gave them three options; one of cancelling, the other of going to Mattala, and another of coming to the BIA after 4 p.m. Some cancelled, and although no one wanted to go to Mattala as such constituted an extra costly distance, a few flights on route to China went there, while the majority came to the BIA after 4 p.m.
The width of the runway was 45 metres. The two shoulders at the two sides of the runway are 7.5m each (15m in total). The width of the runway is therefore 60m. This is not enough for the A380 Airbus to land. Thus we extended the width further by 15m, making it 75m. Now the A380 can land. Some stated that the runway was not widened and that it was still 45m. To do what they proposed, one would have had to dig six metres into the ground, in which case the centre line would end up changing. The airport would have had to be closed down and such would have resulted in a massive loss.
Q : What are the cost cutting measures that were taken?
At present, we have cancelled an order for eight flights including the lease of four brand new A380-900 Airbus long hauls from the aircraft leasing company, AerCap. This is because we would have incurred further losses. If we obtained the said fleet, we would have had to pay for a period of 12 years, at a cost of Rs 28 billion per plane. An advance had been paid in this regard. However, we cancelled it.
Q : The Texas Pacific Group, is a private company based in the United States of America and is an equity firm. They were selected by the Government as their new investment partner in a public-private partnership involving the SLA. They were to have 49% of the ownership. They however, withdrew. Why? Is the Government now going to look at a new management deal with Emirates which owns and manages a small portion of the shares at the SLA?
Investors come for what is profitable to them and to gain an advantage. We must know how to turn such into an advantage for us. With the SLA there are some problems. There are new investors. There are also Emirates and Qatar Airways.
One of our conditions is that they must take over the loss. The investors say that we should keep our loss. Some are fine with the conditions including the conditions regarding the lease while others aren’t. Those who didn’t like such previously, have now asked again and have expressed interest in working out a deal.
The issue is that as is the case now in the country and as far as the budget is concerned, the income neither matches the expenditure nor is it more than the expenditure but in fact less. If the income matches the expenditure or is more than the expenditure, then we can continue. This is however not the case.
Q : What are the plans to revive the SLA? Will the Government be considering selling it?
Income must be increased. In a previous budget, we even gave USD 250 million to the SLA but things could not be turned around. There will however be no sale whatsoever. There won’t be any sale. We will go for a collaboration on a public-private partnership model.
Now that the Generalized System of Preferences Plus has come through from the European Union, we can export approximately 760 items sans taxes. Then, investors too will come.
Q : What is the current status with regard to ongoing investigations into corruption at the SLA?
They are ongoing. As per the law, one cannot immediately file suits. Suspects are remanded for about three months and then bailed. Afterwards, the cases are heard when indictments are filed. Subsequently, they will either be acquitted or convicted and imprisoned. During the period of 2017-2018, the majority of the culprits and perpetrators will be punished by law.