{"id":67558,"date":"2020-02-09T18:30:57","date_gmt":"2020-02-09T23:30:57","guid":{"rendered":"http:\/\/dbsjeyaraj.com\/dbsj\/?p=67558"},"modified":"2020-02-09T18:32:32","modified_gmt":"2020-02-09T23:32:32","slug":"how-much-was-actually-paid-to-terminate-deal-to-purchase-and-lease-airbus-aircraft-by-sri-lankan-airlines-huge-discrepany-in-amounts-shown-in-sri-lankan-airlines-board-documents-and-memorandum-to-ca","status":"publish","type":"post","link":"https:\/\/dbsjeyaraj.com\/dbsj\/?p=67558","title":{"rendered":"How much was Actually paid to Terminate Deal to Purchase and Lease Airbus Aircraft by Sri Lankan Airlines? Huge Discrepany in Amounts Shown in Sri Lankan Airlines Board Documents and Memorandum to Cabinet."},"content":{"rendered":"


\n(Excerpted From the “Sunday Times” Political Column)<\/strong><\/p>\n

The news came many months after a Criminal Investigation Department (CID) probe into the procurement of Airbus A-350 aircraft by SriLankan Airlines and its findings remained in limbo.<\/p>\n

All of a sudden, the Attorney General\u2019s Department directed the Police this week to obtain a warrant from the Magistrate\u2019s Court and arrest Kapila Chandrasena, a onetime Chief Executive Officer of SriLankan Airlines and his wife Niyomali Wijenayaka for alleged bribery. The CID could not locate them and a government minister said they were not in the country. The couple surrendered to their office on Wednesday. Their statements were recorded, and they were produced before Chief Magistrate Ranga Dissanayake and remanded till February 19.<\/p>\n

This unexpected development came after it transpired in a British Court that the wife of SriLankan Airlines (\u201cSLA\u201d) Executive, through a straw company\u201d registered in Brunei, was offered up to US$ 16.84 million by Airbus to \u201cinfluence SLA\u2019s purchase of ten Airbus aircraft and the lease of an additional four aircraft. The Court heard that the Special Frauds Office (SFO) in London had discovered that only two million dollars of the US$ 16.84 million had so far been paid. Of the ten aircraft to be procured, four were related to the purchase of the new A 350-900 and sparked the CID investigation. The CID\u2019s findings had remained pigeonholed until matters surfaced in a British court. At least one director of SriLankan Airlines knew five years ago that all was not well. He raised issue but did not succeed.<\/p>\n


\n Here is an abridged account of how it played out:<\/strong><\/em><\/p>\n

<\/p>\n

SriLankan Airlines entered into a purchase agreement on June 28, 2013 with Airbus S.A.S. in France for the manufacture and delivery of four A 350-900 aircraft. The delivery dates were from the second quarter of 2020 with the last aircraft being delivered in the first quarter of 2021. The total cost of the four aircraft was US$ 222,356,600.85. That is over 2.2 billion US dollars or more than Rs 28.2 billion, according to then prevailing exchange rates. Financial information provided to the Cabinet at that time (2012-2013) showed that SriLankan recorded a revenue of only just US$ 948 million for ferrying 4,140,305 passengers. Its overall performance for 2015-2016 was US$ 1251 million for ferrying 4,789,902 passengers. Thus, the order with Airbus even exceeded SriLankan operating costs.<\/p>\n

SriLankan paid pre-delivery payments since November 2016 totalling US$ 19,214,638.45. This is besides a further US$ 7.5 million made as \u201cpre delivery payment.\u201d However, in that month (November), the board of directors of SriLankan decided to stop any further payments. By then the UPFA government, under whom the deals took place, was out of office. The Yahapalana or \u2018good
\ngovernance coalition\u2019 had come to power. There were more payments made for different reasons as time went by.<\/p>\n

It is during 2016 when the Yahapalana coalition was taking stock of the previous regime\u2019s financial commitments that details began to emerge. Kabir Hashim, Minister of Public Enterprises and Development, under whom SriLankan Airlines was a subject, told Cabinet that there was an approximate cost of US$ 1.45 million per month per aircraft. It was to be spread over a 12-year period, he said<\/p>\n

In a memorandum dated April 19, 2017. He said the \u201ctotal cost of this arrangement was to be US$ 835.2 million.\u201d The leasing deal was with AerCap, an aircraft leasing company. Since 2014, this company had acquired International Lease Finance Corporation (ILFC). The previous payments had in fact been made to AerCap.<\/p>\n

