Columns

• Subject Minister Hashim sidelined by national carrier, takes damning indictment directly to President; Sirisena and several ministers expressed disbelief
• Ravi denies clash, PM unhappy over why he was not consulted first; Minister tones down comment after meeting at Temple Trees
• Sirisena admits corruption charges against his government; insists that probes on major corruption cases  will be continued

An Airbus A350 -900

By Our Political Editor

In December 2013, when former President Mahinda Rajapaksa chaired a weekly Cabinet meeting, his Civil Aviation Minister Priyankara Jayaratne sought approval for a Treasury guarantee for Srilankan Airlines.
It was to obtain a loan of US$ 175 million from the Dubai-based Mashreq Bank for “additional financing” to fund the “fleet replacement programme.” He said that 13 aging wide bodied aircraft were being replaced with new ones from Airbus Industrie in France. That included four brand new A 350–900 aircraft.

What went unnoticed in Jayaratne’s Cabinet memorandum then were two important lines. He said, “Srilankan Airlines has entered into a purchase agreement with Airbus….. The aircraft deliveries from Airbus are scheduled to commence from October 2014 onwards….” These assertions were factually incorrect and totally misleading. The ministers who gave approval, or at least most of them, would have not known the truth. There was no such agreement with the aircraft manufacturer. Nor was the deal a purchase. It was a lease. Hence, the manufacturers were not in a position to give delivery dates to SriLankan Airlines. The ministers were not told the other details which remained shrouded in total secrecy.

That cycle of secrecy and mystery over multimillion dollar deals seem to be recurring even now. That too, in the virtually bankrupt SriLankan Airlines and has come as a shock for most Cabinet ministers of the Yahapalana (or good governance) government. SriLankan’s new management cancelled the aircraft lease in respect of four Airbus A 350-900 on the grounds that it would be uneconomical to operate. Compensation for termination amounting to US$ 17.7 million was paid pronto for one, since delivery was due soon. The fate of the order for three others remained in limbo as talks went on. It was then claimed that the purchase had been done through AerCap, a Dutch company dealing with leasing and financing of aircraft. It received the funds for the first cancellation.

In fact, the Cabinet Committee on Economic Management (CCEM) had decided to pay compensation to AerCap for the early termination of the order. The payment to AerCap was reportedly on the basis that there had been an agreement with it. Now, in a strange turn of events, set to receive the balance payments, higher than originally negotiated for, is another party. Making it worse is the fact that Kabir Hashim, the Minister in charge of the subject, was not made aware by the SriLankan management about any of this activity. He believes two instalments of the termination compensation had already been made to ‘another party’ even before the Cabinet of Ministers approved it. That is besides US$ 17.7 million paid to AerCap.

Just two weeks ago, the new SriLankan management, which has failed so far to bring about a financial turnaround of the national carrier, sought a Letter of Support from the Government. This is to raise US$ 150 million from a Consortium of West Asian Banks. These banks were not named and the terms of the deal were not given. How it came about is also not clear. The airline’s request has been made through the Finance Ministry, the majority owner of SriLankan shares.

Moreover, the latest loan sought seemed a repetition of a recurring vicious cycle which spawned Sri Lankan millionaires. The present government vowed to stop it during its election campaign. Yet, it continues. The previous administration had raised US$ 150 million from the Standard Chartered Bank in March 2014 to settle the Mashreq Bank loan of US$ 175 million. After paying the last instalment of the Standard Chartered Bank loan, SriLankan Airlines management was now seeking US$ 150 million. The reason given: “The loan facility is needed urgently to fund working capital and operational requirements of the airline as well as for the settlement of payments to AerCap amounting to $ 90.5 million.” The request has been channelled to the Cabinet of Ministers through the Ministry of Finance. It is no secret in the banking world that “middle men” and “negotiators” end up with fat commissions for putting through loans.

Leave alone embarking on a commercially viable programme to prevent the national carrier bleeding the country’s resources, the management has not been able to even identify who was responsible for the Airbus deal. With a seeming closure of the deal at that time, one need hardly say millions of dollars in commission payments would have changed hands. Who received them and how much? A probe into this by investigative agencies to determine how the taxpayers’ money has been plundered by a few with power and influence has not been possible. There was one SriLankan Airlines director who tabled a board paper seeking the identity of the Airbus agent in Sri Lanka and the role of so-called financiers. Like the findings of the Weliamuna Committee of Inquiry, which highlighted a string of irregularities, a more powerful board member sat on it. According to one well informed source, those involved in the shady transactions had very powerful connections within the directorate itself and received “full protection.”

