Srilankan Airlines Commission Air taxi service incurred indefensible losses

A business plan for the Srilankan Airlines air taxi service was prepared only after 11 months of its setting up and the total operation had incurred a loss to Srilankan airlines, current Srilankan Country Manager for Australia and New Zealand and former Manager Product Development, Ravi Jayathilake informed the Srilankan Airlines Commission yesterday.

He informed the Presidential Commission of Inquiry (PCOI) into irregularities at Srilankan airlines, Srilankan Catering and Mihin Lanka that the air taxi service started in December 2010 and the business plan for the project was presented after 11 months later.

He said that the air taxi service had an indefensible losses after the 6th month of its existence and said the high costs were the main stumbling block. “UL has leased two aircraft on a wet lease basis but I recommended that this should be converted into dry lease,” he said.

A wet lease is an arrangement whereby one airline (the lessor) provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline. A dry lease means that the owner only provides the lessee with an aircraft.

When Deputy Solicitor General Shanaka Wijesinghe questioned about the measures which Srilankan had taken to prevent the losses, Mr. Jayathilake said that the company had checked for more options to promote the service collaborating with various local companies but the given the high costs of operations, Srilankan had to conduct the operations with limited aircraft.

“That is why I disagreed to localize it and if we are localizing the service we had to convert it into a dry lease to reduce costs,” he said.

Srilankan signed an agreement with Kenn Borek Air Ltd, Calgary, Canada on September 16, 2010 to hire two planes on a wet lease where UL agreed to pay USD 1,360 per hour and UL agreed to fly these planes for at least 80 hours per month. However after attempts made by the airline to renegotiate the terms of the agreement, it was decided to terminate the agreement in March 2012.

It was also highlighted at the Commission that the Srilankan management had not taken into consideration about the obstacles that might happen after starting the operations of air taxi services.

Jayathilake informed the Commission that feasibility studies were not done when selecting destinations and he highlighted that number of destinations were selected based on the requested of Srilankan Airlines, Head of Commercial JT Jayaseelan, without a feasibility study.

“Another main stumbling block was that we could not establish a water aerodrome near the BIA. Because of that for a few months we had to use a site in Peliyagoda and that meant that tourists had to travel between 40 to 60 minutes to get there. Earlier UL has identified Negombo Lagoon as a location but they had to shift to Peliyagoda given the stuff resistance of fishermen. We got Dandugama Oya as an alternative site almost 18 months later but that too was too far from the BIA,” he said.

Although Srilankan’s air taxi service failed a number of others including Air Force run Heli Tours are still functional. It was revealed last month at the PCOI that Saffron Air, a subsidiary of John Keells Holdings, now uses the infrastructure created to operate an air taxi service by Srilankan Airlines.