SriLankan paid US$1.1 m to Lufthansa com­pany through in­ac­cu­rate in­voices: Wit­nesses

Sunday Times (Sri Lanka) - - NEWS -

For ser­vices ob­tained from 2014 to 2016, the na­tional car­rier Sri Lankan Air­lines ( SLA) paid US$ 1.1 mil­lion to a Ger­man-based aero­nau­ti­cal main­te­nance com­pany through some 15 in­voices found to be in­ac­cu­rate and re­jected by the com­pany later, it was re­vealed this week.

The ques­tion­able in­voices from the Ger­man com­pany Lufthansa Tech­nik (LHT) were not amended and the funds were not re­turned to the SLA as the air­line failed to take up the mat­ter with the Ger­man com­pany within six months as stip­u­lated in the agree­ment. The air­line is at present ne­go­ti­at­ing an­other deal with LHT for a new A320 air­craft and dis­cussing the pos­si­bil­ity of de­duct­ing the ex­cess paid to the com­pany, wit­nesses told the com­mis­sion prob­ing ir­reg­u­lar­i­ties in SriLankan Air­lines, Mi­hin Lanka and SriLankan Cater­ing.

Since 2003, LHT has been of­fer­ing a va­ri­ety of ser­vices, in­clud­ing air­craft main­te­nance and re­pairs. Ini­tially, in terms of the agree­ment, the pay­ments were made di­rectly to the com­pany, but later the pay­ments were brought un­der the In­ter­na­tional Air Trans­port As­so­ci­a­tion ( IATA) when the air­line failed to make pay­ments on time amid dry­ing cap­i­tal funds.

Four wit­nesses tes­ti­fied on the LHT pay­ments with the ev­i­dence be­ing led by Se­nior State Coun­sel Fa­zly Razik.

On Wed­nes­day, SLA's Se­nior Rev­enue Ac­count­ing Man­ager Upekha Abey­sek­era ex­plained to the com­mis­sion how these ad­vance pay­ments were made to LHT, us­ing funds SLA ob­tained through state banks.

She said the air­line failed to se­cure re­funds within six months in terms of the agree­ment, once the rel­e­vant in­voices were re­jected by the en­gi­neer­ing depart­ment.

“With up­front pay­ments, the third party body (IATA) en­ables us to raise funds within a week once an in­voice is fi­nalised. In the mean­time, we would cir­cu­late the in­voices with rel­e­vant de­part­ments for au­tho­ri­sa­tion,” Ms Abey­sekara said, ex­plain­ing the process adopted at SLA on pay­ments with IATA. How­ever, she claimed that SLA's en­gi­neer­ing di­vi­sion failed to take ad­e­quate steps to en­sure that the re­jected in­voices were sent back in time for ne­go­ti­a­tions.

The large- scale fi­nan­cial ir­reg­u­lar­i­ties were ex­posed dur­ing an in­ter nal au­dit in­quiry launched by the com­pany. Ms Abey­sekara said the Com­po­nent Management Sys­tem ( CMS) which came un­der the purview of the en­gi­neer­ing di­vi­sion should have acted promptly to fast track the re­jec­tion process to re­cover the losses in­curred by the air­line.

She told the com­mis­sion that CMS held talks to come to a com­mon ground to waive off the re­jected out­stand­ing in­voices and the in­ter­est for late pay­ments. She said that since the air­line was strug­gling with dry­ing cash in­flow and work­ing cap­i­tal, funds paid to LHT were raised through state in­sti­tu­tions at the ex­pense of tax­pay­ers’ money.

Con­firm­ing that all fi­nan­cial deal­ings with LHT were brought un­der IATA by 2012 as SLA de­layed pay­ments, SLA's Le­gal Af­fairs Chief Malaka Ranas­inghe said there were no ‘ writ­ten amend­ments were made’ to that ef­fect in the orig­i­nal tech­ni­cal ser­vices agree­ment signed be­tween the two par­ties ear­lier.

