Emirates chief talks of plans but mum on AirLanka deal

Exclusive to The Sunday Times

By. Frederica Jansz

Emirates Airlines' Chief Executive Officer Tim Clark was in Colombo last week to finalise details with the Public Enterprise Reforms Commission (PERC) for the future partnership with AirLanka. In an exclusive interview with The Sunday Times—the first with a Sri Lankan newspaper— Mr. Clark said he hoped negotiations would be completed soon and added he was confident that the partnership would be beneficial for both AirLanka and Emirates. Describing Emirates bid for AirLanka as a viable investment with plenty of potential that would soon reap benefits, Mr. Clark said the national carrier would be run the Emirates way. But he was cagey about on-going negotiations saying they were "propriety matters." Excerpts:

Q. Mr. Clark, why is Emirates Airlines interested in a partnership with AirLanka?

A: Because all the studies we have done have indicated that this would be a very good investment for Emirates.

Q: But what does Emirates stand to gain by such an investment?

A: A return on our capital. A belief that AirLanka will become an important airline in this part of the world and that with a joint partnership, the two airlines can reap mutual benefits and enjoy facilities by forming a close bond. This takes us back to the investment appraisal, one of sheer hard-nosed economics. We, at Emirates believe that this is good for us and we know that it will be good for AirLanka, too. So there is going to be a flow both ways in terms of economic benefits because of our involvement.

Q: What is the capital investment of Emirates in AirLanka for a 40% equity share?

A: I am not at liberty to say at this stage. That is a propriety matter between the government of Sri Lanka and Emirates.

Q: But the government is bound to tell Parliament how much it got for the 40 % equity share of Air Lanka.

A: So be it. That's the government of Sri Lanka's affair. I am not at liberty to discuss that. If that is to be the case then in good time, everybody will know about it. But at this stage of the game we have not signed any agreement with the government of Sri Lanka though we are fairly close. Propriety information must be retained, and we must respect the wishes of the government of Sri Lanka as to what it wants here. I am not sure that in any kind of negotiations parties should be obligated, prior to contract signatures to divulge the commercial terms of an agreement, in so far it could compromise the ability to continue those negotiations.

Q: Yet, this has given rise to allegations that Emirates is not playing fair by the future partnership with AirLanka as there is a lack of transparency in the ongoing negotiations with PERC.

A: From what I have seen, I believe the Government of Sri Lanka to be honest, straightforward and acting in the best interests of the country. I will stand by that and I am sure that the closeness of the nature of the terms in the public domain later on will validate everything that we are saying here.

Q: At what stage are the negotiations between Emirates and PERC right now?

A: They are at an advanced stage. That however is not to say that there are not a few difficulties. But I think the spirit is there to see it through to its conclusion. I cannot say exactly when, but I hope it will be soon.

Q: How soon? By April 1st?

A: Let's say it would be nice if it were ready by then. It would make good commercial sense to start off at the beginning of a new financial year for Air Lanka. But then again we must first resolve the issues rather than be driven by a time scale which is unachievable. But we believe we are not far away from that goal.

Q: What does your business plan consists of to re-structure AirLanka?

A: The business plan has set out a course for the next eight to ten years for AirLanka. We believe this is a workable proposition. It provides the financial qualification that the government of Sri Lanka was seeking. At this stage I cannot elaborate on that plan. It is still in the realms of negotiation with the government. I will say that we will demonstrably add value to the business of AirLanka in many ways. We believe that our business plan on a stand-alone basis is very workable, profitable and will bring AirLanka international repute, because it will be the Emirates way of doing it. We hope that the management and the employees of AirLanka will participate in all this. We will ensure the communication of our objectives and an internal awareness of what we are doing is upgraded, so everybody can be included. Every one in AirLanka will know why we are doing what, and above all what we are going to achieve. It's important that the government satisfies itself and accepts that business plan as the bedrock for the partnership with AirLanka.

Q: What would constitute the new management of Air Lanka? How many of your directors will actually be on the board of AirLanka?

A:. Obviously there will be some directors from Emirates, but there will be one board. The government of Sri Lanka will have the right to nominate the chairman. And that is fitting. It should be a Sri Lankan who should be seen to be head of the company. Our management is within a custodial framework. We have many checks and balances in the agreement that we are entering soon, with the government of Sri Lanka. We have at all times tried, and I think have persuaded the government that this is a pristine arrangement. That whatever we do it will always be in the best commercial interests of AirLanka, first and foremost. If there is any reason to believe otherwise we are fully prepared to become accountable for that. Emirates will strive to work for the best commercial interest of the country and make AirLanka an airline the people of this country will be proud of. This will be an airline that they will want to use as an emissary and an ambassador in the international market. We have done that very successfully with Emirates Airlines and we hope to do the same with AirLanka.

Q: Does this mean then that AirLanka at present is not upto standard?

A: No, I am not saying that. AirLanka is a well run airline. I think its product is a good one and it will stand any benchmark testing. There are however certain difficulties on where it's going, why it's going, what it's doing..... and that is no reflection on individuals, or entities. This is just an evolution of the way things have happened. It is because of the good state AirLanka is in today that Emirates can build on it a very sound platform. If the airline was in an appalling state it would make our life more challenging. I have flown on AirLanka many times and am extremely impressed by the quality of the inflight service.

