Decision on SriLankan shortly

A government-appointed committee negotiating the continuation of the Emirates management contract of SriLankan Airlines is due to hand over its report to President Mahinda Rajapaksa later this week.

And it all points to a continuation of Emirates managing the airline for another term – however with more flexibility to the board of directors, authoritative sources close to the negotiations said.

Dubai-based Emirates, which has tremendously benefited from the stake in Sri Lanka’s national carrier, is keen to extend the 10-year agreement, which expires in 2008 but there is opposition within the government, the opposition and also the travel trade. SriLankan CEO Peter Hill has been quoted in foreign news reports as saying most forward plans are on hold due to the current negotiations.

Industry sources said the Dubai-based airline has got SriLankan Airlines ‘so much under its wing’ that like-it-or not, there is no other option other than continuing with the management contract.

“If the government is to pull out of the management contract and or buy over the Emirates stake, the investment is enormous and uneconomical,” one source said. SriLankan Airlines’ entire computerized booking and other financial operating systems are all linked to Emirates in addition to decision-making or control of routes.

“The government can’t simply afford to pull out and start afresh because most of the segments and sectors are controlled by Emirates,” he said. SriLankan officials declined to comment except to say the negotiations are continuing.

The committee was appointed recently by the president to analyse and report on the agreement and how best the government should move forward in this pact. The committee comprises airline chairman Harry Jayawardene and directors - Sanath Ukwatte, Nishantha Wickremesinghe (a brother-in-law of the president) and Raju Chandiram. It also includes Presidential Secretary Lalith Weeratunga, Treasury Secretary Dr. P.B. Jayasundera and Ports and Aviation Secretary T. Collure.

The sources said the government wants more control in the affairs of the airline because currently the management doesn’t or rarely reports to the board of directors on most issues including appointments of senior managers, procurement and route decisions. “The government wants a say in these decisions and these are among recommendations that would go to the President,” the source said

“There has been no transparency and accountability to the board in the management of the airline,” he said.

The tourism industry has also been unhappy over Emirates’ water-tight control of the national carrier and is seen backing the new budget carriers being launched in Sri Lanka including the one promoted by Presidential Advisor Sajith Vas-Gunawardene with Treasury input.

Emirates took a 40 percent stake and full management control in the national carrier in March 1998 for nearly US$70 million. It upped its stake to 43.6 percent subsequently while the government had 51 percent control. The balance is held by the employees

The deal signed in 1998 also included a monopoly on international routes that ended two years ago, allowing new entrants to carry international traffic out of Sri Lanka.

The Emirates agreement includes exclusive rights for all ground handling and airline catering at Bandaranaike International Airport.

Operating with 14 Airbus planes, SriLankan Airlines flies to 49 destinations in 28 countries and has recently expanded in India.