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SriLankan paid US$1.1 m to Lufthansa company through inaccurate invoices: Witnesses
View(s):For services obtained from 2014 to 2016, the national carrier Sri Lankan Airlines (SLA) paid US$ 1.1 million to a German-based aeronautical maintenance company through some 15 invoices found to be inaccurate and rejected by the company later, it was revealed this week.
The questionable invoices from the German company Lufthansa Technik (LHT) were not amended and the funds were not returned to the SLA as the airline failed to take up the matter with the German company within six months as stipulated in the agreement. The airline is at present negotiating another deal with LHT for a new A320 aircraft and discussing the possibility of deducting the excess paid to the company, witnesses told the commission probing irregularities in SriLankan Airlines, Mihin Lanka and SriLankan Catering.
Since 2003, LHT has been offering a variety of services, including aircraft maintenance and repairs. Initially, in terms of the agreement, the payments were made directly to the company, but later the payments were brought under the International Air Transport Association (IATA) when the airline failed to make payments on time amid drying capital funds.
Four witnesses testified on the LHT payments with the evidence being led by Senior State Counsel Fazly Razik.
On Wednesday, SLA’s Senior Revenue Accounting Manager Upekha Abeysekera explained to the commission how these advance payments were made to LHT, using funds SLA obtained through state banks. She said the airline failed to secure refunds within six months in terms of the agreement, once the relevant invoices were rejected by the engineering department.
“With upfront payments, the third party body (IATA) enables us to raise funds within a week once an invoice is finalised. In the meantime, we would circulate the invoices with relevant departments for authorisation,” Ms Abeysekara said, explaining the process adopted at SLA on payments with IATA. However, she claimed that SLA’s engineering division failed to take adequate steps to ensure that the rejected invoices were sent back in time for negotiations.
The large-scale financial irregularities were exposed during an internal audit inquiry launched by the company. Ms Abeysekara said the Component Management System (CMS) which came under the purview of the engineering division should have acted promptly to fast track the rejection process to recover the losses incurred by the airline.
She told the commission that CMS held talks to come to a common ground to waive off the rejected outstanding invoices and the interest for late payments. She said that since the airline was struggling with drying cash inflow and working capital, funds paid to LHT were raised through state institutions at the expense of taxpayers’ money.
Confirming that all financial dealings with LHT were brought under IATA by 2012 as SLA delayed payments, SLA’s Legal Affairs Chief Malaka Ranasinghe said there were no ‘written amendments were made’ to that effect in the original technical services agreement signed between the two parties earlier.
Component Management System (CMS) Chief Rohitha Kuruppu told the Commission that he had rejected more than fifteen invoices from LHT as he believed they were inaccurate. “As the end user, we have to consider the time period, rate for technical services, in addition to age of the aircraft to accept or reject a particular invoice,” he said.
Mr. Kuruppu added that his superior officer Bharatha Panapitiya, Head of Finance attached to Engineering Division, exerted pressure on him to go for negotiations with LHT once he rejected the invoices formally and sent the relevant invoices back to him to initiate negotiations outside the payment gateway. This process took more than six months. He also accused his superior staff of failing to reject the invoices officially before starting talks with LHT.
According to the witness, an LHT team was here for talks on disputed payments in 2015. He acknowledged that the SLA was not in a good position to bargain with LHT since it had failed to carry out administrative procedures over the rejection of LHT invoices.
Testifying after Mr Kuruppu, the Engineering Division’s Finance Chief Bharhatha Panapitiya responded to the allegation that he pressurized the staff to have talks with LHT. He claimed he was merely acting in the interest of the company.
“I returned that rejection letter to him with instructions to attach a note along with all the invoices since that is the procedure to initiate talks when an invoice is rejected. However, Mr Kuruppu kept all the invoice documents with him over months. I never asked Mr Kuruppu to negotiate on this,” Mr Panapitiya said, explaining that he had only followed the procedure as stipulated.
On Friday, SlA’s Credit Control Manager Chulani Jayasuriya told the commission the now defunct Mihin Lanka owed SriLankan Airlines more than Rs. 745 million for various services offered in fields such as engineering, cargo and ground handling.
She said the SLA had taken legal steps to recover the outstanding funds. Mihin Lanka closed its operations in 2016 after it crash landed with staggering losses within a short period.
Last week a Mihin Lanka liquidator revealed to the Commission that the budget airline had assets worth Rs. 544 million and liabilities amounting Rs. 6.1 billion. The Bank of Ceylon, the People’s Bank, the Employees’ Provident Fund, the Commissioner of Labour, SriLankan Airlines and SriLankan Catering had made legal claims to settle the outstanding payments.
The CoI comprises retired Supreme Court Justice Anil Gooneratne (Chairman), Supreme Court Justice Gamini Rohan Amarasekara, retired High Court Judge Piyasena Ranasinghe, retired Deputy Auditor General Don Anthony Harold and Sri Lanka Accounting & Auditing Standards Monitoring Board Director General Wasantha Jayaseeli Kapugama. The sittings will continue tomorrow.