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The BoI’s mandate in the investigation into SLA was, inter alia, to assess whether there was prima facie evidence of (i) abuse of power by the Board and the Senior Management of SLA; (ii) whether there was evidence of irregularities in the procurement and/or leasing of Aircraft; (iii) whether due process has been followed in the procurement of goods and services by SLA valued at over Rs. 25 million; and (iv) whether there has been external interference adversely affecting the smooth functioning of SriLankan Airlines.
The BoI found prima facie evidence of all four aspects above, reaching appalling proportions.
This trend was more evident from the year 2011/2012 and was seemingly propelled by the former Government through the appointment of former Chairman, Nishantha Wickramasinghe on a full time basis and the appointment of Kapila Chandrasena as CEO.
The BoI’s analysis and findings are structured under the following Chapters:
1] Introduction;
2] The former Chairman and the former Chief Executive Officer;
3] Human resources;
4] Procurement contracts;
5] Blatant external interferences and abuse;
6] SriLankan Catering;
7] Advertising and sponsorship;
8] Air Taxi operation;
9] Re-fleeting of aircraft;
10] Aircraft reconfiguration;
11] Corporate governance.
Due to the very nature of the Report on varying aspects, the conclusions and recommendations on multiple issues are set out under each Chapter and sub Chapters.
The former Chairman and the former CEO
The BoI observed blatant abuse of power by the former Chairman and the former CEO. Their introduction to SLA on an executive level appeared to have been clearly orchestrated for a collateral purpose. The BoI did not see the justification for a full time Chairman, especially considering the fact the said full time Chairman did not have experience in the airline industry.
The BoI observed that the appointment of Chandrasena as CEO was questionable on many grounds, especially since Chandrasena’s only airline experience was a short stint at Mihin Lanka, while his apparent qualifications and experience was in Telecommunications. Furthermore, his appointment as CEO was void of any competitive interview process, further advancing the questionability and suitability of his appointment.
This left SLA with two executive heads, one as head of the Board and the other the head of the Management of SLA who had little or no experience in the airline industry, who had been entrusted with the task of managing the national airline of Sri Lanka.
The BoI can only conclude that this appointment was not motivated in the best interest of SLA, but was for a clear collateral purpose, which was clearly evident throughout the investigation. This, BoI believes, affected the functions of SLA as a whole and was a major contributing factor for the colossal losses that were suffered.
Human resources
The BoI observed that the management of Human Resources is an integral part of the airline Industry. However, it was observed that there was a clear inconsistency in the application of the rules and regulations at SLA, propelled by the influence wielded by the former Chairman, Wickramasinghe, former CEO, Chandrasena, COO, Capt. Druvi Perera and HHR, Pradeepa Kakulawala.
In addition, the BoI observes that certain promotions and key appointments, including the appointment of former CEO, Manoj Gunawardena as Director Sales and Promotions – Europe, a previously non-existent post.
The BoI concludes that there is a serious lack of consistency in Human Resource Policy and its decisions thereby affecting the morale and productivity of the institution. This has also created opportunities for a culture that was conducive for the abuse of power. BoI recommends that the Human Resource Policy, attitude and culture be comprehensively re-evaluated as a matter of priority.
Procurement contracts
Under this Chapter, the BoI analysed (i) General Sales Agent [“GSA”] Appointments; (ii) Outsourcing of SLA’s website and Internet Booking Engine; (iii) On-board Duty Free Services Contract; (iv) Supply and Delivery of Wine and Champagne for On-board use; (v) Award of Tender for the Transportation of Cabin Crew; (vi) Appointment of an Insurance Broker for Aviation Insurance; (vii) Cancellation of Tender for the Supply of Cargo Dual XRay Machine; and (viii) Simulator Contract.
The BoI observed that, from or about 2011/2012 there was blatant disregard of nearly all procurement/tender procedures laid down by SLA. The BoI attributed this to the management control and decision making of the former Chairman, Wickramasinghe and former CEO, Chandrasena.
The BoI observed that many of the decisions pertaining to the above were not in the best interest of SLA.
The BoI observed irregularities in the appointment of GSAs and clear violation of the clearly laid down procedures under the GSA Manual. Special attention was paid to the GSA appointment in Russia and Australia, especially since there was a clear attempt to conceal the real beneficial owners of such GSAs. The BoI observed the involvement of former Ambassador to Russia Udayanga Weeratunga’s with the GSA in Russia, and Dilan Ariyawansa’s involvement in both Russia and Australia questionable and suspicious.
The BoI observed that the Outsourcing of SLA’s website and Internet Booking Engine to M/S Edge Group (Pvt) Limited, who is purportedly a close associate of former CEO, Chandrasena, was not only irregular but resulted in a massive cost and loss to SLA.
