Following reports of a 30-hour delay of SriLankan Airlines flight UL 605 in Melbourne, Australia due to a mechanical failure, concerns have been raised over the safety of the debt-ridden National Carrier.
The safety concerns come amidst renewed efforts by the Government to privatise the carrier.
Need for new aircraft
The recent mechanical failure has been identified as an isolated incident by the airline, which has been quick to assure passengers of the safety of all operating flights. However, trade unions attached to SriLankan Airlines have pointed out the need to add new aircraft to the ageing fleet and to have a robust plan to earn more operational profits.
Speaking to The Sunday Morning, SriLankan Airlines Sri Lanka Nidahas Sewaka Sangamaya Chairman Janaka Wijeyapathirana said the airline was earning operational profits, which could increase if new aircraft were added to the fleet.
Commenting on the recent incident, he said the mechanical issue had been an isolated incident, arguing that it was similar to issues faced when operating many aircraft under different airlines. He claimed that there were no issues regarding the safety of the aircraft in the SriLankan fleet.
“In any airline, those kinds of faults can happen. That doesn’t mean there is an issue in the airline. We are maintaining our aircraft properly as per the rules and regulations of the International Air Transport Association (IATA),” he said.
Wijeyapathirana pointed out that the airline was currently facing a shortage of manpower for ground management.
Re-fleeting programme
The operating loss of SriLankan Airlines was Rs. 4,428 million at the time of the withdrawal of Emirates from the management of the airlines in 2008. A total of 14 aircraft comprising five A320 aircraft, four A330-200 aircraft, and five A340-300 aircraft were being operated by the company at that time.
A business plan for a five-year period from 2010/’11 to 2014/’15 had been prepared by the company in 2011. The requirement of purchasing other aircraft in place of 13 wide-bodied aircraft arranged to be disposed of due to the expiry of useful life during the period between 2013-2021 had been one of the functions of the said plan and it had been introduced as the ‘re-fleeting programme’.
The final report on the inquiry carried out by the Auditor General as per the request of the Committee on Public Enterprises (COPE) relating to the termination of agreements of purchase of eight A350-900 aircraft, entered into in 2013 and 2014 by SriLankan Airlines, revealed that a decision had been made therein by the management of the company to add 14 wide-bodied aircraft into operation in place of 13 aircraft removed during the period from 2013-2021.
It had been decided thereafter to purchase six new A330-300 aircraft and four A350-900 aircraft in 2013 on an operating lease basis and to purchase four more aircraft of the same type from the manufacturer. It had also been decided to sell and lease back on an operating lease basis. Accordingly, six A330-300 aircraft had been purchased during the year 2014/’15 on the basis of the sell and lease back method.
Accordingly, the company had entered into an agreement on 28 June 2013 with the manufacturing company for the purchase of four A350-900 aircraft and agreements had been entered into on 27 September 2013 and 12 November 2014 for the purchase of four more aircraft of the same type on an operating lease basis, stated the report.
A ‘Restructuring Plan’ had been prepared again by the company in 2015 and Cabinet approval had been obtained on 24 June 2015. As per the said plan, it had been proposed to refrain from adding eight A350-900 aircraft agreed to be purchased for the airline at that time into operation.
Accordingly, the Board of Directors had taken a decision in 2015 to obtain the service of consultancy firms in taking a fair decision by holding discussions with leasing companies with which agreements had been entered into in respect of four A350-900 aircraft due to be purchased on an operating lease basis.
As such, the company had obtained the service of a foreign consultancy firm for this purpose and further, the service of a foreign consultancy firm attached to the Ministry of Finance had been obtained as well.
Compensation worth millions
Despite having entered into agreements for the purchase of aircraft on an operating lease basis with the assistance of consultants under the re-fleeting programme, four A350-900 aircraft were not required at the time and as such, the company had entered into an agreement of termination with the leasing company in 2016 and had agreed to pay $ 171.77 million as compensation.
However, in terms of the agreement of termination entered into with the leasing company, $ 56 million had been deducted subject to conditions therein and the company had paid $ 115.77 million or Rs. 16,924 million as total compensation in 2016 and 2017.
Further, an agreement for the installation of VIP kits on two A330-300 aircraft in 2015 had also been cancelled by the company.
The discussions on terminating the agreement entered into for the direct purchase of four A350-900 aircraft from the manufacturer had been ongoing until the date of the report and the manufacturer had proposed to discontinue the manufacturing of relevant aircraft and to supply another type of aircraft, the report stated.
2022 proposal
In such a backdrop, the SriLankan Airlines management submitted a proposal in May 2022 to replace 12 expiring/expired aircraft leases. Nine aircraft were to leave the fleet commencing from the end of the year until 2025 while three had already left the fleet during the pandemic period.
The airline, in a media statement last year, stated that not taking timely action to explore the global market for lease options would effectively translate to scaling down the airline through route cancellation. In the absence of a direction or decision by the shareholder (the Government of Sri Lanka) to scale down or shut down the airline (along with the dire consequences of such action to debt holders including the State banks), such failure to act would be a dereliction of duty on the part of the Board of Directors, it stated.
“The interplay between Sri Lanka’s foreign currency crisis and the operational strategies of SriLankan Airlines was also an important consideration. This topic is dealt with in more detail through specific questions and answers but the salient fact is that SriLankan, with 85% of its earnings being from overseas, is a foreign currency earner similar to an export business. Shrinking the foreign currency earning capacity of the airline through fleet contraction would in fact be negative to the country’s foreign currency situation,” the media statement said.
The management’s proposal was also centred on the fact that the lease market rates were very low at the time (savings of 20-40% relative to the current fleet). The airline also has further opportunity to significantly reduce operating costs through the securing of aircraft which are more fuel-efficient and cheaper to maintain. These are all factors that will improve the USD cash flows of the airline.
The management additionally sought approval to explore the viability of expanding the fleet by up to nine aircraft during the period 2023-’25 in order to exploit forecasted tourism demand in the years ahead at lower lease and operating costs, the airline started.
New steps to lease new aircraft
However, after nearly a year since the proposal was submitted, the airline is now taking steps to lease new aircraft.
In a Request for Proposal (RFP) submitted in March, SriLankan Airlines has requested for proposals for the lease of up to five Airbus A330 family aircraft on an operating lease basis with the airline for a term of 72 months.
When contacted, SriLankan Airlines CEO Ashok Pathirage said: “We are going to lease operating placements which are expiring.”
When asked for the precise number, he said that it depended on availability.