SriLankan Airlines on cloud nine or under a cloud

Responding to last week’s news item in The Sunday Times titled “Emirates contract: Report critical,” SriLankan Airlines Corporate Communications Department has sent the following response: According to the article, the report erroneously states that the “management has for the greater part of last nine years declared losses at SriLankan”. It is a pity that the author of the report did not look up the annual reports of the airline, which show clearly that SriLankan Airlines achieved profits for seven of the nine years since privatization, including the last five consecutive years.

We are proud to say that SriLankan Airlines has not asked for or received one cent from the Government of Sri Lanka since the day it was privatised, more than nine years ago, or any of its other shareholders.

It is therefore clear that the airline, which directly employs nearly six thousand staff, has not been a burden on the taxpaying public of the country, and has stood on its own feet and expects to do so into the foreseeable future.

This impressive financial record has been achieved despite having faced multiple crises which have been beyond the airline’s control. These include the country’s internal conflict which has time and again resulted in travel advisories against tourists visiting Sri Lanka; the destruction of half the airline’s fleet during the attack on Bandaranaike International Airport in July 2001; the collapse of tourism following the Tsunami; the crisis in the global air travel industry following the September 11 attacks; the impact of the SARS epidemic on travel to Asia; and the air attacks on BIA and Colombo this year which led to the night time closure of the airport.

The only exceptions were in the years 2000/01, when tourist traffic plummeted as the country’s internal conflict flared up, and the airline was also affected by skyrocketing fuel prices; and 2001/02, when the airline coped with the destruction of half its fleet and the crisis in the global air transport industry following the September 11 attacks.

The success of SriLankan Airlines enabled shareholders, including the Government of Sri Lanka and the Group’s shareholding employees, to enjoy the benefits of dividends during four years – 1999, 2003, 2004, 2006 totalling Rs. 3, 562,923,993. With regard to the accounts of the airline, the Government of Sri Lanka is the majority shareholder of the airline, and thus appoints four of the seven Members of the Board, including the Chairman, all of whom are responsible to shareholders. These Directors are appointed by the Minister for Civil Aviation, on the direction of His Excellency the President.

The airline follows the most stringent global policies on Corporate Governance and Risk Management. Its accounts are subject to Sri Lanka Accounting Standards, and are audited by Messrs Ernst & Young.

The airline has been firmly in the forefront of supporting Sri Lanka in every conceivable manner. These include providing funding of several hundred million rupees annually to promote Sri Lanka as a destination; being the main partner of Sri Lanka Tourism in joint promotions of the country; supporting the country’s travel and tourism industries through discounted rates on air tickets for promotional activities; providing cargo carriage at heavily subsidised rates in support of the country’s fruit and vegetables exporters; and supporting the country in the aftermath of the Tsunami by waiving fees of millions of rupees for carriage and handling of relief goods.

The article incorrectly states that the airline’s Passenger Reservations was shifted to Dubai. At no time did this occur. The article also states that the suspension of flights to Rome, Vienna, Amsterdam, Sydney and Melbourne made way for Emirates to increase its frequencies to these destinations. It is strange that the ‘aviation expert’ is unaware that the rights of any airline in Sri Lanka to fly to any country are held by the Government of Sri Lanka through government-to-government bilateral agreements.

It is therefore literally impossible for Emirates, or any airline in any other country, to obtain the rights of the Government of Sri Lanka in order to increase flights to any destination. All airlines take decisions to operate or discontinue operations to various destinations, based on the profitability of each route, and the overall commercial strategies of the company. SriLankan Airlines has periodically introduced new destinations, and discontinued flights to some destinations that are not profitable. This was also the practice prior to privatisation. With regard to the particular destinations mentioned in the article: flights to Rome and Sydney were discontinued following the destruction of half the airline’s fleet in 2001, when the management took a courageous decision to shut down loss-making routes in order for the airline to survive.

The service to Amsterdam was suspended in November 1998, as the route was continuously making losses. Incidentally, Emirates does not fly to Amsterdam! The references to Vienna and Melbourne are completely incorrect, as SriLankan Airlines did not serve these two cities at any time during the last nine years (since privatization). The airline suspended operations to Vienna in March 1996 and Melbourne in March 1993 much before Emirates took over the management of the airline!