The shocking goings on at SriLankan have been too much to bear even for the minister in charge, Kabir Hashim. He once told the Sunday Times; “A lot of people ask me whether we are selling SriLankan. I tell them ‘No’, we have to bury it.” Since those remarks almost a year ago in March of 2016, one would have thought things have improved to Hashim’s liking. That was not to be. Days earlier, he sought a meeting with President Maithripala Sirisena to explain matters over a highly disturbing situation at SriLankan Airlines. In doing so, he was making clear that he was in no way a party to any questionable transactions or arbitrary actions without government approval. Sirisena gave him a patient hearing, sometime reacting in shock and disbelief. He urged Hashim to keep the Cabinet of Ministers informed of all the developments that had taken place so far.

This is exactly what he did at last Tuesday’s weekly ministerial meeting. He tabled a six-page memorandum which sent shockwaves among ministers. His revelations have raised more damning questions and laid bare the actions of a divided directorate and an inexperienced management. The only way out, it appears, is to raise loans to survive and let the national carrier breathe its last. Here are some of the highlights:

• The negotiations have been with AerCap, whereas the initial Lease Agreements have been entered into with International Lease Finance Corporation (ILFC). Neither the Ministry of Public Enterprise Development nor the Cabinet had been advised as to why the negotiations were with AerCap and not with ILFC. The Agreements entered into with ILFC does not provide any requirements to negotiate with AerCap.
• SriLankan Airlines had on October 4, 2016 entered into three early Termination Agreements without the approval of the Ministry of Public Enterprise Development, the Cabinet of Ministers and the Attorney General.
• The Public Enterprise Development Ministry Secretary had on October 20, 2016 inquired from SriLankan whether the execution of the Early Termination Lease had Cabinet approval. SriLankan had on October 28, 2016 submitted a Cabinet Paper, (Not through the Ministry of Public Enterprise Development) requesting for approval to enter into an agreement. (This has been done through the Ministry of Finance). By this time, SriLankan had already entered into the agreement (even before Cabinet approval).
• The paper (to cabinet) presented by SriLankan stated that the early termination compensation cost was US$ 98 million, when in fact it was US$ 154 million. It was only on SriLankan “Conditions Precedents,” by November 30, 2016 that the compensation amount, if at all, would be reduced from $ 154 million to $ 98 million. The Ministry of Public Enterprise Development has not been informed, to date, whether Conditions Precedents had been met by SriLankan Airlines. (Note: Conditions Precedents means an event which must occur, unless its non-occurrence is excused, before performance under a contract that is due.)
• SriLankan in its paper to the Cabinet had only stated that it would be leasing a new aircraft and extending the lease of another aircraft, when in fact it was two extensions. The lease agreements have not been entered into with ILFC or AerCap.
• Neither the Ministry of Public Enterprise Development nor the Cabinet of Ministers had been made aware of the terms and conditions on which SriLankan was to lease the new aircraft and extend the other two, including an aircraft with Mihin (the budget airline begun by the former government and now absorbed to SriLankan). The non-extension would not have required SriLankan to pay any compensation. The Ministry of Public Enterprise Development is not aware whether these arrangements are in keeping with the Cabinet approved re-structuring plan of SriLankan.
• All previous papers to the Cabinet Committee on Economic Management (CCEM) and Cabinet had not been presented by the Ministry of Public Enterprise Development, which is the line Ministry.

Hashim has made a damning indictment. He said in his memorandum; “I wish to bring to the notice of the Cabinet that the agreement to lease the three aircraft (Airbus A 350–900) had been with the ILFC. The paper (from the Ministry of Finance) states that negotiations were held with AerCap. I am unaware of the reason why the negotiations were held with AerCap and not with the IFLC as reasons had not been stated. The initial Lease Agreements entered into with ILFC do not provide any mandate for SriLankan to discuss any matters arising out of these agreements with AerCap.

“The Minister of Finance had, through a Consultant of the Ministry of Finance, negotiated with AerCap representatives on 1st October, 2016, during which the Finance Ministry had explained the credit limits of IMF. After a detailed discussion, the Finance Ministry had given its concurrence to the envisaged payment schedule as requested by AerCap.”

Here are edited highlights of a time line Minister Hashim set out in his six page Cabinet memorandum:
September 27, 2013 – The previous government entered into an aircraft leasing agreement with International Lease Finance Corporation (ILFC) for four Airbus A 350–900.

June 24, 2015: Cabinet of Ministers approved restructuring of SriLankan. Since they were not sustainable, four A 350–900 aircraft had to be dropped. International consultants had projected a loss of US$ 30 million per year otherwise.