Com­po­nent Management Sys­tem ( CMS) Chief Ro­hitha Ku­ruppu told the Com­mis­sion that he had re­jected more than fif­teen in­voices from LHT as he be­lieved they were in­ac­cu­rate.

“As the end user, we have to con­sider the time pe­riod, rate for tech­ni­cal ser­vices, in ad­di­tion to age of the air­craft to ac­cept or re­ject a par­tic­u­lar in­voice,” he said.

Mr. Ku­ruppu added that his su­pe­rior of­fi­cer Bharatha Panapi­tiya, Head of Finance at­tached to En­gi­neer­ing Di­vi­sion, ex­erted pres­sure on him to go for ne­go­ti­a­tions with LHT once he re­jected the in­voices for­mally and sent the rel­e­vant in­voices back to him to ini­ti­ate ne­go­ti­a­tions out­side the pay­ment gate­way. This process took more than six months. He also ac­cused his su­pe­rior staff of fail­ing to re­ject the in­voices of­fi­cially be­fore start­ing talks with LHT.

Ac­cord­ing to the wit­ness, an LHT team was here for talks on dis­puted pay­ments in 2015. He ac­knowl­edged that the SLA was not in a good po­si­tion to bar­gain with LHT since it had failed to carry out ad­min­is­tra­tive pro­ce­dures over the re­jec­tion of LHT in­voices.

Tes­ti­fy­ing af­ter Mr Ku­ruppu, the En­gi­neer­ing Di­vi­sion's Finance Chief Bharhatha Panapi­tiya re­sponded to the al­le­ga­tion that he pres­sur­ized the staff to have talks with LHT. He claimed he was merely act­ing in the in­ter­est of the com­pany.

“I re­turned that re­jec­tion let­ter to him with in­struc­tions to at­tach a note along with all the in­voices since that is the pro­ce­dure to ini­ti­ate talks when an in­voice is re­jected. How­ever, Mr Ku­ruppu kept all the in­voice doc­u­ments with him over months. I never asked Mr Ku­ruppu to ne­go­ti­ate on this,” Mr Panapi­tiya said, ex­plain­ing that he had only fol­lowed the pro­ce­dure as stip­u­lated.

On Fri­day, SlA's Credit Con­trol Man­ager Chu­lani Jaya­suriya told the com­mis­sion the now de­funct Mi­hin Lanka owed SriLankan Air­lines more than Rs. 745 mil­lion for var­i­ous ser­vices of­fered in fields such as en­gi­neer­ing, cargo and ground han­dling.

She said the SLA had taken le­gal steps to re­cover the out­stand­ing funds. Mi­hin Lanka closed its op­er­a­tions in 2016 af­ter it crash landed with stag­ger­ing losses within a short pe­riod.

Last week a Mi­hin Lanka liq­uida­tor re­vealed to the Com­mis­sion that the bud­get air­line had as­sets worth Rs. 544 mil­lion and li­a­bil­i­ties amount­ing Rs. 6.1 bil­lion. The Bank of Cey­lon, the Peo­ple’s Bank, the Em­ploy­ees' Prov­i­dent Fund, the Com­mis­sioner of Labour, SriLankan Air­lines and SriLankan Cater­ing had made le­gal claims to set­tle the out­stand­ing pay­ments.

The CoI com­prises re­tired Supreme Court Jus­tice Anil Goon­er­atne ( Chair­man), Supreme Court Jus­tice Gamini Ro­han Amarasekara, re­tired High Court Judge Piyasena Ranas­inghe, re­tired Deputy Au­di­tor Gen­eral Don An­thony Harold and Sri Lanka Ac­count­ing & Au­dit­ing Stan­dards Mon­i­tor­ing Board Di­rec­tor Gen­eral Was­an­tha Jayaseeli Ka­pugama. The sit­tings will con­tinue to­mor­row.

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