‘CEO’S ARBITRARY DECISION COST OVER HALF OF AIRLINE’S ASSETS IN 2013’

Financial Management Head tells before PCOI

The decision taken by Srilankan to purchase four Airbus A350-900 and lease another four amounted to more than 50% of the total Srilankan assets in 2013, Yasantha Dissanayake, Head of Financial Management at Srilankan told the Presidential Commission of Inquiry (PCOI) on irregularities at Srilankan Airlines, Srilankan Catering and Mihin Lanka yesterday.

It was revealed to the Commission that the Company act’s 184.2 states that if there is a major transaction, the board needed to adopt a resolution. However, the decision to purchase these aircraft was taken by CEO Kapila Chandrasena, without telling the board at the first instance. The Board was informed after the deal was made.

On an email sent by former CEO Kapila Chandrasena to Dissanayake on 12 August 2013, Chandrasena referred that the ‘shareholder’ has instructed him to choose the Airbus company and the type of the aircraft. In the email Chandrasena instructed Dissanayake to make the deal but this was informed to the Board only after the deal was made.

When Additional Solicitor General (ASG) Neil Unamboowe PC, asked Dissanayake who was the shareholder former CEO referred to, since the Treasury is the main shareholder, Dissanayake informed that then Secretary to the Treasury PB Jayasundara might have given the instructions.

Dissanayake added that the deal was cancelled later and the decision to cancel four Airbus A350-900 leases in 2016, which ultimately led Srilankan to suffer a loss of Rs.14.3 billion (USD 90.5 million) due to a cancellation penalty, was taken due to a new business plan approved by the board of directors.

He added that the sequence of events started with the new Government came into power in 2015, refusing to pay the last balance budgetary allocation of US$ 510 million for capital infusion that commenced under the Rajapaksa administration. “We were to receive US$ 125 million in 2015 and we didn’t get it. When we requested the cabin for the money, they asked us to come up with a new business plan. This was prepared internally,” he said.

The business plan took into account the directives given by the new government to make the airline more commercially oriented. When these Airbus A350-900 aircraft were leased, in 2013, the airline was looking at being a full service carrier which wanted to operate to long haul destinations. However, in 2015 it was decided that most long haul flights would be cancelled.

“So there was no need to have a lot of Airbus A350-900, which were long haul aircraft. Also, the market for long haul, wide-bodied aircraft market was fading, and the prices declined. So we also felt that we were paying too much. That was why the proposed business plan to postpone, re-negotiate or cancel the purchase of the Airbus A350-900s,” he said.

In 2013, the previous management of Srilankan decided to purchase new A350 wide-bodied aircraft. In 2016, the management -- appointed by the new government -- cancelled the first four Airbus A350-900 leases. The Airline suffered a loss of Rs.14.3 billion (US$ 90.5 million) as surcharges, which accounted for half of the losses in the financial year 2016-2017. Moreover, UL was compelled to lease an A330-200 aircraft, as a part of the cancellation agreement. This plane has been grounded since its acquisition and Srilankan is paying Rs.1.3 billion per year for this grounded aircraft as lease.

According to recent revelations made by the recent COPE report, AERCAP Company from which Srilankan had obtained the A350-900 on lease, had initially asked Srilankan to pay a surcharge of US$ 115 million for the termination of the agreement for the three aircraft. However, after negotiations AERCAP had agreed to reduce the surcharge to US$ 98 million under four conditions.

The conditions were ‘paying every installment on the agreed date; extending the lease period of A330-200 MSN 627 aircraft by 10 years; implementing a lease agreement for A330-200 MSN 1008 aircraft; and transferring to Sri Lankan Airlines two narrow-bodied aircraft belonging to AERCAP which had earlier been leased to Mihin Lanka.

The decision to purchase these aircraft was taken by CEO Kapila Chandrasena, without telling the Board at the first instance. The Board was informed after the deal was made