Long haul ahead

We report in today’s issue of this newspaper that an Extraordinary General Meeting of SriLankan Airlines has been summoned at the end of this month to discuss the serious erosion of the company’s capital that has reduced it to a negative net worth organization. Several measures for correcting an undoubtedly disastrous situation have been proposed. It has been well known for a number of years that the national carrier has been in deep financial distress and that government has been infusing billion of rupees to the airline to keep it afloat. But few people would be aware that it is not a wholly government owned entity.

It is true that the government owns 99.11 percent of the company, followed by the Employees Provident Fund with 0.36 percent. The rest of the shares are held by present and former employees of the company who were gifted with nine percent of its equity when the Chandrika Kumaratunga regime sold 40 percent of the company to Emirates, the flag carrier of the United Arab Emirates. Some of the beneficiaries of this largesse sold their shares to Emirates which upped its stake from 40 to 43 percent. The majority of those who sold out held the view that hard cash in their pockets then was better than a never-never wait for future dividends. Events have subsequently proved them correct.

The EGM of the airline’s owning company has been summoned in terms of the Company Law. In the first instance the Auditor-General who audits its accounts had declined to certify it as a ‘going concern’ until it obtained confirmation from the government, the predominantly major shareholder of the company, that it will continue to finance the company. The Secretary to the Treasury, who holds the shares on behalf of the government, has provided such confirmation to the Auditor-General earlier this year. This commitment, however, is not a blank cheque. The support will only be until the restructuring process is completed. But will it, or can it be successfully done? Restructuring including finding a strategic business partner has been talked of for a long time but not achieved despite many efforts. It is a given that the government will have to absorb the billions of rupees of accumulated debt on the SriLankan balance sheet for any investor to come on board.

State Minister of Finance Eran Wickremaratne has been delegated the Herculean task handling the challenges at hand. He began work very recently and has not removed a single director appointed during the 51-day government, clearly an indication that he will not rush into anything. Once the CEO of the National Development Bank, he gave up that job at considerable personal sacrifice to come into politics. He is widely regarded as one of best we have in government The short lived Mahinda Rajapaksa government even brought back a former CEO of the company, under investigation by the presidential commission looking into the affairs of SriLankan over a period of years, as its new chairman. But that appointment was to quickly end in a single day! Rajapaksa who had paid a heavy price in loss of public esteem for appointing his brother-in-law as the chairman of the airline, realized that a second blunder, likely not his own but done during his watch, would cost him dearly.

There is enough evidence to support the view that it is extremely unlikely that SriLankan can ever be made financially viable. But there are good arguments for a country to have a national carrier. For example when Black July hit this country in 1983, blackening its image the world over, most international airlines touching down here stopped their flights. But for SriLankan Airlines we would have been totally isolated and our tourism industry left in shambles. Apart from that, modernizing in collaboration with Singapore Airlines what was Air Ceylon replacing it with Airlanka with Singapore Airlines during the J.R. Jayewardene regime saw an immense transfer of technology giving opportunities for our people to acquire skills that made them employable not only here but also in many other countries in the world. But advantages apart, can the country afford what has now become almost a permanent bleed?

The proposals under consideration include SriLankan spinning off minority stakes in some of its profitable subsidiaries/strategic business units like catering, ground handling and engineering. Listing these companies on the Colombo Stock Exchange and the holding company selling down can raise much-needed cash to reduce debt. The airline has got some redress with regard to what it pays the Ceylon Petroleum Corporation for its fuel, with CPC reducing margins. It is also seeking to converting liabilities to CPC to medium term supplier credits and short term relief on debts owed to the state banks. It is also worth considering whether the government should shed its ownership of SriLankan while ensuring that the airlines’ controlling equity passes to Sri Lankan rather than foreign investors’ hands. It will then remain a Sri Lankan and not government owned entity.

Most of the proposals now on the table have been talked of before but not successfully implemented. Those responsible have not expressed any public regret for their blunder in getting rid of Emirates at the end of the 10-year management contract and reacquiring what it sold partly with EPF cash. SriLankan unmistakably has a long rough haul before it.


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