Flying smarter

Loss-making State-owned enterprises are nothing new in Sri Lanka. One of the better known ones is SriLankan Airlines, which was given to Emirates due to its inability to breakeven but was retaken by the present Government.

Pros and cons of this move is history but cash-strapped and a midst losses, it appears that the Government is pushing good money after bad in an attempt to make it repay its debt.

It was reported over the weekend that the Cabinet has agreed to offer a Government guarantee to SriLankan Airlines to obtain a staggering US$ 175 million – more than Rs. 21.8 billion – from Mashreq Bank in the United Arab Emirates (UAE) to pay its creditors.

This is in addition to a decision on 13 February this year by the Cabinet to invest in a five-year Treasury bond to the value of US$ 125 million – Rs 14.2 billion – to SriLankan Airlines as equity funding. The reasoning is for the bond to help strengthen the balance sheet of the airline and resolve the negative equity position, which helps it to go for additional borrowings, according to Civil Aviation Minister Priyankara Jayaratne.

However, Jayaratne has not said in his Cabinet Memorandum how the Mashreq Bank was chosen for the loan under Islamic Shariah Compliant Facility except to point out that “the Bank of Ceylon has introduced Mashreq Bank as a potential lender.” Thus, there are already objections to the measure as transparency is in question according to the Opposition.

Government support to the national carrier however had been explicit. The Cabinet last year agreed to invest US$ 500 million over the next five years to boost SriLankan Airlines.

Whilst under State ownership this could be expected, it is coming at a time when the airline a like the rest in the industry is facing a massive impact of higher fuel costs. Amidst challenging times it is important for the Government as well as those who manage the national carrier to be extra prudent as well as smarter. It also needs to manage within its means without serious compromises on service standards both in-flight as well as on the ground.

Chairman of SriLankan Airlines Nishantha Wickramasinghe has gone public saying it will endeavour to aggressively pursue fuel efficiency measures. Where necessary some rationalisation of services has been made though a couple of new routes such as Russia had caused a strain due to lack of demand. The management and staff may have its own share of frustrations in the delay of executing some of the plans.

Some initiatives such as upgrading the business class product is a move in the right direction but SriLankan certainly needs to fast track the overall in-flight upgrades in addition to procuring new aircraft. There is a perception within travel trade that SriLankan falls below in terms of overall product offering in the context of the price it charges passengers. This could partly explain why more frequent flyers opt to board major and fast growing Middle Eastern carriers on long-haul routes despite the inconvenience of transit via their respective hubs.

Whilst the national carrier has benefitted from the immediate rebound in post-war tourism, the pace of growth may not be of same velocity three years later. Whilst passengers wouldn’t mind extra cost on essential travel, the leisure segments would certainly think twice, especially in recessionary conditions. These challenges make smarter flying by a flagship national carrier even more important. From a macro perspective, if in the past we had one loss, today due to Mihin Air, we have a “company.” The Government is under increasing pressure to justify the existence of two state owned airlines. If it chooses to have both, then the duo must make commercial sense than political. Airlines are the frontline and high flying face of a nation especially for tourists. How we manage and succeed in airline operations indeed tells the situation on the ground.