The airline’s present marketing plan envisages the resumption of services to all of the above destinations, and it is constantly studying the financial viability of these routes, as well as new destinations in Africa, Europe, the Middle East, India, and the Far East. The airline with its own fleet now serves many more destinations than it did at the time of privatization. These services are supplemented by code share services with other airlines.

The article has mentioned the airline’s inflight catering and ground handling activities. It is the firm policy of SriLankan Airlines to diversify its activities into every related sphere of the air transport industry as with any other international carrier, in order to maximise profits. In this regard, several new ventures have been launched since privatization, namely Dedicated Freighter Services in South Asia; expansion of Aircraft Maintenance Services for other airlines through SriLankan Engineering; the launch of the International Aviation Academy to serve as a training ground for young men and women intent on careers in the aviation industry; and SriLankan Holidays, which provides leisure packages to many destinations worldwide.

The airline has proven its commitment to Sri Lanka, by investing heavily in these activities, and last year commissioned a new Flight Kitchen at the airport for SriLankan Catering at an investment of Rs. 2.5 billion. The article incorrectly states that future fleet expansion would be a burden to the Government of Sri Lanka and the country’s economy. We must categorically state once again that SriLankan Airlines has not asked for or received one cent from the Government of Sri Lanka since the day it was privatised.

The acquisition of new aircraft from time to time since then has been carried out through the airline’s own resources, and commercial financing which is repaid by the airline itself and not by any other party. The airline’s plans to obtain additional aircraft in the near future in order to expand its route network will be carried out on the same basis, and will therefore not require any investment from the Government of Sri Lanka.

The management of SriLankan Airlines is not aware of any report submitted to the Government with regard to the operations of the National Carrier. SriLankan Airlines welcomes inquiries from the media, and we have a dedicated Media Relations Department which is constantly in touch with all media institutions in Sri Lanka, including your newspaper. We encourage you to do so at any time.

Reporter’s note

What we merely carried were extracts from a report submitted to Ports and Aviation Minister Chamal Rajapaksa by an aviation expert. We like to ask how realistic are the profits claimed to have been earned under Emirates management? At the time the management of the national carrier was handed over to the Emirates management it had a fleet of its own aircraft numbering nine, but according to SriLankan’s latest audited accounts out of a fleet of 11 aircraft it operates at present, down from the previous year’s 16, the carrier now owns only three aircraft.

One need not be a rocket scientist to realize that some of the past profits were proceeds from the sale of those aircraft, along with their spares, it owned earlier. Therefore SriLankan is also misleading when it says: “The airline with its own fleet now serves many more destinations than it did at the time of privatization.”

The SriLankan management maintains that half its fleet was destroyed in the July 2001 LTTE attack on the Katunayake airport, but what they do not say is that those planes were insured. Besides what does the country get from the national carrier, which is more than 51 percent owned by Sri Lankans, when it hardly pays any taxes, as it enjoys a tax holiday till March 31, 2013.

We, however, grant that Emirates management has certainly brought in discipline and punctuality to the carrier, but those frailties may have been encouraged by the type of leader the country was saddled with at the time. The then Leader certainly had no sense of time.

We would also like to ask the Government how some of the directors it has appointed to the Board of the airline do roaring business with it in a clear conflict of interest. For example SriLankan Chairman Harry Jayawardena has done insurance business through his company Sri Lanka Insurance Corporation Ltd. to the tune of Rs 671,080, 847 in the year ended March 31, 2007. As to how much insurance business he got from the airline in the previous year is not divulged in the accounts of the airline for 2005/06.

Replying to the suggestion made by the aviation expert that the national carrier’s accounts be audited by the Auditor General, SriLankan states its accounts are subject to Sri Lanka accounting standards, and are audited by Messrs. Ernst & Young, but as far as we are aware some of these so-called reputed private audit firms have yet to clear their names over some highly controversial privatizations, which were recently highlighted by the COPE and the Auditor General. Even much earlier the largest finance company in the country Mercantile Credit Ltd., collapsed in the early 1990s soon after it got a clean bill of health from the same audit firm.

Even in America, auditors have yet to recover from their involvements in financial scandals such as the Enron collapse.