April 2016: The Cabinet Committee on Economic Management (CCEM) approved the termination of the lease of four A 350–900. US$ 17.7 million was paid as compensation by SriLankan for one aircraft due on November 2016. No Cabinet approval had been obtained for this payment.

September 7, 2016: The early termination of lease of the remaining three Airbus A 350–900 was discussed at CCEM. The Committee authorised the management of Srilankan to negotiate a termination cost within the range of US$ 75 million to US$ 85 million. Cabinet gave concurrence to this decision on September 27 and asked SriLankan to conduct further negotiations. There was no finality over entering into an early Termination Agreement but was only asked to negotiate.

September 21, 2016: SriLankan informed CCEM that it had negotiated a “reduced termination fee” from the original US$ 154 million to US$ 98 million. CCEM was of the view that the maximum fee should be US$ 75-85 million and the CCEM asked that further negotiations be conducted with AerCap.

September 28, 2016: SriLankan informed CCEM that there had been a discussion with the Minister of Finance and the representatives of AerCap. The termination fee has been reduced to US$ 98 million with three conditions. SriLankan would lease another aircraft and would also extend the lease of another aircraft currently under use by it. The Minister of Finance had then instructed AerCap to submit a written proposal to his Ministry. No official of the Public Enterprise Development Ministry was involved in these negotiations. Further instructions were given to SriLankan to first obtain legal advice from the Attorney General, and based on that advice, verify from the International Monetary Fund (IMF) whether the proposed payment for termination is on par with its conditions.

October 24, 2016: The detailed SriLankan report submitted to the CCEM (20 days after the signing of the early Termination Agreement on October 4, 2016) specifically stated that the termination payment was agreed to at US$ 98 million. The Ministry of Public Enterprise Development, however, was not given a copy despite a request being made.

A copy of the Termination Agreement had been received only three months later, i.e. on January 23, 2017. It had shown many discrepancies. According to Hashim, the Agreement had been signed with ILFC for the full termination fees of US$ 146.5 million, together with an extra US$ 7.5 million being the security deposit paid by SriLankan that was forfeited. That is how the total of US$ 154 million has been arrived as termination fee. Even before formal approval has been made, a second instalment (first being the forfeiture of the security deposit) has been paid, asserts Hashim. There has been no Cabinet approval for the second payment.

Hashim’s memorandum was the subject of a heated discussion at Tuesday’s ministerial meeting. There were strong exchanges. Ministers called for a ministerial subcommittee to probe the matter. Prime Minister Ranil Wickremesinghe intervened to say that it could be discussed at the CCEM meeting, which he chairs, and resolved. The CCEM itself has been under a cloud with President Sirisena deciding to chair an apex meeting every other week to oversee its discussions and decisions complaining that he was kept out-of-the-loop by CCEM decisions. In fact Sirisena chaired the first such meeting of this apex body last Tuesday. An IMF report which included references to six different targets and how they were met or not met by the government was tabled. Also tabled was a report from Premier Wickremesinghe which included some new plans including an ‘aero city’. As our front page report reveals, measures to boost the government coffers also came up for discussion.

Most ministers were adamant that there should still be a subcommittee. President Sirisena directed that payments be immediately stopped till the matter is fully gone into. He is due to name a ministerial subcommittee. “This is a sad indictment on the entire government,” declared Minister Anura Priyadarshana Yapa at the ministerial meeting. Minister Dayasiri Jayasekera noted that for two long years those concerned have not been able to negotiate a compensation deal. They have not even been able to identify the correct party. He said this was a Shokalapayak or a sad story. Also joining him in protest was Minister Sarath Amunugama.

Premier Wickremesinghe, quite embarrassed by Minister Hashim’s disclosures at a ministerial meeting, met him separately on Tuesday evening at Temple Trees, the PM’s official residence. He did not hide his feelings when he declared that the matter should have been brought to his attention first before being raised at the Cabinet. After all, Hashim is not only a United National Party (UNP) MP but also its General Secretary whilst Wickremesinghe is the leader.

The fact that he chose to go direct to President Sirisena has irked some of his own party colleagues. However, a source close to Hashim said he had no option. SriLankan directorate was openly flouting his instructions and ignoring him though he was the Minister in charge. Even others did not recognise him as minister. “This has never happened in post-independence Sri Lanka”, he said. Also present at the meeting was Finance Minister Ravi Karunanayake. He told the Sunday Times; “contrary to claims in some sections of the media, there were no duels. Minister Hashim explained his position. I cannot comment any further.”

Hashim’s meeting with Premier Wickremesinghe led to him (Hashim) issuing a public statement on Thursday where he said, “Press reports contained certain falsehoods deliberately aimed