SriLankan Airlines cash-strapped even after capital injections: inquiry
ECONOMYNEXT – Sri Lanka’s ex-Treasury Secretary had stopped SriLankan Airlines from turning bonds given as a capital injection to cash for spending, and limited the airline to using annual interest as a subsidy, a commission of inquiry heard.
The loss-making airline also could not use the bonds as collateral to get a loan, a SriLankan airline official said.
Head of Financial Management Yasantha Dissanayake, testifying at a Presidential Commission of Inquiry, said that Treasury Secretary Jayasundera had directed to issue Treasury Bonds of 14.3 billion rupees in February 2012, equivalent to 125 million dollars.
The airline required 287 million dollars in cash by March 2012 alone under a new five-year business plan, Dissanayake said.
The business plan required 510 million dollar injections of cash over the first three years. Another Rs. 12.6 billion in Treasury Bonds (100 million dollars) were issued for the airline in 2013, Dissanayake said.
He said Jayasundera had stopped SriLankan from cashing the bonds by selling in secondary market.
"We could only hold the bond for 5 years and collect the interest given twice a year," Dissanayake said.
He said by this time, SriLankan was in the middle of implementing a restructuring under the new business plan, since it was approved by Cabinet in August 2011.
The new business plan was formulated in 2010 as Jayasundera had thought the 2008 business plan was not aggressive enough, Dissanayake said.
Under the new aggressive business plan, airline had started expanding its fleet, upgrading business class cabins, setting up new IT systems and infrastructure, a flight simulator to train pilots locally, an amphibious air taxi operation and flights to new destinations, Dissanayake said.
He said SriLankan required cash to pay suppliers for all these activities, as well as for the expected start of ground handling operations at the Mattala and Ratmalana Airports, fuel bills for the Ceylon Petroleum Corporation and bills of Airport & Aviation Services.
Senior Deputy Solicitor General Niel Unamboowe questioned whether Jayasundera not giving cash, and restricting the cashing of Treasury Bonds jeopardized the operation of the airline.
Dissanayake agreed, saying that the business plan could not be fully followed.
The business plan had called for cash, and an August 2011 cabinet decision had approved 500 million dollars to be injected as cash into the airline over five years through the national budget.
The following budget speech in November 2011 had talked of investing Rs. 10 billion in cash, and not Treasury Bonds, to implement the business plan, Dissanayake said.
Unamboowe repeatedly questioned whether Jayasundera single-handed defied the cabinet decision and the budget passed in parliament.
Dissanayake, while initially saying "It appears so" later said "Yes".
He said the business plan attempted to improve the airline’s revenue, as its yield per customer was lower than the norm.
He said a research report presented to Jayasundera showed that SriLankan’s cost per kilometre was lower than regional competitors.
However, Jayasundera had asked the airline to cut down on costs, Dissanayake said.
He said according to Jayasundera, Treasury Bonds were given instead of cash, since he wanted the company’s balance sheet to improve, so that it could seek financing outside the government.
Dissanayake said initially, the Treasury Secretary had allowed the two Treasury Bonds to be used as collateral for loans.
However, after SriLankan had negotiated with NDB Investment Bank and Barclay’s Singapore to get loans, Jayasundera had stopped the airline from using the Treasury Bonds as collateral, Dissanayake said.
He said during the entire time, Jayasundera was constantly questioning the airline whether it was negotiating a 170 million dollar syndicated loan with the Middle East based Mashreq Bank.
Dissanayake recalled that during one meeting at the Treasury, the first words out of Jayasundera’s mouth were inquiring about the progress with Mashreq Bank.
Upon questioning, Dissanayake said Mashreq Bank was introduced through the Bank of Ceylon, also owned by the Treasury.
Mashreq Bank kept asking for Treasury Guarantees for a loan, he said. Then-President Mahinda Rajapaksa had prevented guarantees from being given to SriLankan, he said.
However, Jayasundera had approved a Treasury Letter of Comfort for the Mashreq loan, Dissanayake said.
Unamboowe questioned whether a Letter of Comfort given by the Treasury is similar to a Treasury Guarantee.
"Technically no, but practically, yes," Dissanayake said.
By 2013, SriLankan had only the 175 million dollar loan from Mashreq Bank as cash injections, and even the loan now needed repayment.
The business plan in contrast required 287 million dollars in 2011/12, another 183 million dollars in 2012/13 and finally 40 million dollars in 2013/14.
The airline had requested the Civil Aviation Ministry to seek cabinet approval to convert the two Treasury Bonds to cash, Dissanayake said.
Both the Central Bank and the Strategic Enterprise Management Agency had written to the Cabinet recommending the Treasury Bonds to be converted to cash, Dissanayake said, reading cabinet minutes. However, Rajapaksa had then blocked the conversion, Disanayake said.
The inquiry heard that the Treasury had at the last minute blocked an attempt to list SriLankan Catering to raise 42 million dollars for the airline. (Colombo/Sept28/2018)