SriLankan Airlines making mega deals sans tenders, AG clearance: COPE report

ECONOMYNEXT – SriLankan Airlines has been run as a virtual private company, by passing state procurement processes, a parliamentary probe has revealed, though tens of billions of rupees of losses from the deals are then covered by tax payers.

SriLankan Airlines had terminated leases for A350 aircraft with Aercap, a leasing company, extended a lease and procured new aircraft at the same time without a technical evaluation committee or following government procurement processes, the report found.

SriLankan Airlines had originally gone ahead with a massive aircraft procurement from Airbus and Aercap by passing standard tender process at prices which ministers later said were above market.

In 2013, SriLankan Airlines had sought cabinet approval to procure aircraft directly from Airbus and also through Aercap, including Airbus A350 aircraft, documents published by the Committee on Public Enterprises of Sri Lanka’s Parliament shows.

At the time, Mahinda Rajapaksa as Finance Minister had made an observation that SriLankan Airlines was being run by an independent Board under the Company’s Act and it was the responsibility of the Chief Executive and the Board.

He had added that it was the responsibility of the Board to carry out the re-fleeting in a way that strengthened the capital.

Rajapaksa’s brother-in-law was chairman at the time.

The COPE found that there had been no cabinet approval for the deal, and the only documents available showed that a decision had been deferred and no specific power had been given to SriLankan to make a decision.

After a change of government in 2015, the new Board had found that A350 aircraft were unsuitable.

The entire A350 project of Airbus has not been a commercial success, according to the latest reports.





SriLankan had decided to terminate the deal.

The negotiations were not carried out by a cabinet-appointed committee as in a standard state agency but by Chief Executive Suren Ratwatte, a brother of an advisor to Prime Minister Ranil Wickremesinghe. Rajan Sarah, an advisor to then Finance Minister Ravi Karunanayake, had also been involved.

Rajan Sarah had been employed at a monthly salary of 250,000 rupees and benefits of an Additional Secretary.

The Public Enterprise Ministry, under which SriLankan Airlines was gazetted, was not involved, the COPE report said.

"The Committee pointed out that it is problematic that only the Ministry of Finance and the Institute had participated in these negotiations and the Ministry of Public Enterprise Development, which is the subject Ministry, had not participated," the report said.

A deal had been made with Aercap to pay a penalty of 98 million US dollars to terminate the leases of 3 aircraft, extend the lease of an A330-200 aircraft by 10 years and procure a new A330-200 aircraft.

The lease of two aircraft held by Mihin Lanka were also taken over by SriLankan.

Later reports said one of the A330s was not usable.

COPE said no technical evaluation committee was appointed to go into the deal.

The COPE found that the Board had given the power to the Chief Executive to make the deals. Despite a request by a Cabinet Committee on Economic Management to get the Ministry of Public Enterprises involved in negotiations, it had not been done.

The Committee was told that legal advice had been obtained by SriLankan Airlines from ‘Aviation Legal Experts’ in UK and not the Attorney General.

At Ministry level Attorney General had been consulted, who had responded that since the AG was not consulted on the original deal, there was no point in consulting him at termination.

COPE recommended that it be found whether it was standard practice not to include termination clauses when entering into a lease agreement.

Cabinet approval had been later sought for the termination, but by that time the first installment of the penalty had already been paid.

Finance Minister Mangala Samaraweera in observations had noted that the Aercap deal had been terminated without proper prior approval from cabinet.

There was also no mention of getting Attorney General Clearance as recommended by the CCEM, he had noted.

SriLankan Airlines had made a 40 billion rupee loss in the last nine months and has made a string of losses since managing partner Emirates Airlines was forced to leave in 2008 by then President Mahinda Rajapaksa. (Colombo/Feb10/2019-SB)

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