By P.K. Balachandran, IANS
Colombo : The Sri Lankan government has announced that it would take over Sri Lankan Airlines from the Dubai-based Emirates Airlines in April. But experts say running the airline efficiently and profitably would be difficult, given the administration’s dismal record in managing economic enterprises.
The chairman of the Board of Investment, Dhammika Perera, had said that the management contract with Emirates, due to expire in March, would not be renewed, in accordance with President Mahinda Rajapaksa’s policy of not privatising state enterprises.
Perera said the government could control the airlines as it had 51 percent of the shares any way.
Opinion on the wisdom of the government’s move is divided.
“The Sri Lankan government’s past record in running airlines is discouraging,” said Harsha de Silva, economist at the Colombo-based think tank LIRNE-Asia.
“The very first state-owned airline, Air Ceylon, was grounded, and its successor, Air Lanka, was a disaster, despite an excellent cabin service. The joke was that the airline’s code UL stood for Usually Late!” de Silva told IANS.
Among the major flaws were overbooking and last-minute offloading of passengers.
Many times, political influence and networking ensured seats rather than the purchase of tickets.
“There were even instances of influential people buying economy class tickets and travelling business class,” de Silva said.
It was because the government could not run the airline profitably that privatisation with a foreign strategic partner was resorted to in 1998.
In the ten years that Emirates has been there, there was a major image makeover.
Air Lanka became Sri Lankan and the fleet increased from seven ageing flying machines to 17 modern Airbus aircraft. The number of passengers carried increased from 1.2 million in 1998 to 3.1 million in 2007.
Cargo ferried went up from 36,400 tonnes to 88,800 tonnes. The airline turned around financially with a cash balance of 6.5 billion Sri Lankan rupees ($60 million) in 2007, says Lanka Business Online.
But the relationship between Emirates and the Sri Lankan government soured since Mahinda Rajapaksa became president at the end of 2005.
There was a strong opinion among Sri Lankan nationalists that the 1998 deal was weighted heavily in favour of the foreign airline and that it was a mistake to have given effective management control to a foreign organisation, however efficient it might be.
There were calls for not renewing the management contract due to end on March 31, 2008.
“Foreign management inputs and fund injection are welcome, but Sri Lankans should not lose control. Under the existing contract, almost all decisions rest with the Emirates management,” observed Suranjan de Silva, who trains pilots.
Some like Harsha de Silva felt that ground handling at Colombo airport could have been transparently auctioned to internationally competitive bidders to get the best deal for the country. “This way government could have made Colombo a major hub,” he said.
Government’s cold attitude to Sri Lankan Airlines came to light when it started a state-owned budget airline “Mihin”, presumably named after the president himself.
A refusal by the Sri Lankan airlines’ foreign CEO, Peter Hill, to accommodate at the last minute President Rajapaksa and his 35 member strong entourage in a fully booked London-Colombo flight last December, proved to be the breaking point in the relationship.
Hill’s work permit was cancelled. But a defiant Emirates said that Hill would continue to be CEO and would function from Dubai. With this, it became clear that Emirates would be given marching orders in March.
The Sri Lankan airline’s future would be tied up with the government’s business plans for Mihin, Harsha de Silva said.
Mihin has proved to be a white elephant with an estimated loss of 8 million Sri Lankan rupees ($734,000) per day, and a debt of hundreds of millions of rupees to the state-owned Ceylon Petroleum Corp.
But the government is keen on keeping Mihin afloat, possibly through a merger with Sri Lankan.
The government could also look at getting on board a new strategic partner after negotiating hard, trade sources say. But they wondered if anyone worthwhile would come to Sri Lanka, given the bitter experience of Emirates.
Any new management is likely to face a pilot shortage also. There is already a “mass exodus” of pilots from Sri Lankan, the financial weekly The Bottom Line said Wednesday.