The Contracts for the Outsourcing of Duty Free Services and the Supply of Wine and Champagne, both with M/S Phoenix Rising Ventures Limited was consequent to personal representations being made to the former Chairman and former CEO. These contracts were void of any tender procedures. In relation to these two contracts, the BoI observed that certain board papers submitted by the management of SLA suppressed and misrepresented certain material facts.
The contracts analysed under this chapter clearly established the abuse of power of the Board and management at every level, and depicted the stark reality of the working of SLA.
Blatant external interferences and abuses
The BoI observed many instances of unwarranted external interferences and abuses and highlighted a few instances.
One such instance was the release of a cabin crew member, purportedly to work at the Presidential Secretariat. However, it was observed and admitted by the said cabin crew member that she worked at Temple Trees in the office of MP Namal Rajapaksa. What was startling was that the said cabin crew member was paid not only her total basic salary, but 50% of her Minimum Productivity Allowance, which is only available depending on her flying time. In addition, the said cabin crew member was paid an allowance from the Presidential Secretariat totalling approximately. Rs. 87,500 thereby earing a monthly remuneration of approximately Rs. 158,000 a month.
The BoI also observed that the former Minister of Aviation had been illegally granted fuel reimbursements of Rs. 75,000 per month from SLA. The former Chairman or the former CEO had approved such payments, totalling approximately Rs. 2,853,935.04. The BoI observed that the petrol bills submitted had false serial numbers and therefore, such documents are fraudulent documents. The BoI concluded that these matters must be investigated in respect of criminal acts, including committing fraud, misappropriation, fabricating false documents.
The BoI also observed many irregularities in the Security Division of SLA, especially the appointment of Major General Chandrawansa as the Head of Security. The BoI observed that Chandrawansa and several senior staff members were instrumental in ensuring SLA staff were given duty leave to participate in political rallies for the former government.
SriLankan Catering
Sri Lanka Catering (SLC) is a fully-owned subsidiary of SLA and certain aspects of external interference and involvement of the Chairman were considered by BoI. The BoI observed that the former Chairman and Kapila Chandrasena (Board Member) were instrumental in certain functions depicting the abuse of power. The BoI observed SLC had made many donations and sponsorships to political and other functions involving the Presidential Secretariat. In addition, SLC was required to provide an additional vehicle to the former Chairman and to the former Minister of Aviation. There is also evidence of a vehicle obtained by fabricating fraudulent documents in respect of which criminal investigations are recommended.
Advertising and sponsorship
The BoI observed an increasing trend expending huge sums of money for advertising within Sri Lanka and a reducing trend in advertising outside Sri Lanka. This we believe is contradictory to SLA’s marketing policy which has been constantly impressed upon the BoI.
The BoI also observed that SLA has expended a large sum of money for billboards by way of payments to M/S Kumar Stickers. Representations were made, which suggested that M/S Kumar Stickers was chosen at a higher cost to SLAs due to external interference. The BoI also observed that SLA expended large sums for sponsorships solely approved by the former Chairman and former CEO, particularly concerning the Carlton Rugby 7s and the Colombo Night Races.
Air Taxi operation
The BoI observed massive losses consequent to the Air Taxi operation. This was consequent to the complete disregard of ensuring proper procedure. The BoI observed that no feasibility study was conducted before the operation and that the only Independent Assessment Report that SLA obtained was not independent. This was well known to SLA, especially by former CEO, Gunawardena, COO, Capt. Druvi Perera and Pulasthi Jayasinhe.
The BoI observed grave concerns in the marketing of the Air Taxi operation and concluded that there was severe management negligence in the operation.
Re-fleeting of aircraft
The BoI approached the Re-Fleeting of Aircraft through the analysis of (i) the process of re-fleeting; (ii) The Methodology of Financing: Sale or Lease Back vs. Operational Lease; and (iii) The Financial Performance and Status of SLA. The BoI’s main observation was a flaw in the process of re-fleeting, which was irrational. SLA’s approach was an aggressive one on one re-fleeting strategy, instead of a more staggered approach. This appears to have been the requirement by the GoSL. The BoI observed a Business Plan presented in 2010 by the then CEO, Manoj Gunawardena, which provided for a staggered re-fleeting approach. However, former CEO, Gunawardena’s untimely (but planned) exit changed this approach with the induction of Chandrasena as CEO. It appeared that Gunawardena’s exist was orchestrated is order to ensure the GoSL’s wishes were directly upheld, regardless of its effect on SLA.
The BoI considered the process of aggressive one to one re-fleeting completely untenable especially considering the fact that when these decisions were taken in 2011 when SLA was in dire financial circumstance.
