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SriLankan to sue Mihin
Wednesday, January 23,2008

COLOMBO: Emirates-managed national carrier SriLankan Airlines has threatened government-owned budget Mihin Lanka, it would be sued, if over Rs. 100 million due for ground handling and other services provided, is not settled. The warning, in writing, by SriLankan Airlines CEO Peter Hill, was communicated to Mihin Lanka CEO Sajin Vas Gunawardena last week. Hill`s salvo follows Sajin firing a letter to SriLankan making various allegations over the withdrawal of ground handling services on January 1, 2008, to Mihin Lanka.
Hill has denied Sajin`s allegations that SriLankan Airlines` withdrawal of ground handling services, was in violation of its obligations to Mihin Lanka or the Government of Sri Lanka ?or that it is a deliberate or insidious attempt to destabilise and disrupt Mihin Lanka operations, or that our ground handling charges at BIA are arbitrary, excessive and not commensurate with the services provided.?
?As such, we will take all necessary action to resist any claims which you may make against us in respect of the non provision of ground handling services to Mihin Lanka,? Hill has warned.
Emirates-seconded Hill is due to retire on March 31, 2008, along with end of management of SriLankan Airlines by the award winning major global carrier.
According to SriLankan Airlines, Mihin Lanka as at January 1, 2008, owed US$ 647,589.54 in respect of ground handling services, US$ 12,121.45 in respect of engineering and other services provided to you and US$ 6,311.40 in respect of interline charges. A further US$ 353,222.58 is due to our subsidiary, SriLankan Catering for catering services uplifted by Mihin Lanka. ?All of this adds up to a total of US$ 1,019,244.97 due and owing from Mihin Lanka to SriLankan and its subsidiary,? Hill enlightened Sajin.
This, Hill said, bares out the fact that, contrary to Sajin`s unfounded allegations, SriLankan Airlines has continued to provide Mihin Lanka ground handling and other services up to December 31, 2007, further exposing the national carrier.
?This amply demonstrates our willingness to facilitate your requirements, even at risk to our commercial interests. We have repeatedly sought your cooperation to settle the outstanding amounts, which would allow us to resume the provision of catering and ground handling services to you. You have consistently failed to provide us with any credible plan to resolve the issues,? Hill had told Sajin.
?You (Sajin) had assured our Chairman (Harry Jayawardena) that the matter regarding ground handlings dues will be totally resolved by November 30, 2007. However, there has been no settlement or settlement proposal forthcoming from you up to date. Therefore, by your own action and inaction, you left us with no alternative but to withdraw ground handling services to you, until you settle the outstanding amounts in full. Notwithstanding this decision, we have provided you ground handling services on a strict cash up front basis. This too, you did not comply with. As at date, the sum due to us, on account of ?temporary credit?, stands at US$ 112,982.97 for such services, with you having stopped payment to us completely, since about December 30, 2007,? Hill had said.
As per his letter, SriLankan had been more than patient waiting for Mihin Lanka money, and ?it is impossible to continue providing services, at risk to our own commercial interests.?
?We, therefore, demand that you settle all amounts due and outstanding to SriLankan Airlines and SriLankan Catering immediately, failing which, will leave us with no option but to commence litigation and or arbitration proceedings to recover all amounts due to us and our subsidiary,? the SriLankan Airlines CEO had said.
Aviation sources said that Mihin Lanka was running at a daily loss while frantically trying to survive. Notwithstanding the widening hole in its coffers, Mihin has also been accused of resorting to financially suicidal pricing and promotional strategies.
Although SriLankan Airlines, since inception, handled Mihin Lanka`s `Above wing` operations, The Bottom Line reliably learns that, since recently, this passenger handling operation is now being controlled by the budget airline itself.
However, sources said that Mihin Lanka continues to obtain engineering assistance from SriLankan.
?The budget airline continues to receive assistance in spheres of toeing the aircraft, cleaning the aircraft toilets and filling water tanks,? the sources said.
According to the sources, Mihin Lanka is of the view that they can`t continue to afford the rates charged by SriLankan, since Mihin is a budget carrier.
?Carrying out our own duties also helps us monitor the airline`s safety and standard levels, but where necessary, we do avail of SriLankan`s services,? the source noted.
The Bottom Line learns that, following the expiry of the management contract with Emirates, the government would force SriLankan Airlines to reduce grounding handling charges to budget carriers, thereby giving some financial relief to Mihin Lanka.
Meanwhile in a separate development , Naresh Goyal-controlled Jet Airways and Vijay Mallya`s Kingfisher Airlines are reported to be among a host of carriers looking at acquiring a 43.6 percent stake in SriLankan Airlines.
The two carriers will be looking at buying the stake presently held by Emirates Airlines in the Sri Lankan carrier once their 10-year shareholder pact expires April 1, the officials added.
The Sri Lankan government holds 51 percent stake in the carrier, while employees hold the rest.
When contacted, officials at both Jet Airways and Kingfisher declined comment on the matter. `We cannot confirm any development on this,` Wolfgang Prock Schauer, chief executive officer of Jet Airways, told IANS.
`No comment,` the Kingfisher spokesperson added.
The Sri Lankan government`s relations with the Emirates management has not been particularly cordial and in fact deteriorated further when the work permit of the Sri Lankan Airways chief executive Peter Hill was withdrawn last month.
Officials said the reason was the failure on the part of the carrier to provide seats to President Mahinda Rajapaksa`s 35-strong entourage on the London-Colombo sector.
For Indian carriers, some analysts maintain, a major attraction in acquiring a stake in Sri Lankan Airlines is the booming business from India to Colombo with over 100 flights a week.
According to industry sources, Emirates was looking at $150 million for selling its stake in the Sri Lankan carrier, which may be on the higher side and could force a rethink at the negotiating table.
`In my view, it`s not worth $150 million,` said Shukor Yusof, editorial director for aviation with rating agency and financial consultancy Standard and Poor`s.
`I`m not sure if anyone has even thought of how to restructure Sri Lankan once Emirates isn`t there. Chances of airlines going bust in this period of $100 a barrel oil certainly is possible,` Yusof added.
Worsening domestic politics in the island nation, uncertainty over the airline`s management and the volatile security situation that affects overseas tourist inflows also add to the downside risks that bring down the valuation.
This, the analysts add, is already affecting the carrier`s bottomlines, which could take a further hit if it loses the key technical and management expertise that is currently available from Emirates.
`I suspect it won`t be only pilots who are leaving to go to Emirates. Everyone else will be looking for a change of job,` said Peter Harbison, chief executive of the Centre for Asia Pacific Aviation, a think tank for the industry.
`I believe there is some uncertainty over what assets the airline has, notably aircraft. This makes matters even more uncertain,` Harbison said.