More Questions for SriLankan Will SLA’s proposed wet lease deal with Turkish Airlines receive Govt.

Criticism is now being levelled against a few officials at the Prime Minister’s office for attempting to obtain cabinet approval for an unorthodox proposal submitted by the Chief Executive Officer (CEO) of the national carrier.  

The previous Board of Directors turned down the proposal submitted by the CEO of Sri Lankan Airlines (SLA), Capt. Suren Ratwatte to wet lease three aircraft to Turkish Airlines which it is alleged would incur further losses for the debt-ridden airline. Nevertheless, it is further alleged that these officials are making efforts to get cabinet approval for the proposal which is yet to be considered by the new Public Enterprise Development Minister Lakshman Kiriella.  

However, Minister Kiriella is said to have withstood the pressure and ordered SLA to submit the Board approval granted for the proposal. “We learn that Minister Kiriella had sought time to study the matter before granting his approval. When this proposal was submitted to the previous Board for approval, the majority declined to grant their consent since it is not a viable project for the airline. Instead they have asked Ratwatte to obtain cabinet approval for it. The manner in which he (Ratwatte) obtained approval of the Cabinet Committee on Economic Management (CCEM) to extend the lease period of the 18-year-old aircraft (three in number) on September 26, 2016 without Board approval made the airline incur heavy losses,” highly reliable SLA sources told the Daly Mirror. The majority of Board Directors had refused to grant approval to wet lease three A330-300 aircraft to Turkish Airlines for six months as they claimed that the selecting process lacked transparency.   According to airline sources, in the event Ratwatte’s proposal is granted approval, this would be the second contract the latter has gone ahead without Board approval, but with the ‘government’s blessings’.  

According to these sources, who wished to remain anonymous, if the Ministry grants approval to wet lease three aircraft to Turkish Airlines, history is going to be repeated. This would be the second occasion within a two-year period that the Government is going to ‘assist’Ratwatte to ride the airline to his whims and fancies. When Ratwatte entered into an agreement to extend the lease period of three A330-200 aircraft by 72 months in 2016 without Board approval, the CCEM gave its consent for the extension, but took no action against the CEO for exceeding his mandate. At the time the CCEM granted approval, the Ministry Secretary was in the process of taking action against Ratwatte for exceeding his mandate to enter into a lease extent agreement with SASOF Aviation without the Board approval.  

When contacted the President of the Airline Pilots Guild of Sri Lanka RuwanVithanage opined that at a time when there is a dearth of 40 pilots at SLA to fly their daily flights without interruption, Ratwatte’s plan to wet lease three aircraft to Turkish Airline would further burden the airline.  

According to Vithanage, if the planned wet lease goes ahead, SLA will have to deploy 36 pilots to Turkish Airline which would result in adding to the shortage of pilots. “At this moment we are short of 40 pilots but if the CEO’s proposed plan receives approval, the airline will have to deploy 36 pilots to facilitate the wet lease contract. Then our national carrier will face a shortage of 76 pilots,”Vithanage warned.  

Vithanage further added that the only solution to the shortage would be either to close down few routes or to reduce the frequency of flights and to higher expertise pilots at a higher cost. “Closing down a few destinations or reducing the frequency of flights isn’t the solution,”Vithanage claimed.  

Losing business  

Vithanage believes that there were plans to close down four destinations in the coming months, possibly as a precaution to address the shortage of pilots. “Ratwatte had earlier decided to close down Jeddha, Visakapatnam, Muscat and Hong Kong routes, but following trade union agitation, we learned that he is going to reduce the frequency of flights to these destinations instead of closing down the routes. When Ratwatte introduced the narrow bodied aircraft to Hong Kong a few months ago, we lost business by way of cargo transportation. As a result, Cathay Pacific grabbed the opportunity and increased the frequency of their cargo flights to Hong Kong,”Vithanage said.  

According to airline sources, it is high time the new Chairman and Board of Directors review Ratwatte’s service and the decisions taken by him over the past three years.  

“When the Government decided to cancel the four aircraft ordered during the Rajapaksa regime, the first was cancelled in early 2016 paying a cancellation fee of US $ 18.7 million. Following this, the CCEM agreed to pay around US $ 70 to 80 million as the cancellation fee for the other three aircraft. Instead of sticking to the CCEM directives, Ratwatte and an Adviser to the Finance Ministry were allegedly involved in paying US $ 98 million to cancel the order. Subsequent to this, Ratwatte entered into the agreement with SASOF Aviation in 2016 to extend the lease agreement of three A330-200 aircraft without the Board approval,” sources claimed.  

