SriLankan Airlines – marrying off an unattractive bride with no dowry

“The leases for these aircraft were clearly artificially inflated. Just for one A350 aircraft we are paying AerCap (the leasing company in France) $1.4 million per month. Even the highest lease would have been about $1 million. For each A330 aircraft the government is overpaying $385,000 to $400,000 every month which is about 20 – 30 per cent more”

The SriLankan Airlines has got a handful of proposals in response to its Expressions of Interests (EOI) for the national carrier’s restructure and its budget carrier Mihin Lanka is to merge with the parent with the brand image of the smaller airline being discontinued, it was announced on Thursday.

Public Enterprises Development Minister Kabir Hashim and his deputy, Eran Wickramaratne in a joint media briefing said that the two airlines will combine into one SriLankan Airlines brand to cut down operational costs. He reiterated that since this is a merger the existing staff will not be affected and their ‘jobs’ will be secure.

It was the first media briefing on the loss-making national carrier after the government earlier this year announced sweeping changes including directing the Treasury to take up a large part of the loss, and looking for a management partner. The Ministry recently ran adverts in national newspapers calling for ‘expressions of interest’ to select financial advisory in this regard for which the applications were closing today (July 24).

Financial advisory to restructure the national carrier is being coordinated by NSB, which acts as the lead manager and Mr. Hashim said once the RFP are shortlisted, based on the proposals they will look for a suitable plan. On Hainan Airlines Co Ltd. of China being interested (as reported in the media), he said that no formal application has been made by them. Forensic audit It was stated that a forensic audit is currently being undertaken by an international organisation on the report by the lawyer J.C. Weliamuna probe which highlighted serious shortcomings and corrupt decisions at the airline during the tenure of the previous regime. This audit will show the disparity in pricing of the aircraft that were ordered by the last regime, Mr. Wickramaratne said. After paying a fine of US$15 million to cancel one Airbus A350 aircraft, of the eight Airbus A350 the last regime ordered three years ago, the Ministry is trying to find buyers for dry leases (leasing only the aircraft) for another three A350. Along with the seven A330 aircraft that were ordered, the total bill for these 13 aircraft was $2.3 billion.

SriLankan Airlines has taken delivery of all seven A330 aircraft but the eight A350 aircraft were to be delivered in two consignments with the first arriving in 2016 and the second shipment from 2019-2020.

In April Prime Minister Ranil Wickremesinghe cancelled four A350s that were to be delivered. As they were in production, the Ministry only managed to cancel one after paying a $15 million penalty. Mr. Hashim told the Business Times that only one of the three A350 aircraft due to arrive into the country is close to being completed which is why the penalty. “We are still to ‘cancel’ the rest and we saw that we couldn’t simply cancel them as they were already in production. We are in discussion with interested parties and airline companies trying to see how best we can dispose these aircraft. But we're being charged for each day of the manufacturing process which is why we need to expedite the disposal because the charges will be high once they get to the latter stages.”

The A350 aircraft that is nearing completion is expected to be delivered in October. Mr. Hashim said the Government was working to find other carriers willing to take on the A330s and new A350 aircraft as the lease payments for the government were astronomically high.

“The leases for these aircraft were clearly artificially inflated. Just for one A350 aircraft we are paying AerCap (the leasing company in France) $1.4 million per month. Even the highest lease would have been about $1 million. For each A330 aircraft the government is overpaying $385,000 to $400,000 every month which is about 20 – 30 per cent more,” he said. Given that the lease for the A350s is for 12 years Sri Lanka hav- ing to pay $230 million if they don't find buyers, he said working out the figures.

Details of the wet lease of a SriLankan Airlines aircraft to Pakistan International Airlines (PIA), a development which was earlier reported in the Business Times (BT), were also revealed at the briefing. Early this month the BT said that the national carrier is in talks to re-lease three A330 aircraft to PIA. The two ministers told media that the aircraft currently flying to Paris, Rome and Frankfurt would be diverted to PIA. “PIA will use the A330 aircraft which is to be handed on a wet lease (an agreement that will provide a crew, maintenance, and other services needed for the aircraft) to fly their London to Lahore-Islamabad routes and we hope to eventually handover three more A330 aircraft once negotiations are finalised,” Mr. Hashim said adding that SriLankan management is in Islamabad and that by this week the deal will be finalised. Official sources said that already the PIA has issued clearance to the SriLankan staff to apply for their visas. Mr. Hashim said initially they will send the male staff. He added that costs of the leases have not yet been finalised. “But we hope to hand over the rest of the aircraft on dry leases or on the best possible terms.” The government in a bid to absorb the Sri Lankan Airlines debts has led to the Treasury tabling a Cabinet paper requesting to grant some $85 million to SriLankan Airlines and $6 million to Mihin through the three state banks.