In analysing the methodology of financing the re-fleeting operation, the BoI could not comprehend as to why Sale and Lease Back Option was chosen instead of an Operational Lease, especially considering the dire financial circumstances SLA was in.
Another concern was the rationale in SLA wanting brand new aircraft, especially since almost identical designs of aircraft aged four to six years could have been obtained on operating leases up to 50% less of the monthly lease rental when compared to a new aircraft. The BoI also scrutinised the decisions made by the “4 Man Task Force” comprising of former CEO Chandrasena, COO Druvi Perera, HOF Yasantha Dissanayaka and HOE Priyantha Rose. The BoI observed that no objective approach was considered nor was the best interest of SLA considered when decisions were made.
The BoI also scrutinised the role played by Seabury, who acted as a Consultant to SLA. The BoI noted a conflict of interest since Seabury, who participated in the re-fleeting recommendations, was actively involved in the aircraft negotiations with Airbus and Boeing and was responsible for the final selection of Airbus as the supplier. This possible conflict of interest is consequent to the fact that it is customary in large-scale businesses of this nature that a 3-5 % fee is normally paid as a facilitation fee on the purchase of aircraft.
The BoI concluded that a colossal capital commitment of approximately $ 2.3 billion [approximately Rs. 290 billion] on the Re-Fleeting and Financing of new Aircraft acquisitions for SriLankan Airlines was entered into during the period 2010-2013, when the airline had substantial accumulated losses. There appeared to be no real hope of breaking-even and moving to profitability in the very short term and the purchases could not be justified, and such decisions may have been motivated by extraneous reasons.
The BoI considers it prudent to include the Special Observations and Recommendations placed in the Chapter on Re-Fleeting, in the Executive Summary, considering the importance of the issue:
Special observations and recommendations
Committing SLA for an unprecedented financial burden without any hope of recovery on its ailing financial status cannot be seen in isolation. The contemporary and significant changes effected into the management of SLA are obviously connected to the decisions.
These administrative changes include the transfer of Manoj Gunawardena with a view to appointing Kapila Chandrasena as the CEO, who was one of the key architects of acquisitions of MA60 aircraft for Mihin Lanka. At or about the same time, almost all heads were changed in SLA.
The significant policy inconsistencies and failure to adhere to corporate governance standards suggests possible manipulations and leakages at the highest level. The corporate culture of ignoring established rules and regulations on procurement and many vital functions, without any valid reasons and the attempt by the relevant officers to justify obvious deviations makes it possible to come to a reasonable conclusion that there is an ugly side to the disclosed re-fleeting, which is corrupt motive.
Though there is no material for the BoI to point to specific individuals, there is prima facie evidence to initiate a high level criminal investigation into the entire re-fleeting exercise.
In view of the above, the BoI recommends that an appropriate criminal investigation be directed in this regard.”
Corporate governance
The BoI examined the corporate governance structures and standards based on the material available to the BoI and examination of key individuals, who contribute to the governance and decision making of the SLA. Among them were the former Chairman, Nishantha Wickramasinghe, former CEO Kapila Chandrasena, almost all the Heads of Departments, and Head of Groups Assurance & Advisory Services and the External Auditors (Ernst & Young, Chartered Accountants).
The Corporate Governance of SLA was analysed by the BoI on (i) Enterprise Risk Management; (ii) Failure of Operational Effectiveness and Business Standards; (iii) Policy inconsistency and overall optimism; and (iv) The External Auditor.
In relation to Enterprise Risk Management, the BoI observed that the former Chairman, the board and top management of SLA had failed to measure up to the expected standards assuring that the vital elements of enterprise risk management are ingrained in management culture, with the motivational leadership tone set by the top management.
The BoI observed SLA’s Failure of Operational Effectiveness and Business Standards particularly since the former Chairman, the board, the former CEO and top management of SLA had failed to live up to the expected standards, particularly, in adhering to the management practices with diligent control over business standards and to fill in the lacunae in not having in place key business standards noted above. The BoI observed a sever lacuna in the corporate culture, promoting abuse of power at the top.
In its examination, the BoI has noted several instances of significant policy inconsistencies and over optimistic scenario pronouncements. It appears that P.B. Jayasundera, the then Secretary, of Ministry of Finance and Planning had ignored the incapacity of the government to support SLA with the consequential resource needs. The financial forecasts and feasibility studies appear to have been prepared by the SLA management to justify the original objectives and expectation signals of the Secretaries of the Ministries of Finance and Planning and Civil Aviation, the Minister of Civil Aviation and the then President.
The BoI concluded that SLA’s corporate governance was not in the best interest of SLA and resulted in severe abuse. The BoI considered this culture and trend to be one of the main reasons for SLA’s low productivity, low revenue and colossal losses.
