Budget 2016 for Aviation: Some welcome moves, others not

The unity Government’s maiden Budget presented on Friday unveiled a host of new measures to ensure new business as well as profitable operations in the aviation sector. However, some proposals are likely to dent much desired high growth.

New business is likely with the Government making it clear that it will pursue an open sky policy with restriction free traffic. “I invite the international airlines to make Sri Lanka a preferred destination,” said Finance Minister Ravi Karunanayake. At present a little over 20 airlines operate to and from the Bandaranaike International Airport.  

Whilst an open sky policy is being welcomed by the aviation industry, the Government has said SriLankan Airlines’ monopoly on the ground handling will continue. However, the national carrier has been asked to get its act together and return to profitability sooner than later. Though an open sky policy was announced, the Government also slapped an increased charge for commercial planes flying over Sri Lanka to 20% from 1 January 2016.

 A measure that is likely to make air travel costlier, 2016 Budget announced an increase in the Embarkation Levy from $ 25 to $ 30. This will be applied for both ship and air passengers. 

Finance Minister also said he propose to increase the contribution to the Consolidated Fund from the Embarkation Levy from present one third to two thirds of the total collection through this levy. Furthermore, a charge will be imposed on Airlines on the sale of international tickets at $ 2 per passenger.

With a view to promoting domestic tourism and aviation in the country, Finance Minister proposed to exempt airlines using domestic airports from ground handling charges and other fees. They will be liable to pay only a license fee of Rs.1.5 million per annum.

To improve the domestic air transportation, three new domestic airports will be established at Digana, Badulla and Puttlam through a Public Private Partnership arrangement.

Finance Minister said there is considerable travel between Africa and East Asia and it is estimated to grow substantially in the next 10 years. As such, the Finance Minister proposed to the Sri Lanka Tourism Promotional Bureau, together with international airlines, to create strategies to attract these tourists and entice them to stopover in Sri Lanka in their travel from East to West.

The 2016 Budget also specifically addressed the future of SriLankan Airlines and Mihin Lanka, as both carriers continue to burden the Treasury. Minister Karunanayake told Parliament that SriLankan Airlines had been badly managed since the management was taken back from Emirates. Its total debt stands at Rs. 158 billion, of which 72% relates to the last three years of the previous regime. 

“This could be mainly due to corruption, cronyism and poor management. To point-blankly state so is an injustice to the taxpayers of this country and also an understatement. This accumulated loss could have financed 45,000 buses, 25 fully-fledged universities, 40 fully equipped modern hospitals and 48,000 houses,” said the Finance Minister. “Unfortunately the revival process of SriLankan Airlines also has been pedestrian,” he added.

The Government however assured that it would restructure and reposition SriLankan Airlines, with professional management inclusive of local and foreign experts to be a regional airline focused on profitable destinations.

“I assure this august house that there will not be any political interference at SriLankan Airlines and that we will turn around this entity towards making it a regional leader and successful profit making national airline. The Government will fully commit to this revival process and will honour all the obligations however, unpalatable they are,” Minister Karunanayake told Parliament during the presentation of 2016 Budget. 

Ground handling and catering operations, which at present are profitable, will be managed as separate institutions serving all airlines. They will operate as independent entities running as common service provider to all airlines.

Focusing on Mihin Lanka, Finance Minister said the budget carrier is also another relic of the Rajapaksa regime that had become a drain on State coffers. 

“We have already initiated a restructuring plan where, Mihin Lanka will be positioned as a “no frills” budget airline. Mihin will concentrate its operations mainly on domestic routes and will limit its operations to selected international routes,” he said.

Though during the Opposition days UNP was a vocal critic, the unity Government, also announced plans to revive the Mattala Airport, which however was described as “a white elephant”.

Earlier in his 2016 Budget speech, Finance Minister said: “Sri Lanka could be termed as the only country in the world to be endowed with an international airport which is not even patronised by domestic airlines let alone international flights. So we have an airport to which airplanes do not land and no airplanes take off which is an ideal location for the Peacocks to flock in isolated splendour.” “The country has become indebted due to the loans taken for the construction of the airport. Our Government is keen to turn around Mattala through a private public partnership, where the airport will be utilised for pilot training, logistic aero warehouse activities, cargo services, etc,” said Finance Minister Karunanayake.

The 2016 Budget proposes to utilise the Mattala Airport as a cargo hub, especially for air freight. 

“In order to encourage these activities, I propose the throughput charges to be fixed at USD four (04) cents per kilogram. I invite integrated courier companies to utilise Mattala airport for their hub operations,” Finance Minister added.

The 2016 Budget also proposed to encourage the private sector to set up flying training school and Maintenance, Repairs and Overhaul (MRO) facilities within the Mattala Airport.