It is important to note that the Purchase Agreement with Airbus deals only with the procurement of the \u201cairframe\u201d and \u201cpropulsion system.\u201d Agreements have been entered into for other essential components of the aircraft with several other concerns including engines. Examples: Product Agreement and Total Care Service agreement with Rolls Royce PLC. Zodiac Seat France \u2013 an agreement to purchase new seats. Thales Avionics Inc. Supply of flight entertainment. Lukedesign of France for cabin design. Three different agreements with Airbus relating to A-350-900 aircraft. Payments for these had to be made separately.<\/p>\n

Cabinet memoranda, SriLankan board papers, other documents and agreements seen by the Sunday Times lay bare a sordid tale of how the Airbus deal had been handled. There was no recourse to the Cabinet of Ministers, or the agreement being subjected to scrutiny by the Attorney General. The argument brought out was that SriLankan Airlines was a corporate entity and not a part of the government. Yet, it needed the taxpayers\u2019 money to function and the Treasury was dumping money into a veritable bottomless pit.<\/p>\n

A re-structuring plan, \u201cto transform SriLankan into a profitable public enterprise,\u201d was decided by the Cabinet of Ministers on June 24, 2015. Two consultant firms, Nyras and Skyworks, consulted by the government, had advised that operation of the A 350\u2013900 aircraft would cost an additional US$ 30 million per year and they were not recommending them. The government decided to cancel the contract, but Airbus declared, according to Kabir Hashim, Minister of Public Enterprise Development that \u201ccancellation is not an option, neither can the order be changed completely to a narrow body, four wide body would be given with perhaps an additional narrow body.\u201d Airbus also insisted that failure to pay the pre-delivery payments would amount to a \u201cbreach of the purchase agreement between SriLankan and Airbus. In the event of a breach, Airbus will have an opportunity to make claims against SLA.\u201d The agreement was heavily loaded in Airbus\u2019 favour.<\/p>\n

This is when the government decided to terminate the Airbus deal. The CID was first called to investigate. Airbus in the meanwhile refused to continue further discussions on the purchase agreement until the findings of the CID investigations were made known to it. That led to a deadlock whilst the government was seeking various avenues to find out details.
\nThe Sunday Times has seen the minutes of a meeting of the Board of Directors of SriLankan held on October 27, 2015 presided over by then Chairman, Ajit Dias. <\/p>\n

This is what it says:<\/strong><\/em><\/p>\n

7.3 Airbus being investigated by European Union on Bribery Charges:
\n\u201cMr Joseph M.S. Brito\/Director informed the Board that the EU (European Union) was carrying out an investigation on Airbus on bribery charges on aircrafts delivered to UK and Switzerland. He added that he would appreciate if a letter is written to Airbus stating that the acquisitions of the Aircrafts were not done in the best interest of the Company and not carried out purely on commercial terms but also on various other monetary considerations and for Airbus to confirm if there were any facilitators in securing the deal. Mr Brito\/Director pointed out that whilst the Aircraft leases for A 350s were obtained at USD 1.4 million, the market price was USD 1.2 million at the time the agreement was signed.<\/p>\n

\u201cMr Brito\/Director tabled draft of the letters to be written to (1) Airbus on the purchase of the Aircrafts, (2) Rolls Royce on the purchase of engines and (3) AerCap on the Lease of Aircraft. CEO (present on invitation) agreed to forward these letters to the relevant parties. Mr N. de Silva Deva Aditya\/Director volunteered to forward the address of the President of the European Commission, to whom these letters were copied to. The draft letters form part of these minutes.\u201d<\/p>\n

There was no action taken on Brito\u2019s request. He raised issue at a meeting of the Board of Directors on November 24, 2015. This is what the minutes of that meeting said: \u201cMr Brito reminded the Board that a request was made by him to write letters to both Airbus and Rolls Royce. Chairman stated that presently the company was in negotiation with both Airbus and Rolls Royce regarding the engine for A 350s which the company had committed to take and the other was regarding the A 330 due in 2020. Chairman informed that the Chief Officers namely the CEO, CTO and Manique Gunasekera\/CCAO were of the view that by writing the said letters would sour the relationship with both Rolls Royce and Airbus, with whom the Company had binding contracts. Mayuka Ranasinghe\/HGLA\u2019s views were also obtained in this connection.<\/p>\n

\u201cMs. Gunasekera explained that because of the fact that presently negotiations are under way with Rolls Royce and Airbus 2020 aircraft, it was not advisable now to write the said letters. This was agreed by the Board.<\/p>\n

