News
SriLankan won’t be sold, public-private partnership likely: Chairman
View(s):
SriLankan Airlines Chairman Ajit Dias
Sri Lanka’s loss-making national carrier, despite reporting accumulated debt of Rs. 64 billion, says it is confident of recovery under a public-private partnership, ruling out any total sale of the national carrier.
The Government will retain ownership — either part or fully — while management will change hands, the Sunday Times reliably learns.
A committee — comprising Treasury Secretary R.H.S. Samaratunga, Public Enterprise Development Ministry Secretary Ravindra Hewavitharana, the Prime Minister’s senior advisor, R. Paskaralingam, Public Enterprise Board Chairman Suresh Shah and SriLankan Airlines Chairman Ajit Dias — is in the process of selecting a consulting firm to facilitate a ‘possible’ Public-Private Partnership (PPP) arrangement, Mr. Dias told the Sunday Times yesterday in an exclusive interview.
Responding to a series of questions on the future of the airline, Mr. Dias said: “I am confident that the steps the airline is taking to re-orient itself into a more financially sustainable entity, together with the support and direction of the Shareholder (government), will result in us being able to transition to a more promising future for the airline and its stakeholders.”
The in-the-news national carrier on Friday reporting its financial results for the year ended March 31, 2016 said total accumulated losses stood at Rs. 64.92 billion against the previous year’s Rs. 56.92 billion. However losses eased to Rs. 8.9 billion, 46 per cent less than the same period from March 2104 to March 2015.
But lower yields, increased finance charges and exchange rate fluctuations worked against the airline, even though losses were reduced largely due to falling oil prices.
Mr. Dias said the airline was not able to benefit from the entire reduction in fuel costs due to the drop in revenues. Revenue fell to Rs.115.9 billion from Rs. 120.4 billion
Excerpts of the interview:
Q – Have you drawn up plans for the restructuring of SriLankan Airlines to make it a profitable venture?
We have drawn up a plan and are implementing it. To respond to the question more fully let me take a few steps back…and explain.
The Cabinet in June last year approved a Restructuring Plan for the company. This was pursuant to a Cabinet Directive to prepare a viable and comprehensive plan.
The Plan which was prepared recognised that for a viable and financially sustainable future, where the airline would not continue to be totally dependent on the Government (GoSL) funding, (as had been in the past), certain fundamental problems had to be addressed and the business model for the airline needed to be modified. We had to see a clear path to recovery at least in the medium term and reverse the loss making trend.
We looked closely at the operations, (sought professional expertise on several aspects where such expertise was deemed necessary) and focused on the following:
(a) A route (network) review and rationalisation.
(b) A fleet re-structuring – addressing the issue of the A350-900 aircraft which are inappropriate and too expensive given the current market realities of diminishing yields and the high lease costs of these aircraft. At the same time the aircraft mix needed to be changed to a more narrow body centric fleet to be more competitive to fly the planned route structures – which are essentially medium and short haul.
(c) The airline also has legacy cost structures and processes which have been built up over the years. This is not an uncommon feature in older state-run airlines. We need therefore to streamline processes and improve productivity.
(d) Lastly, the magnitude of the inherited financial situation was not something that could be reversed entirely by only changing the business model – it needed the attention of the shareholder.
None of these could be done
overnight.
The Route Rationalisation had to be done in a phased manner with adequate notice to both the travel and tourism industry stakeholders and our customers. This is an ongoing process.
The Fleet Re-structuring negotiations (particularly with regard to the A350-900 aircraft) are being handled in consultation with the shareholder in view of the commitments which had already been made before this Board took over. I am happy to say that these negotiations are at an advanced stage.
Costs – these are being addressed and I have to say that some of the operational cost reductions that have been achieved so far contributed to the improved performance during the last financial year. This was as a result of a concerted effort by our staff to save costs and many of our staff came forward with constructive suggestions and initiatives that we were able to implement. We have also been re-negotiating contracts to reduce costs without compromising quality and safety standards. We have to continue to focus on costs as a priority area and in dealing with our costs, we hope that both internal and external stakeholders will come forward and demonstrate flexibility and a long-term perspective and agree on the way forward.
Financial Re-structuring – As you would have seen in the media, the Shareholder has also understood the nature of the funding requirements and the outstanding inherited debt situation and already made some decisions to re-structure the financials.
Given the complexities involved, all of these aspects of restructuring had to be handled in a responsible manner. I am confident that the steps the airline is taking to re-orient itself into a more financially sustainable entity, together with the support and direction of the Shareholder, will result in us being able to transition to a more promising future for the airline and its stakeholders.
Q – Will there be a staff reduction or any extra pay-cuts or benefits reduced (like air travel etc.)?
A re-structuring involves taking a holistic view of any business and what is required to achieve a meaningful turnaround. In our actions so far that is what we have sought to do. Arbitrary decisions on staff reduction and pay-cuts have not been made in the Re-structuring Plan.
Q – Has the airline reached any agreement with its one world alliance partner airlines to partner with? And what type of agreement will the carrier be looking at (Years, terms)?
No. Finding a partner is not under the purview of the airline. The GoSL has appointed a special Committee to provide direction and guidance to the airline on certain aspects of the Restructuring Programme and the broader expectations of the GoSL in this regard (including the possibility of a public private partnership).
Q – Will there be further plans to remove any more routes from its schedule?
Route and Schedule changes and selective seasonal operations are quite routine for airlines and are based on a continuous assessment of network performance. As such this is something we would continue to do based on market devleopments. Where we see new opportunities to operate profitably we will do that as well.
Q – What are the costs incurred by the carrier at present and can you give us accurate or approximate figures on the losses and other costs (like fuel, salaries, and promotions)?
On the group’s performance for the last financial year ending March 31, 2016, without ‘one off’ extraordinary payments related to restructuring activities, the loss stood at Rs. 8.9 billion – a 46% improvement compared to the previous year. Fuel cost is our largest cost component.
Q – The airline statement on Friday says … “The airline is exploring all options in this regard and hopes to continue with the acquisition of more narrow body aircraft, while delaying or otherwise changing the future wide body aircraft already committed”. This seems a contradiction of the Prime Minister’s statement that new aircraft on order have been cancelled. Any comment?
As I have mentioned the A350-900 aircraft are both inappropriate and too expensive for the airline given the current operating environment. I have also mentioned clearly that we are in negotiations on how best to re-structure our fleet going forward – these are complex negotiations involving several parties, and the outcome will determine our fleet mix for the future. Such negotiations are not unusual in industry terms and I would re-iterate that airlines finding themselves in situations such as SriLankan are very much a part of the industry.