An Expert Committee appointed for obtaining recommendations for the restructuring of the Sri Lankan Airlines (SLA) has proposed the establishing of an independent board and management by separation of Government’s ownership of State-Owned Enterprises (SOEs) from the operations and management of SLA.
It has also recommended an independent procurement process for the Airline as well as a complete freeze on hiring except for essential positions.
The 12-member Committee, appointed by President Maithripala Sirisena, submitted its Report to Cabinet recently. It has been referred to the National Agency for Public Private Partnership (NAPPP) at the Ministry of Finance to draw up a plan for the expeditious implementation of the proposed recommendations, Committee Chair and State Minister of Finance Eran Wickramaratne said.
“The NAPPP will come with a detailed timetable for the restructuring of SLA. It will take some time as some expertise will be needed to put it together,” Wickramaratne told the Daily FT.
The Committee has made recommendations in respect of the financial restructuring of SLA, corporate restructuring, preparation of an effective Strategic Plan and Operating Business Model, human resource restructuring, ensuring of an independent procurement process, and exploiting Synergies in Brand Promotion.
Among the recommendations for SLA to enter into joint ventures with strategic partners as part of the Financial restructuring plan with SLA remaining as the holding company with two Subsidiary Business Units (SBUs) under it: SriLankan Catering, which already exists, and SriLankan Ground Handling, which would need to be created.
The proposal is for 49% stake in each of the SBUs may be divested to a strategic partner, while SLA retains a majority stake in the SBUs, as the cash generated from this sale could to be used to settle part of the outstanding debt of the airline, which would improve the viability of SLA. The Government could then leverage on the restructured balance sheet to enter into a strategic partnership with an international aviation player for a 49% stake in the holding company SLA, while 51% stake is retained within Sri Lanka.
“The Strategic Partnerships (SP) in SLA and the SBUs could be with one international aviation company or several entities, depending on the interest of the parties, and ensuring maximum value is obtained by Government of Sri Lanka (GOSL) from the divestiture. The management of SLA and the SBUs should be transferred to the strategic partner under a management contract,” the Committee recommended.
For Corporate Restructuring, the Committee has recommended the establishing an independent board and management by separation of GOSL’s ownership of State-Owned Enterprises (SOEs) from the operations and management of SLA.
“Given that SOEs form a part of the wealth of the nation and exist for the benefit of its citizens, a framework needs to be developed to manage and operate SOEs as viable commercial enterprises. In this light, a legislation governing the appointment and removal of directors and instituting a performance monitoring mechanism should be enacted,” the Committee said.
The Report has also laid down criteria for appointing individuals to the board, saying they should meet minimum fit and proper criteria with respect to educational qualifications, managerial and professional experience in the relevant field, and have limited tenure of office. “Individuals should be disqualified if they have been declared insolvent or found guilty by a Court of Law, if they are found to have any corruption charges or any other offence of a serious nature and have any conflict of interest.”
The Committee said that should be a clear of separation of powers between the Board and Management. “The Management needs to be allowed to make operational decisions independently but remain accountable to the Board on performance. In addition, the Board must be held accountable to the shareholder. This requires that an independent performance monitoring system be established with clear mandates and targets given to the board and management and strict action taken against those who continuously underperform.”
It recommended the instituting of a strong legal framework to protect private investors and assure investors that commercial rather than political considerations would form the basis for contracts.
The Committee also said there should be a complete freeze on hiring except for essential positions which are recommended by the Board of Directors, as making the airline commercially viable/attractive requires a right sizing of the organisation.
“If a decision is made that the airline must be made operationally viable prior to the search for a partner, so that the value of the airline could be maximised, the staffing issue would need to be addressed immediately. Alternatively, the decision could be to allow the strategic partner to address the overstaffing issue (through VRS, moving staff across the different business units or even across its own subsidiaries). This however, would discount the value of the airline to the strategic partner.
The Committee also said that an independent procurement process needs to be ensured and SLA as a commercial entity should be given independence to make its procurement decisions. “It cannot be expected to follow the standard Government procurement process, which is generally time-consuming, as most decisions with regard to procurement need to be made on an urgent basis. The Board and Management however should be made accountable for decisions that are made.”
The Committee also recommended closer cooperation between SLA and Sri Lanka Tourism, which could be in the form of joint promotional campaigns, leading to much needed synergies in promoting Sri Lanka as a tourist destination. “Currently, $15 out of the $ 50 embarkation fee that is collected is transferred to SLTDA for promotional activities. The Committee recommends that a proportion of this be shared between SLA and SLTDA, and the expenditure on these activities be closely monitored to ensure maximum benefit to the tourism industry.”
The 12-member Committee was appointed by President Maithripala Sirisena in January. State Minister of Finance Eran Wickramaratne chaired the Committee while the members include Non-Cabinet Minister Dr. Harsha de Silva, Dr. Nandalal Weerasinghe, Dr. Dharmarathna Herath, Prof. D.B.P.H. Disa Bandara, V. Kanagasabhapathi, L.S.I. Jayaratne, Viraj Dayaratne, Mahen Gopallawa, Wasantha Kumarasiri, Ajith Amarasekara and Thisuri Wanniarachchi.