On September 26, 2016, Ratwatte entered into an agreement with SASOF Aviation to extend the lease period of MSN 303, 306 and 311 A330-200 aircraft by 72 months (six years) from the expiry date of the previous lease without the Board mandate. These three aircraft were 18 years old at the time the lease was extended which raised concerns of the SLA management. When the then Board was contemplating action against the CEO for entering into this agreement without its approval, the CCEM granted approval for the extension.  

“The CCEM in 2017 protected Ratwatte from the SLA Board of Directors and Ministry Secretary who were to take action against him. As the CCEM is now defunct, these officials are now seeking Minister Kiriella’ s approval. Airline officials are keenly following these events as they unfold,” sources said.  
According to the sources, with the appointment of Minister Kiriella as the subject Minister, and given that there would be a cabinet reshuffle very soon, it is going to be difficult for Ratwatte to obtain early approval.  

“The reason given to wet lease three aircraft to Turkish Airline is to generate an income to the airline. What made Ratwatte to extend the lease period of the 18-year-old A330-200, MSN 303, 306 and 311 aircraft at a lease rental of US$ 225, 000 for first six months and US$ 255, 000 thereafter,” sources asked.  

In the aftermath of this controversial contract, Secretary Ministry of Public Enterprise Development, Ravindra Hewavitharana by letter dated February 3, 2017 to Suren Ratwatte had wanted the latter to provide a written explanation as to why he entered into an agreement with SASOF Aviation to extend the lease agreement without obtaining the Board approval.  

An extract of the letter states, ‘I refer to letters dated January 26, 2017, concerning the extension agreement copies which are now in my possession. It is with dismay that I notice that you have entered into the extension of these lease agreements without prior approval of the Board of Directors or the Ministry. Even though you state that the extension agreements have been entered into subject to condition precedent that same be approved by the Board of Directors of SLA, I believe that the Board has not provided you with such mandate to enter into agreement first and then to seek Board approval with retrospective effect.  

‘However, if the Board has provided you with a mandate to enter into agreements and subsequently to seek approval with retrospective effect, kindly provide me with an extract of a resolution pertaining to same.  

‘In the event you have not been granted with such a mandate by the Board, kindly explain why you entered into these agreements without the prior approval of the Board and the Ministry of Public Enterprise Development’.  

In his written explanation to the Public Enterprise Development Ministry Secretary, Ratwatte by letter dated February 7, 2017 says that the term of the original lease was extended with the full knowledge of the Directors as Chairman Ajith Dias informed the Board of Directors at the Board Meeting held on August 25, 2016 that the lease of three A330-200 aircraft, to be returned in January 2017, was proposed to be extended.  

Timely decision  

The letter further states, ‘Leasing of three A330-200 aircraft from SriLankan’s fleet to Pakistan International Airline would not have been possible without the timely extension of these aircraft, as otherwise they have to be grounded in order to prepare for lease return maintenance in January and February 2017. Therefore, I wish to highlight that the extension of the original terms was considered and a timely decision was made in the given circumstances with the full knowledge of the Board of Directors’.  

Following Ratwatte’s explanation, Ministry Secretary in his reply dated February 14, 2017 to the former states that in the said board minutes of August 25, 2016, the approval had been given to extend the three aircraft lease agreement, subject to specific condition which had not been met by Ratwatte.  Hewavitharana’s letter further states, ‘I note that this approval is subject to the finalized lease extensions of the three A 330-200 aircraft (MSN 303, 306, 311) and would be signed only after the dry lease agreements are signed with the Pakistan International Airline (PIA). As was informed by SLA, PIA had only leased one aircraft and not three as was the condition precedent for SLA to enter into the lease extension of the three aircraft.  

‘When the Hon. Minister called for a meeting with the Board of Directors to settle this dispute at which you were also invited, you informed the minister about the letters cancelling the said lease agreements, but did not mention the fact that you entered into three agreements to extend the extension nor were the copies of the agreements entered into on September 26, 2016 tabled at the meeting.   “Hence I would request the Board of Directors to provide a comprehensive report as to whether you have exceeded your mandate in entering into these three extension agreements whereby binding SLA.  ‘In your letter, you also state that the leasing of the aircraft to PIA would bring financial benefits to SLA, and that another two aircraft are to be leased to PIA in the near future. Even though, SLA had not brought it to my notice, I have been reliably informed that PIA has terminated the existing lease agreement and the debt of US $ 6 million is said to be recovered by SLA’.  

