SriLankan Airlines – The unacceptable explanation to COPE

By Sanjeewa Jayaweera

The Board of Directors of SriLankan Airlines (UL) was summoned before the Committee on Public Enterprises (COPE) on account of the controversy that arose after the public disclosure that they had floated a Request for Proposals (RFP) to lease 21 aircraft.

Many were left seething in anger as to how the loss-making airline could contemplate entering into a long-term lease agreement when the country’s citizens are reeling from one economic shock after another. It seemed outrageous that when life-saving drugs are not available, and there is a real possibility of patients dying, the Board of UL felt it was alright to proceed with a long-term financial commitment.

According to media reports, when questioned, the Chairman of UL defended the decision to float the RFP, stating that the Board was not aware of the gravity of the economic and financial predicament that the country faced. I believe he also said that the Board was not aware that GOSL would announce that the country was bankrupt and would be defaulting on foreign debt.

I find this explanation shocking and coming from a Board comprising three top-notch entrepreneurs in the country. In my view, the starting point for any business feasibility would be to set out a detailed analysis of the current state of the economy and, at a minimum, the projected five-year outlook for the country’s economy. This is a prerequisite as whatever commercial activity is undertaken; it can not ignore the state of the economy and the future outlook. Unfortunately, in this instance, it appears that the Board has not done this or even if done, there has been a serious lack of diligence.

In justifying the floating of the RFP, it was stated that the current leases would expire in about 12 months and that the lease rentals currently paid are excessive due to corruption that had prevailed.

The primary revenue generation for UL would be the transport of tourists to the country from various destinations. It would be interesting to know and understand how the Board assumed that tourists arrivals would continue to grow to a minimum of pre Covid levels to justify the maintenance of a fleet of 24 aircraft despite the country struggling with an interrupted electricity supply and diesel for transport facilities. The lack of foreign exchange would also impact the operation of hotels in terms of providing a service quality expected from a five star to a three-star hotel. The Board has also not considered the real possibility of ongoing social unrest due to hyperinflation, job losses, etc. The list is endless. It is inconceivable that a Board consisting of experienced businessmen could not foresee such drawbacks.

The point I wish to make is that due to the challenges mentioned above, a sensible Board of Directors should not be committing a public enterprise funded by the country’s taxpayers to a long-term financial commitment. This is particularly so in the case of an enterprise that has been losing money for decades and that too in many billions of rupees. A quick perusal of the financial statements of UL confirms that the company is bankrupt and has been kept afloat by the taxpayers and the two-state banks. That such losses may ultimately be borne by taxpayers and depositors who have worked hard would be a travesty of justice.

It is disappointing that COPE decided to accept the explanation given by the Chairman and only requested a deferment by three months. It is time both the Board and COPE concluded that SriLankan airlines should either be privatised or liquidated so that the taxpayers of this country can be spared any further losses.