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Friday, 22 July 2016 00:00 - - {{hitsCtrl.values.hits}}
Dynamic duo? Public Enterprise Development Minister Kabir Hashim and his Deputy Eran Wickramaratne outline plans to turn around debt-laden SriLankan Airlines
–Pic by Lasantha Kumara
By Uditha Jayasinghe
Taxiing to take-off on its restructuring plans, SriLankan Airlines will hand over its European route-plying A330 aircraft to Pakistan International Airline (PIA) with the crew and delivery of the first one already finalised for next month, top Government officials said yesterday.
Public Enterprise Development Minister Kabir Hashim along with his Deputy Eran Wickramaratne, outlining a host of new measures to turn around the fortunes of the debt-ridden national carrier, told reporters that the aircraft currently flying to Paris, Rome and Frankfurt would be diverted to PIA.
SriLankan officials are presently in Islamabad ironing out the details of the handover, including possible logo changes and crew security, they said, with the first aircraft to be handed over in August on a wet lease. Last month SriLankan announced they would be pulling out of the Frankfurt and Paris routes by October while Rome was dropped in February.
“PIA will use these aircraft to fly their London-Lahore-Islamabad route and we hope to eventually handover three more aircraft once negotiations are finalised,” Minister Hashim said. “The costs of the leases have not yet been finalised but we hope to hand over the rest of the aircraft on wet leases or on the best possible terms.”
Hashim insisted the step was taken because the European routes have “low yields” and expressed confidence the tourism industry would continue its robust growth without direct flights from these destinations. The duo insisted the airline would concentrate its resources on increasing regional flights; that are shorter, have more passengers and higher profit margins.
“If you want to fly to Rome would you fly SriLankan or would you book the cheapest possible ticket?” questioned Wickramaratne. “You would pick the cheaper ticket and other travellers are no different. There are plenty of Emirates, Etihad and Qatar flights to the Middle East and we plan to increase SriLankan flights to Dubai, Abu Dhabi and Oman to funnel these tourists to Sri Lanka.”
SriLankan is losing the price war waged by the well-heeled Middle Eastern airlines that combine strong marketing campaigns with good service to attract customers, the ministers stressed. However, SriLankan cannot afford to let its aircraft flying to Rome, Paris and Frankfurt sit unused, resulting in the agreement with PIA.
“Currently operational losses of SriLankan is $ 993 million but with liabilities it increases to $ 2.1billion, making it a hard sell. Just this week the Treasury released $ 88 million for debt payments. At the moment the Government has given the option of absorbing this loss if an international partner can be found but it all depends on the negotiations. At the moment no formal application has been made by any carrier,” Minister Hashim said in response to questions of whether popular Hainan Airlines Company Ltd. of China has made any overtures.
However, the ministers confirmed that a Chinese company had expressed interest in managing the Mattala International Airport during Prime Minister Ranil Wickremesinghe’s visit to Beijing earlier this year and discussions were ongoing.
“The only condition imposed by the Prime Minister is that any company taking over must be willing to absorb the loan and interest payments on Mattala.”
Both ministers were extensively critical of SriLankan management under the previous Government headed by former President Mahinda Rajapaksa and were emphatic that investigations would intensify once an ongoing international forensic audit report is finalised.
“This is a national crime and we have no intention of protecting anyone. There is no question of the crime but finding evidence and following due process is time consuming but we are determined to do things right,” said Wickramaratne.
The Government is scrambling to save millions of dollars in lease payments for three Airbus A350 aircraft, which the previous Government ordered, after paying a fine of $ 15 million to cancel the first one.
The Government of former President Mahinda Rajapaksa in 2013 ordered eight Airbus A350 and seven A330 aircraft in a $2.3 billion deal. SriLankan Airlines has already taken delivery of all seven A330 aircraft but the eight A350 aircraft were to be delivered in two batches with the first arriving in 2016 and the second from 2019-2020.
However, in April Prime Minister Ranil Wickremesinghe announced the cancellation of four A350s that were to be delivered as the second batch leaving SriLankan Airlines to deal with four A350 aircraft. By the time the new Government re-examined the deal three A350 aircraft had already gone into production but they were able to cancel one after paying a $ 15 million penalty.
Of the three remaining A350 aircraft one is nearing completion and is expected to be delivered in October. Public Enterprise Development Minister Kabir Hashim acknowledged the Government was working hard to find other carriers willing to take on the A330s and new A350 aircraft as the lease payments were astronomically high.
“The leases for these aircraft were clearly artificially inflated. Just for one A350 aircraft we are paying AerCap $ 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. Given that the lease for the A350s is for 12 years we will end up having to pay $ 230 million,” he said.
AerCap is the world’s largest airline leasing company with 1,640 owned, managed or on order aircraft in its portfolio and serves approximately 200 customers in 80 countries. The Government promised payment to Airbus and, following international practice, Aercap made payments to Airbus and then the Government leased the aircraft from AerCap.