Following this letter, that was copied to Chairman and Board of Directors of SLA, Non-Executive Directors of SLA, R.C. de Silva, J.M.S. Brito, R.S. Jayawardena and H.K, Balapatabendi by letter dated February 24, 2017 had requested Chairman Ajith Dias to send the comprehensive report to the Ministry Secretary that had been requested and copies to them.  

The four Non-Executive Directors have also recommended that the Ministry, the Attorney General or an independent panel should hold an inquiry to confirm the findings in order to take the necessary action.  

It is in this backdrop, on March 24, 2017, that Secretary to the Prime Minister E.M.S.B. Ekanayake informs Secretary Ministry of Public Enterprise that the CCEM had decided to grant approval to extend the lease agreements for the three A330-200 aircraft. The letter further states that since it was reported that the Board of Directors is divided on the issue of leasing aircraft and therefore the CCEM intervention is required, the CCEM had decided to grant the approval.  

Ratwatte’s blunders  

Meanwhile Ratwatte is alleged to have taken drastic decisions to close down flights to Rome, Frankfurt and Paris in 2016 and introduced the daily Melbourne flight last year which is a further loss to the national carrier. “We were able to bring travellers from Rome, Frankfurt and Paris to Sri Lanka. We are not aware as to why these three routes were closed down suddenly and the daily flights to Melbourne were started. Before closing down these three European routes and starting the daily flight to Melbourne, Ratwatte could have consulted the Commercial Division for their advice. If so we wouldn’t have lost these European routes and could have instead increased the frequency of flights during the season,” sources alleged.  

As a result of Ratwatte’s continuous clashes with airline officials and his entering into disputed agreements, the previous Board of Directors voted by a majority of five against two to remove Ratwatte.   

Meanwhile criticism was levelled against the former Chairman for appointing Ratwatte as CEO when the latter applied for the post of Chief Technical Officer (CTO).  

“The duty of the Chief Technical Officer could easily be handled by a Captain of the airline, but how can a person who does not have any experience in management handle the post of a CEO. Manoj Gunawardena, when recruited as an officer, climbed the ladder in the airline hierarchy and discharged his duties as CEO in an exemplary manner. But unfortunately he was posted to the United Kingdom by the then Chairman NishanthaWickremasinghe in order to appoint Kapila Chandrasena. Even though Chandrasena did not have the expertise nor knowledge to hold the post of CEO, he still managed to do some good work for the airline. But he too was prevented by his Chairman NishanthaWickremasinghe. From the time Ratwatte was appointed as the CEO, what did he do to improve the airline and minimize the losses? Instead he entered into contracts without Board approval,” the sources added.  

Ratwatte is further accused of SLA’s failure to prevent an inflight shut down on the Hong Kong bound flight in January, which resulted in the Civil Aviation Authority of Sri Lanka (CAASL) withdrawing the Extended-range Twin-engine Operational Performance Standards (ETOPS) certification which is again a loss to the airline.  

According to sources from the CAASL, SLA’s Engineering Department’s failure to remove metal particles that were stuck in the oil filter of 4R- ANE on its way to Hong Kong, resulted in shutting down one of the engines and flying safely to Bangkok. “When the manufacturer was informed of the engine filter chop warning alarm, the manufacturer had notified the operator- SLA. However, the airline’s failure to follow corrective measures before releasing the aircraft, led to a shut down of one engine until it landed safely at Bangkok,” CAASL sources claimed.  

Having ETOPS certification permits a twin engine aircraft to fly routes which at some point takes away more than 60 minutes flying time from the nearest airport suitable for emergency landing. If an aircraft does not have the ETOPS certification, the same route described earlier would take longer to reach the destination. It is a set of regulations and standards which must be met with if an airline wishes to fly its aircraft more than 60 minutes away from a suitable emergency point.  According to these sources, CAASL immediately withdrew the ETOPS certification from the four A321 NEO (New Engine Option) and A320 NEO fleet.  

