Termination deal: SriLankan pays more than the bond issue loss

The country’s national carrier SriLankan Airlines, now in a deep financial crisis, will make its last instalment payment -- the penalty for cancelling an order for three Airbus A 350– 900 aircraft -- this month.

There is an irony over this total payment of US$ 146.5 million ( more than a staggering Rs 22.4 billion), technically termed “termination fee.” The loss to the State is much more than the money known to be reportedly lost to the Central Bank of Sri Lanka (CBSL) due to the bond scam. According to the Auditor General's report to (the parliamentary Committee on Public Enterprises ( COPE), the estimated loss was Rs 889,358,050 and Rs 784,898,755, respectively in the bond issues of February 27, 2015 and March 29, 2016. That totals more than Rs 1.6 billion. However, the Commission of Inquiry now probing the scam, heard the Central Bank’s retired D e p u t y G ove r nor D. A . Wijewardena testify that according to his calculations, the longterm loss of the impugned Treasury bond auction for a period of thirty years will be Rs. 10 billion.

The termination package, besides the payments, also includes the lease of an A330-200 Airbus aircraft to the recipient. Making it worse is the ironic fact that the Airbus A350-900 aircraft were not ordered by the present management. These were part of a multimillion dollar purchase deal concluded by the previous Mahinda Rajapaksa administration. Who placed the order and who benefited will not be known. The reason – there has been no probe so far.

The settlement is in terms of a “Termination and Amendment Agreement.” For SriLankan Airlines, Chief Executive Officer Suren Ratwatte signed it whilst Sean Sullivan, Chief Executive Officer did so on behalf of the International Lease Finance Corporation ( ILFC). The funds, however, were remitted to AerCap Global Aviation Trust’s account in London with the Citibank.

Upon the signing of the agree- ment, an immediate payment of US$ 10.5 million was made. Thereafter, from January to June (six) instalments of US$ 13.3 million were paid. In addition to the “Termination Fee,” the agreement has also allowed Aercap to retain a security deposit of US$ 56 million.

This agreement had also made provision to exclude Value Added Tax ( VAT) and other taxes from the “termination fee.”

As part of the deal, SriLankan Airlines has also offered on lease to Aercap an Airbus A330-200 aircraft used by Mihin Lanka under the “Te r m i n a t i o n and Amendment Agreement.” This is an aircraft the national carrier had leased in November 2011 from Whitney Leasing Limited. The new lease is to be extended until December 7, 2028 or the date when the “Design Service Goal Limit for the aircraft is reached.”

The “Te r mination and Amendment” agreement was approved by the Cabinet Committee on Economic Management (CCEM).