\u201cChairman stated that the investigations have taken a serious turn at the FCID and CID on the re-fleeting.\u201d<\/p>\n

Brito\u2019s draft letter, incorporated in the board meeting minutes but not sent out, is revealing. It said:<\/p>\n

\u201cDear Sirs,<\/p>\n

\u201cWe refer to the purchase of eight A 350-900 due to be delivered to Sri Lankan Airlines from October 2016 to 2020.<\/p>\n

\u201cTwo internationally renowned independent Airline Consultants have advised us that it is not in the best interest of the airline to act as the aircrafts, (sic) as vital decisions appear to have been made not only on purely commercial grounds, but also on various other monetary considerations. We have also been advised that the prices paid for these aircraft have been well above the market prices at that time.<\/p>\n

\u201cIn connection with the above, we wish to know whether you dealt\/transacted with any third-party Agent and\/or consultants who have facilitated your company to sell any of these aircraft to SriLankan Airlines. If so, could we please have the full details of their names and addresses and what fees\/commission\/remuneration were paid or repayable to them as a result of SriLankan Airlines committing to purchase any of these aircraft. In case these facilitators\/Agents have transacted in the name of a Corporate or Limited Company, the specific names of all individuals representing the Corporate whom you dealt with for the sale of any of these aircraft purchases.<\/p>\n

\u201cAs we are not at all satisfied at the manner these purchases were carried out, and as we have been informed that the European Commission has commenced an international probe on allegedly corrupt deals on Airbus\u2019 aircraft sales, we are copying this to the President of the European Commission to follow up on this matter.<\/p>\n

\u201cWe thank you for your assistance and look forward to your co-operation.<\/p>\n

\u201cYours faithfully<\/p>\n

\u201cChairman\u201d<\/p>\n

Minister Kabir Hashim said in a memorandum to the Cabinet on April 19, 2017 that the Termination Agreement in line with the terms agreed by the Ministry of Finance was as follows:<\/p>\n

\u2022\tTermination Fee for Airbus a 350\u2013900 aircraft\u2013US$ 154.00 m
\n\u2022\tReduced Termination Fee for three Airbus A 350-900 \u2013US$ 98.00 m
\n\u2022\tForfeit Security deposit (already paid) \u2014 US$ 7.5 m
\n\u2022\tCash payment from SriLankan Airlines\u2014US$ 90.5 m<\/em><\/p>\n

The arrangement was subject to SriLankan Airlines taking over the leases of two narrow bodied aircraft owned by AerCap and leased to Mihin Lanka.
\nAccording to an extract of the minutes of the Cabinet Committee on Economic Development (which gave approval) dated September 9, 2016 \u201cafter a detailed discussion SriLankan Airlines was authorised to negotiate a termination cost for the three aircraft within the range of USD 75-85 million in order to close the issue.\u201d<\/p>\n

However, a copy of the Agreement between SriLankan Airlines with International Finance Lease Corporation titled \u201cTermination and Amendment Agreement\u201d dated October 4, 2016 seen by the Sunday Times tells a different story. That agreement says \u201c\u2026.Lessee hereby agrees to pay lessor an amount of US$ 146,500 payable in eight months.\u201d Signing on behalf of SriLankn Airlines was Suren Ratwatte, then Chief Executive Officer. Sean Sullivan, CEO of International Lease Finance Corporation signed for his company.<\/p>\n


\nHow much exactly was paid as termination fee therefore remains a mystery like so many other issues that have clouded the Airbus deal.<\/strong><\/p>\n


\nAll the money spent on the four Airbus A 350-900 vanished into thin air and neither Sri Lanka nor SriLankan Airlines received any benefit. It is deeply in contrast with a hospital watcher who is arrested for taking five rupees as a bribe to allow a visitor to see a patient outside visiting hours. He is first remanded for two weeks. The paradise service from SriLankan had been enjoyed only by a handful. The question is whether all of them will be known.<\/strong><\/em><\/p>\n


\nCourtesy:Sunday Times<\/em><\/p>\n

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(Excerpted From the “Sunday Times” Political Column) The news came many months after a Criminal Investigation Department (CID) probe into the procurement of Airbus A-350 aircraft by SriLankan Airlines and its findings remained in limbo. All of a sudden, the Attorney General\u2019s Department directed the Police this week to obtain a warrant from the Magistrate\u2019s …<\/p>\n

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