Mana ging a national carrier

How the Govt. Information Department analysed the Emirates deal on SriLankan Airlines

Following is the feature article published in the Department of Government Information web site www.news.lk or the official government news portal of Sri Lanka, in October 2007

Once a decade one gets an opportunity to debate on the sale of majority shares of the national carrier SriLankan Airlines to the Emirates when the agreement between SriLankan Airlines and Emirates comes up for revision.

Now there are speculations that the ground operations of the SriLankan Airlines would be handed over to the Civil Aviation Authority and 80% of catering contracts would be given to domestic companies, according to revisions of the agreement.

SriLankan Airlines is managed by Emirates and their agreement will expire in March next year. Emirates had asked the Sri Lankan government whether the agreement would be extended or terminated.

The ‘blow hot blow cold’ partner of the electoral alliance of Presidential and Parlaimentary elections the Marxist Janatha Vimukthi Peramuna (JVP) or the People’s Liberation Front (JVP) has raised the issue once again and urged the government to debate the agreement regarding the ownership and management of the local airline.

Several Government leaders openly stated their dislike about the agreement between Emirates and SriLankan. On their request a committee had been appointed to decide on the agreement’s future.

In the meantime, top level exchanges were held between Emirates Airline and the Sri Lankan Government on extending the SriLankan Airline’s management agreement. One round of the talks took place on the sidelines of the AGM of the national carrier.

The two sides have already concluded two rounds of discussions in May and July this year in Colombo and have been tight lipped on its outcome. At the last round of talks Emirates was led by its President Tim Clark and was assisted by two other directors, Garry Chapman and Nigel Hopkins, while the Lankan delegation comprised Treasury Secretary P.B. Jayasundera and Presidential Secretary Lalith Weeratunga.

Dubai Government owned Emirates has a ten year contract ending in March 2008 to manage the country’s national carrier. Coupled with the management deal, the Chandrika Kumaratunga regime also sold a 43 percent equity stake in SriLankan to Emirates in 1998. Many economic analysts question the decision to sell a large chunk of the National Carrier to a foreign party. The Emirates President is known to drive hard bargains. In 2001 when the UNF regime came to power threatening to review the agreement claiming it was highly disadvantageous to Sri Lanka, Tim Clark bluntly stood his ground insisting that a deal is a deal and the then Government lawyers had to back down.

Already the new budget airline, Mihin Air launched by the Government with much state patronage in March this year appears to have irritated Emirates as it is directly competing with SriLankan on a number of routes all at once, especially in a worldwide climate of depressed returns for most airlines.

Analysts are questioning the arguments brought forward by Tim Clark and his team and point out that the government has every right to establish a new national carrier – in this instance, a budget airline, for the benefit of the economy travellers. They also question alleged statement by Mr. Clark criticizing the Government’s creation of the new airline, Mihin Air.
Do they have a right to challenge the establishment of a budget airline? What Emirates management should do is to enhance the standard of SriLankan in order to ensure its ability to face challenges. According to highly placed sources, the Emirates would most likely renew a management agreement with SriLankan Airlines when the current contract expires. Emirates owns 43% of SriLankan and manages the airline under a 10-year agreement which ends in March 2008. The matter could be resolved in the next three to four months, according to Emirates vice-chairman Maurice Flanagan.

The 1998 decision has heralded a new era in the history of Sri Lankan civil aviation. The flag carrier, AirLanka, was privatised following the establishment of a strategic partnership with Dubai based Emirates Airline. To justify the agreement with the Emirates airline the argument brought forward was that it was a regenerative boost that was urgently needed to re-establish Air Lanka as southern Asia’s preferred international carrier. This was crucial as throughout the previous decade investment had been minimal - a factor that had retarded growth and taken away the airline’s competitive edge.

If the SriLankan and its Emirates management is unhappy about facing new challenges from MihinLanka and others, it is a clear proof that the airliner still has not regained its competitive edge.

This is the time to make an indepth evaluation of the progress of the agreement. As part of its commitment to the Sri Lankan government Emirates contracted to undertake the management of Air Lanka for a 10-year period, during which time it would establish programmes to stimulate renewed growth and profitability. Primary among these considerations was the development of Bandaranaike International Airport, Colombo, as a major passenger and cargo hub linking east and west.

The business plan put forward by Emirates centred on the appointment of a new board of directors drawn from the Sri Lankan government and Emirates Airline. Pertinent to this the chief executive officer (CEO) was to be seconded from Emirates. To help achieve its objective of raising Air Lanka’s profit margin, a thorough overhaul and analysis of the airline’s infrastructure was completed. This resulted in Air Lanka adopting a whole new approach to airline operation. Cost-effective strategies were introduced; new pro-active management teams were put in place; computer technology became the basis of everyday activities; a reappraisal of the airline’s network was made; product enhancement became part of airline philosophy, and a fleet renewal programme was activated. But to raise awareness and underline its new ideals the airline set into motion a re-branding programme.

Let us see what the SriLankan has attempted to gain. The perceived success of the business plan was, to a great extent, based on the acquisition of six new fuel efficient, easy to maintain, passenger friendly Airbus A330-200s to complement its fleet of A340-300 and A320-200 aircraft. The first A330-200 joined the airline in October 1999, with the remaining five delivered by July 2000. That same year saw Air Lanka’s last L1011 TriStar sold to Air Transit (Canada) but perhaps more momentus, in July 1999, the company’s fourth A340-300 arrived at Colombo painted in the airline’s new corporate livery. SriLankan Airlines was now on view to the world.

As part of its product enhancement programme SriLankan Airlines upgraded its existing A340 fleet into two-class configuration - business and economy. At the same time the interior décor and seats were refurbished to reflect the airline’s new corporate image and the inflight entertainment systems were improved to match those of the new A330s. The A320 short-haul fleet also underwent an interior modernisation programme.

Has the airline taken advantage of what Sri Lanka has to offer to the tourists and business customers? Because of its geographical location and the nature of the country Sri Lanka is energetically promoting itself as a destination of many facets, most of which it believes will appeal to people from many walks of life. The SriLankan Airline has been entrusted with the task of promoting tourism and to ensure that once people have experienced the island they will return time-and-time again. If this endeavour has succeeded, tourism should not have experienced any decrease in any given year.