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Rs. 147 billion aircraft deal: SriLankan defied Cabinet decision following Treasury Secretary’s advice
Ignoring a cabinet decision, SriLankan Airlines moved to procure ten aircraft at a total cost of Rs. 147.7 billion, after the then Treasury Secretary advised that cabinet approval was not necessary.
SriLankan Airlines’ Finance Department Chief Yasantha Dissanayake made this claim while giving evidence this week before the Commission of Inquiry (CoI) investigating allegations of large-scale fraud at SriLankan Airlines, Sri Lankan Catering and Mihin Lanka.
In 2013, the airline wanted US$ 780 million to revive its crippled financial position and, of this amount, it wanted US$ 80 million immediately for re-fleeting purposes, the witness said. He said the board assumed that re-fleeting was the best way out of the financial mess.
The commission was told that the Civil Aviation Ministry had submitted a cabinet paper to this effect, but the Cabinet, at its April 18, 2013 meeting, took a unanimous decision to defer this request.
Mr. Dissanayake said another meeting had taken place at the General Treasury two days earlier. To support his claim, he read from an email written by former CEO Kapila Chandrasena. The email reveals that the then Treasury Secretary P.B Jayasundara had announced at the meeting that SriLankan being ‘a public limited liability company with an independent board of directors’, could make any investment decision without having to wait for cabinet approval.
According to the email, the airline’s then chairman Nishantha Wickramasinghe, then Civil Aviation Ministry Secretary R. Ruberu, and Mr. Chandrasena nodded in agreement to Dr. Jayasundara’s statement.
The former Treasury secretary had also suggested having the cabinet paper withdrawn.
Mr. Dissanayake said he came to know about the Cabinet decision to defer the airline’s request only when he appeared before the Parliamentary Committee on Public Enterprises (COPE) in 2016 or 2017. “I was surprised when I found out,” he said.
But Additional Solicitor General Neil Unamboowe, P.C, who led the evidence, pointed out that the senior employees including the witness, would have had an inherent instinct to check the very next day whether their request was approved or not.
“You could have at least requested for a copy of the Cabinet decision or checked with the ministry,” he said. “This is because if the Government didn’t approve it, the company couldn’t take one step further in this regard.”
The commissioners then discussed the law pertaining to the former Treasury Secretary’s statement, especially in the light of the position that existed before the 19th Amendment, and whether it allowed funds to be allocated in such a manner.
“Whatever the law may have been, the SriLankan board of directors having made a request for funds to be released, had then decided to put its foot down and let extraneous things occur,” said Commission Chairman and retired Supreme Court Justice Anil Gooneratne.
The airline had entered into agreements totalling Rs. 147.7 billion to procure six A330-300 and four A350-900 aircraft that the board was adamant on, despite accumulating Rs. 52.8 billion in losses up to 2013. However, most of these agreements were cancelled following the change of government in 2015.
The decision was to buy the A350-900s and obtain a sale and leaseback for the six A330-300s. The price quoted by Airbus following many rounds of talks at the insistence of the board, was US$ 109.9 million for an A330 and US$ 136.3 million for an A350.
SriLankan had managed to procure one A330-300 on a monthly lease rental of US$ 890, 228 from a lessor. This flight had been earlier earmarked for Japanese budget airline Skymark. It was on the verge of bankruptcy and couldn’t afford it. The monthly lease payments for the other A330-300s that SriLankan ordered were all above the US$ 1 million mark.
Mr. Unamboowe asked the witness why SriLankan had been in a mighty rush to procure the brand new A330-300s and A350s for a price above the means of the dwindling airline, when it would have been more prudent to wait for better deals.
The witness responded that it was the board’s decision and it had also been suggested in the company’s business plan.
Mr. Dissanayake had previously mentioned in his affidavit that there was no emergency to change the aircraft, except for the near-dead A340s.
Assisted by Senior State Counsel Fazly Razik, State counsel Leshan Rathnayake and Chathura Gunathilaka, Mr. Unamboowe then proceeded to demonstrate to the commission how SriLankan’s spending plans contrasted with budget allocations of ministries.
In 2013, the education budget was only 37.9 billion and the healthcare budget was Rs. 93.5 billion. Commissioner and retired High Court Judge Piyasena Ranasinghe interjected that these were government allocations whereas SriLankan was a company. Mr. Unamboowe responded that the majority shareholder of SriLankan was the Government and the airline was using public money.
“That is the reason this commission was appointed, your honour,” he said.
President Maithripala Sirisena’s Chronic Kidney Disease treatment scheme was also cited as an example to show the contrast. The project had cost only Rs. 403 million six years later. The lawyer declared that there were close to 25,000 serious kidney patients in 2013, while the airline was preparing to spend billions mindlessly.
The Commission 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 from Tuesday.