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Sri Lankan Airlines Embroiled in Another Legal Battle -This Time with Duty Free Partners (DFP)

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By Namini Wijedasa

SriLankan Airlines has been slapped with fresh litigation, just days after dodging an expensive legal battle with a company through which it extended leases on three A330-200 aircraft. Duty Free Partners (DFP), supplier of SriLankan’s onboard duty free products, on Friday took out an enjoining order preventing the national carrier from terminating its contract. DFP’s operation with SriLankan was due to end on March 31 this year. However, the agreement contained provision for a two-year extension at the consent of both parties.

But SriLankan Airlines directors — one of whom is himself involved in the duty free supplies business — exercised the company’s right not to renew the contract. In November last year, SriLankan called fresh tenders for the provision of products to be sold on board. These included perfumes, jewellery, timepieces, liquor and tobacco.

The contract with a new supplier was to have started in this month and continued for the next five years. On Friday, DFP took the matter to the Commercial High Court of Colombo saying Sri Lankan Airlines had “failed to give to the client the right of first refusal”. An enjoining order was granted and the case is being heard.

DFP was earlier called Phoenix Duty Free Rising Ventures. It first secured the deal with SriLankan Airlines in 2011 under controversial circumstances, without tenders being called. Its legal action against the national carrier came just two days after a divided SriLankan board voted to extend the leases of three A330-200 aircraft to circumvent a costly tussle in a London court.

The directors met on March 29. One board paper pertained to the case lodged in High Court of Justice’s commercial arm by SASOF II Aviation Ireland Ltd, challenging an attempt by SriLankan Airlines to overturn the extensions saying the contracts were not legally binding. SASOF seeks a declaration that SriLankan is contractually bound by the relevant agreements.

The SriLankan board is deeply divided on the extensions, with a faction claiming CEO Suren Ratwatte signed the contracts without approval. He denies that. Keeping the three long-haul planes will impose a substantial financial burden on the cash-strapped airline, detractors say. The monthly rental is about US$ 225,000 or Rs 34,146,000 for each aircraft. This amounts to more than Rs 1,229,256,000 for all three aircraft a year.

But on Wednesday, one director, Niranjan Deva Aditya, gave the board the necessary majority to have the lease extensions validated. This happened despite four other directors (Chanaka de Silva, Rajan Brito, Rakitha Jayawardena and Harendra K Balapatabendi) demanding from Chairman Ajith Dias an independent investigation into how the CEO signed the contracts in excess of his mandate. The Chairman did not comply.

The original leases for the three aircraft were due to expire in January and February this year. But Mr Ratwatte extended the leases last year despite a board decision to do so only if three other planes (new A330-300s) were given on dry lease to Pakistan International Airlines (PIA). The PIA only took one aircraft, returning it six months later.

SriLankan then wrote to SASOF giving notice that it will return the three A330-200s at the end of the original leases. The carrier said the approval of its board to extensions had been conditional upon dry lease agreements with PIA. SASOF rejected the notice and took the matter to court.

Meanwhile, SriLankan has now hired a British re-marketing firm to help lease out its surplus aircraft. These include the three A330-300s that were due to have gone to PIA. The other is an A330-200 that SriLankan was forced to hire from AerCap Holdings NV as part of the settlement for cancelling four A350s ordered by the previous government. SriLankan coughed up millions of dollars in compensation to AerCap, the world’s largest independent aircraft leasing company, for the early termination.

The airline now has 13 wide-body and 10 narrow-body aircraft. It will experience a surplus in the summer season when several other pre-ordered planes arrive.

Courtesy:Sunday Times

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