I have seen a willingness amongst the cabin crew which surpasses perhaps the tools they are given to do the job. They are friendly, polite, and accommodating. For me and my colleagues in Emirates we labour on the product and the front end of our service delivery because we are a small airline operating in major international markets. Emirates wishes to be the best, and we will be the best on every route we fly. When we looked at AirLanka and the way it is working, we know it's not going to take that much to make this airline pretty awesome in this region. It's because AirLanka has a lot to offer and has great potential that Emirates is here today. AirLanka has a great workforce and a willingness to get on with the job, which I know Emirates can provide as a catalyst for that process.

Q: Would not the future partnership be detrimental for AirLanka given that Emirates is considered a competitor?

A: It is true, we have a number of routes in parallel. If you look at the consistency pattern in AirLanka today they are actually very good, particularly on their European operations. I suppose this is where they believe a great degree of competition exists, from their access to European markets. Frankly, in my own view, I am not convinced of that at all. Sri Lanka is underserved through scheduled charter capacity. That cake is an ever growing one. You must grow your business – not just your national carrier but other carriers as well. They must be encouraged to come here. That includes the charter activity.

AirLanka must be afforded the same opportunity within that framework to expand into other markets as well. Emirates is an airline that flies to Sri Lanka 13 times a week. I believe we can demonstrate that through thick and thin Emirates has stayed loyal to Sri Lanka. We have never withdrawn services, we have never cut back services. We believe that Emirates can add value to the civil aviation industry and travel trade for the Sri Lankan community, but we do not compete against AirLanka simply because the market is ever growing and there is a large share that can go to AirLanka. To be quite honest, under the scheme of things in our business plan we intend to move as one with AirLanka in those European markets. We will ensure that AirLanka gets its rightful share of business up there in Europe or in the Pacific Rim, because we can jointly channel this onto each other's airlines. This is part of the synergy of working together rather than competing against each other.

Q: With Emirates controlling 100% of the running of AirLanka will the Board of AirLanka directors then be mere figureheads?

A: Emirates will act as management custodians within agreed parameters. The Board once it is resolved, will agree to the plan and what it involves.

The managers of the company will then use their executive arm to execute the plan. Providing there are no major deviations and that it conforms within the original premise, then we will manage it on a day-to-day basis. Its strategies, its philosophies and its financial aspects will be agreed at board level.

Q: How long will the partnership between Emirates and AirLanka be for?

A: That is propriety information which I am unable to disclose. We are still talking to the government of Sri Lanka about this, all I can say is that it will be for a good meaningful period of time.

Q: But will it exceed the present stay of this government? The UNP has said that in the event of its coming into power it would revoke the agreement between Emirates and AirLanka. What happens then?

A: That's a difficult one. I believe that the government of Sri Lanka through its legal apparatus will deal with something like that. As a foreign investor we are concerned that we are seen in a slightly hostile light and that people here feel they have to write these things. We are not sure why, because in fairness we have a very good track record. We have met the qualification criteria for the government of Sri Lanka to enter into this process. At no point did we try and circumvent that process, or down other people who were involved in it. We simply got on with the job and made our bid and for those who know us, there is a body of opinion that believes a partnership between AirLanka and Emirates is a good idea. It's regretful in our view that positions have had to be taken at a time when we have never been given the opportunity to explain what we are about. We hope in time this will happen. On the other hand of course, it is right and proper that negotiations between two parties on a scale such as this, should be carried out in a confidential manner. It is extremely important that it happens that way.

We will bring to the party a very good profitable growing airline. This being the case, I wonder why anybody would come along and abrogate an agreement which is clearly doing well in the interests of the country and the employees of the company. It would certainly make no sense.

However, this is not something we at Emirates can comment on. These are internal matters for the government of Sri Lanka to deal with.

Q: Will Emirates give planes to AirLanka?

A: Not in the short term. I will say though, we have a refleeting proposal in our business plan which does mirror the airplanes we are buying. After having examined the restructuring of AirLanka, these planes do seem tailor made to do the job.

So we are suggesting that the government seriously considers our proposal which is to introduce some of these aeroplanes. AirLanka, not Emirates, will purchase these aeroplanes. Emirates is proposing that with these planes AirLanka will be able to function more productively, more efficiently and perhaps more cheaply.

Q: But how could they, with a debt already incurred for the A340s?

A: We have examined the financial status of AirLanka exhaustively. We are fully aware of the debt structure. We are aware of the difficulties this might present to the international financial institutions. We have gone to the financial institutions to ask them with Emirates as part owner of AirLanka, whether they are prepared to fund support for the fleet acquisition programme.

They have all said they are prepared to do it. We are not overly concerned of the debt equity of AirLanka at the moment. Suffice it to say that we will find mechanisms which mitigate the debt equity ratio with regard to this future fleet acquisition.

The business plan had to address the ownership issues with regard to the debt and how we were going to treat that vis-a-vis the income stream and the costs. It all balanced very nicely. We will continue with the debt structure of AirLanka by and large.

Q: AirLanka now says it is making a profit of some 8 million rupees, which has resulted in fixed deposits equivalent to US$ 140 million. Are these profits questionable?

A: We are pleased that AirLanka is making profit. It is not for Emirates to say whether these profits are questionable. If that is what the Air Lanka Management is reporting, then we must accept what they are saying.

Despite a history of losses we are pleased that the company in the last eighteen months seems to be improving. We are grateful that there is cash in the company. It makes our life a little easier.

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