“If we have ETOPS we can take the shortest route to reach the destination as we are permitted to use a route where we have 90 minutes or 120 minutes time. This is to help find a suitable landing area in case of an emergency. Losing ETOPS means, the fuel cost and the additional maintenance cost adds to the expenditure. Ratwatte being the CEO is the Accountable Manager and has to take the sole responsibility,” the sources said.   Meanwhile Secretary of the Ministry of Public Enterprise Development RavindraHewavitharana when contacted confirmed with the Daily Mirror that SLA had submitted the wet lease proposal to the Ministry for approval, but the subject Minister is yet to consider the request.  

“The CEO has submitted the report to the Ministry, but the Minister declined to grant approval as he wanted time to study the proposal. The Minister wanted the SLA to submit the Board approval given to the proposal,”Hewavitharana said.  

When asked whether the former Board of Directors had granted board approval to the proposed proposal and in the event the approval is granted, would there be a shortage of pilots as it is said that airline is functioning with a dearth of pilots, Hewawitharana said that to his knowledge the previous Board had not granted approval to the wet lease proposal and it is up to the new Board of Directors to find out whether there is a shortage of pilots.  

“The CEO did not submit board approval given to the proposal, but merely provided the Nyras recommendation to wet lease three aircraft to Turkish Airlines. With regard to the shortage of pilots, this has to be checked with the new Board of Directors. Without having the exact data with me, I cannot make any comment regarding the shortage of pilots,”Hewavitharana said.  

However Hewavitharana refuted allegations levelled against the officials of the Prime Minister’s office for attempting to obtain the Minister’s approval for Ratwatte’s proposal.  

“To my knowledge no one from the Prime Minister’s office has interfered seeking Ministry approval for the proposal,” the Secretary added.   When Hewavitharana was asked how true are the allegations that the CEO is leasing out the new aircraft and retaining only the old aircraft for SLA, he said that since the Ministry too has received news of such allegations, the new Board of Directors had been requested to analyze the airline’s overall situation and submit a report within three weeks. “We have asked the new Board to review the financial situation of SLA and on the condition of the fleet of aircraft we are now operating in addition to the presence of other critical areas. I wanted them to give me a report on these matters within three weeks and find out whether the allegations levelled against the former Board of Directors or the CEO are true,”Hewavitharana said.  

When asked as to what made Ratwatte close down certain European routes that had tapped the European market, Hewavitharana refused to blame the CEO for the mistake committed and instead blamed the entire former Board of Directors. “The CEO can’t take such a drastic independent decision. The former Board members should be held responsible for it. The present Board in their report will give details as to how it had affected the airline by closing down certain European routes. If the previous Board had closed down these routes without conducting a proper evaluation they have to be held responsible, not only the CEO,”Hewavitharana claimed.  

When inquired whether it is true that the former Minister Kabir Hashim did not allow former Chairman Ajith Dias to remove Capt. Suren Ratwatte early this year, following a vote against the latter, Hewavitharana said that it was the former Minister who had wanted to get rid of Ratwatte. “Minister Kabir Hashim was always of the view that Ratwatte should be removed, but it was certain that members of the previous Board had protected him,”Hewavitharana claimed.  

Although questions were forwarded to Sri Lankan Airlines via e-mail seeking their side of the story on the allegations levelled against the airline, there was no response from the airline till the paper went for publications.  However, Sri Lankan Airlines in a press release states that they have achieved a record unaudited passenger revenue of Rs.126.9 billion during the financial year April 1, 2017 to March 31, 2018. The press release further states that the revenue came in the back of recent expansion of several routes such as Gan Islands, Hyderabad and Melbourne and additional frequencies to certain other destinations.  

Despite of SLA sources levelling allegations against the CEO that his arbitrary decision to introduce narrow body A320 aircraft instead of wide body A330 aircraft to Hong Kong and Bangkok from the recent past had resulted in the airline carrying less cargo than earlier, the SLA press release states that the airline’s cargo division has recorded an outstanding revenue during the past financial year. The SLA sources vehemently disproved the claim that the national carrier had suffered a huge loss by introducing the narrow body flights to Hong Kong and Bangkok. “Since the airline introduced the narrow body aircraft, we could not carry the entire cargo as we did earlier when we flew the wide body aircraft. As a result, Cathay Pacific airlines increased flight frequencies to these destinations and we lost the cargo business by a considerable amount. So how can the airline say that it has exceeded its annual targets,” the sources alleged.