Emirates contract: Report critical

The somewhat acrimonious relationship between Sri Lanka and the Emirates airline over the SriLankan management deal, which critics here have long complained of as being far too favourable to the West Asian carrier, still persists despite on-going negotiations to renew that contract, which is due to expire in March next year

A short confidential report submitted to the Government by an aviation expert recently has among other things cited a series of disadvantageous decisions taken by the Emirates management vis-à-vis the national carrier, including the removal of routes such as Rome, Vienna, Amsterdam, Sydney and Melbourne to make way for “Emirates to increase their frequencies and expand their route structure for their advantage.”

The critical report handed over to Civil Aviation Minister Chamal Rajapaksa said the Emirates management decision to shift SriLankan passenger reservations to Dubai aggravated the feeling among Sri Lankan employees of loss of identity and that the national carrier had been reduced to a subsidiary of the former.

It said that despite the West Asian airline’s claims of exceptional expertise; the Emirates management has for the greater part of last nine years declared losses at SriLankan. “If catering and ground handling operations - the major sources of profit for the airline - are removed, the company will be in dire straits,” the report said.

The report has recommended that SriLankan accounts should be subjected to audit by the Auditor General and in the event of the renewal of the contract it should be for a shorter duration. It has even suggested that the catering service and the ground handling be stripped from SriLankan and their management be given to suitable competitors.

Interestingly despite the adverse climate facing the airline due to the unsettled situation in the country, which was particularly highlighted by SriLankan Managing Director Tim Clark in the annual report for the year ended March 31, 2007 released last week at its AGM, he proposed future expansion. “This includes a major re-fleeting programme which would significantly increase the number of aircraft”, he stated.

The critical report submitted to the Government, however cautions against any such moves.“Under these circumstances fleet expansion and procuring additional aircraft for SriLankan should never be considered. Further losses along with fleet expansion will result in a terrific impact on the dwindling economy and place further burdens on the government of Sri Lanka,” it said.

In his report to the accounts SriLankan Chairman Harry Jayawardena, however said passenger and cargo revenues during the year had recorded growth rates of 10.67 per cent and 15.24 per cent respectively as compared to the previous year.

But what had hurt the airline in its bottom line, according to the Chairman, was the annual fuel bill of the company, which increased by 18 per cent to reach US$224.9 million in the financial year under review from US$ 190.5 million in the previous year, primarily due to higher fuel prices.The sharp depreciation of the rupee versus all major currencies too had a serious negative impact on its profits as all major aircraft related expenses are incurred in US dollars.

The airline, which owned nine aircraft at the time its management was handed over to Emirates in 1998, now owns only three Airbus A-340 aircraft out of a total fleet of 16, according to the latest report.

During the 2006/07 financial year the SriLankan Group had registered an after tax profit of Rs. 862.18 million and had paid a whopping dividend of 30 per cent amounting to Rs 1,543 million from brought forward accumulated profits.

The Sri Lankan Government and Emirates have already concluded two rounds of discussions on May 28 and August 8 in Colombo and have been tight lipped on their outcome. At both rounds Emirates was led by its President Tim Clark and was assisted by two other directors, Garry Chapman and Nigel Hopkins, while the Lankan delegation comprised Treasury Secretary P.B. Jayasundera and Presidential Secretary Lalith Weeratunga.