News
Over Rs 741m deficit in maintaining SriLankan’s ‘duty-free’ staff at Mattala sans flights
View(s):The National Carrier SriLankan Airlines (SLA) continues to incur staggering costs on its operations in the now virtually defunct Mattala Rajapaksa International Airport (MRIA), with a deficit of Rs. 741,733,244 accumulated to this day, it was revealed at the Commission of Inquiry (CoI) probing into allegations of large scale fraud and malpractices at SLA, SriLankan Catering Ltd (SLC) and Mihin Lanka (Pvt) Ltd (Mihin) this week.
“According to accounting standards, the term ‘losses’ cannot be employed here because the revenue generated during this period was from third-party airlines such as Fly Dubai and Air Arabia, while the costs incurred were from both SLA and third parties,” said SLA Financial Accounts Manager Kasun Pathirana, while stressing that deficits repeatedly occurred because a substantial portion of SLA’s assets are stored in Mattala, and these cost SLA a lot.
“Since March 2013, both freshly procured assets for Mattala and existing assets transferred from Katunayake, found their way to the airport and now total Rs. 251.35 million. These assets, which have no practical use at present, were a burden on SLA and so most of them were impaired in the accounts.”
“Included in the list is the SLA office building at the airport, which doesn’t generate revenue, but continues to depreciate in value. The building was constructed at a cost of Rs. 71.7 million, but following depreciation, now has a value of Rs. 64 million.
“This amount was then impaired and transferred to the Profit and Loss account as an expense, because the building ceased to yield any revenue, after airlines stopped coming to the airport,” Mr. Pathirana stated adding that the SLA continues to man the Mattala office, in spite of this.
“What are these employees doing at the airport?” asked State Counsel Chathura Gunatilake. Mr. Pathirana responded that he didn’t know how they were being utilised, but stressed that they were indeed a cost to the company.
Central Bank Deputy Governor S R Attygalle testified on the procedures of issuing Treasury Bonds (TB) to infuse capital into the debt-ridden airlines in 2012.
It was established by Additional Solicitor General (ASG) Neil Unamboowe PC through the testimony of a former Deputy Secretary of the Treasury that, though, the minister is empowered to raise loans or issue directives to raise TBs at Treasury, as per the Financial Regulations, it was top senior officials who were the decision makers in the process. “I’m not the first one. It has been the practice since 1997.”
The CoI was told that no proper legal checks and balances, or statutes that stipulated the duties of the top officials were in place at the Treasury, and only Financial Regulations – a set of internal guidelines had been followed for years. The efforts to validate them through Parliamentary approval and to make them legally binding documents, were also not successful in the recent past.
Following the approval of a Cabinet paper submitted by the Ministry of Civil Aviation in 2012, it was decided to effect a capital infusion of US$ 500 million in phases, over five years. The SLA Management requested for an urgent capital infusion of US$ 125 million for 2012, considering SLA’s struggling financial condition.
Mr Attygalle said with the approval of his senior officials, followed by a meeting with top SLA officials, it was decided to issue TBs to raise the amount, to ‘strengthen’ SLA’s cash flow, which was in a negative motion at that time.
ASG Unamboowe argued that top Treasury officials are not empowered to carry out such decisions on their own, without the subject Minister’s approval.
On Tuesday, the CoI was told that the government repeatedly ignored SLA’s interests when they signed bilateral agreements with other countries, which favoured their national carriers. Most of these agreements were with Middle Eastern countries and contributed to the eventual domination of routes to and from Sri Lanka by the Middle Eastern giants such as Emirates, Qatar Airways, Etihad Airways and Oman Air.
SLA Senior International Relations Manager, Nimal Senanayake told the CoI that, between 2003 and 2005, the Government had signed multiple agreements that increased the freedoms of foreign airlines, citing the need to bring in tourists to the country, at a time when arrivals were low due to the war.
“The reason given was that it was in the country’s interests to bring in more tourists, I cannot dispute that,” Mr. Senanayake said. “However, this was detrimental to SLA and the government’s plan to make Sri Lanka a hub. Such hubs require a strong national carrier.”
In addition to the 3rd and 4th freedoms of the air, ie the right to fly from one’s own country to another country (3rd) and the right to fly from another country to one’s own (4th), the foreign airlines were given the 5th freedom. This is the right to fly between two foreign countries on a flight originating or ending in one’s own country.
Also allowed was a quota of up to 35 flights a week. While SLA gets the same quota in return as per the agreement, the poor capacity of the airline ensures that this remains on paper only.
The Middle Eastern Carriers didn’t use their excessively beneficial freedoms at the time, but as soon as the war ended they requested for the full quota to be given at once.
Mr. Senanayake said SLA had made repeated requests to the Civil Aviation Authority and to the government to prevent the full quota being given at once and, instead, to do so in phases.
However, when the proposal was put forward to Oman Air, the Omani Government insisted that it be given at once, and threatened to block SLA from flying over Omani airspace, if they didn’t comply. SLA authorities surrendered meekly.
Additionally, these airlines went beyond what was legally provided and started misusing the 6th freedom, ie the right to fly from a foreign country to another while stopping in one’s own country for non-technical reasons.
Mr. Senanayake said that most airlines used the 6th freedom even where they weren’t legally given it, but, in this case, they were grossly abused. This was one of the reasons that forced SLA out of European destinations such as Paris, Rome and Frankfurt.
In 2003, when Sri Lanka signed an agreement with Qatar, Prime Minister Ranil Wickremesinghe barred representatives from the Attorney General’s (AG) Department and from SLA from joining the delegation, which he headed. This was because SLA had previously opposed some of Qatar’s demands during negotiations.
“Bilateral agreements are indeed made at the highest level under the political leadership, but it is standard practice to have a representative from the AG’s Department as a full member, and SLA representatives as observers when the deal concerns aviation,” Mr. Senanayake said.
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.