The Sri Lanka government which retained the controlling shareholding of the national carrier, even though it had for the past several years devolved the management rights to Emirates, the junior equity partner, takes management control of SriLankan Airlines on Tuesday. The government’s nominee directors announced on Friday did not include business tycoon Harry Jayawardene who, according to some reports, was favoured by the unions. A union spokesman, on condition of anonymity, went on record in The Island yesterday that Treasury Secretary P.B. Jayasundera’s appointment as the new chairman, succeeding Jayawardene, was ``temporary’’ and the outgoing chairman would be back later. He has not sourced this information. Be that as it may, the country would hope that the airline will be properly run and that Mihin Lanka which has already busted billions of rupees of public money will not be loaded on its back.

We have commented in these columns before that an element of personal pique seemed to have influenced the government’s decision to deny Peter Hill, the outgoing chief executive officer of SriLankan, a visa to do his job from Colombo when Emirates decided that it was not going to withdraw the CEO over the flap about President Mahinda Rajapaksa and his entourage not getting the seats they wanted on a London – Colombo flight. We think the decision not to bounce passengers who had paid for their flight and held confirmed tickets off a flight to accommodate an unreasonable demand was correct. Certainly the president deserves special consideration and without doubt the airline would have been able to find seats on that flight for him, the first lady and their security personnel, but not for all those in attendance. The end result was that Hill did his job from Dubai and that would have cost the Sri Lankan taxpayers who own the controlling shares of the airline more than it did Emirates.

That incident unnecessarily soured relations between the foreign partner and the government at the time that the agreement with Emirates was ending and needed to be re-negotiated on the best possible terms, if that was desirable, or terminated cordially if it was not. Instead, we opted for a battering ram approach which is far too evident in too many spheres today. Mihin Lanka’s CEO, Sajin Vas Gunawardene, in a wide ranging interview published in January clearly indicated that he was looking for a new relationship with SriLankan Airlines once Emirates ceased to control management at the end of March. He stressed that the two airlines must have a common commercial strategy and synergies between them must be maximized for the benefit of both airlines and the country itself. While this argument cannot be faulted, there is a strong public perception that Mihin, a diminutive of the president’s name, was a dummy sold to the president by a close friend/associate. The new airline is unable to pay its bills and is seeking Treasury funding and credit arrangements with state companies like the Ceylon Petroleum Corporation for its fuel supplies.

Gunawardene said in his January interview that SriLankan had two ageing Airbus 320s in its fleet which he wanted to wet lease. But that was flatly refused and he was forced to go elsewhere. Given that Mihin was unable to keep up the payments for its aircraft leases, the decision by SriLankan not to enter into any such agreement with Mihin appears to be in hindsight to have been perfectly correct. Given government’s controlling shareholding in both airlines, UL but for the Emirates management, may well have been pushed to play ball with Mihin. With Emirates out of the loop, this can happen now although as a minority shareholder with three board seats, it can still blow a whistle.

It is not yet clear whether Emirates will want to hold on to its 43 percent stake in SriLankan or dispose of it if the price is right. It is obvious that Sri Lanka will not be able to buy back the equity it sold in 1998 at the price that was then received and the seller, who is known to have done well over the 10 year management period, will look at extracting a tidy capital profit to exit the partnership. There have been reports, none of them hard, about interested buyers of Emirates’ minority shares. These include rumours about domestic business interests making an off-shore arrangement to buy the shares if they become available. How much of such speculation is right or wrong is an open question. What is pertinent for the moment is the maximization of existing synergies between SriLankan and Emirates within the bounds of possibility because keeping the airline profitable will not only redound to the interest of Sri Lanka but also of Emirates. Its hard-nosed managers are not likely to take decisions based on the kind of sentiment which made us deny Peter Hill his visa notwithstanding his Sri Lankan wife!

We can take some satisfaction at the four persons nominated by the government to sit on the airline’s seven-member board. Dr. Jayasundera is a highly educated and senior public servant with wide experience, Mr. Lalith de Silva has a proven management track record at home and abroad, Mr. Sunil Wijesinha is a widely respected businessman who did a magnificent job turning round the deeply troubled Merchant Bank of Sri Lanka and Mr. Nisantha Wickremasinghe, the president’s brother-in-law, who was already serving on the SriLankan board is known to have played a valuable mediatory role at a time the airline’s relationship with Emirates had slumped to a new low. It is not yet known who the airline will pick as its new CEO. The job has been advertised internationally but there are also experienced Lankan contenders, it has been reported.

There was a time when Air Lanka, SriLankan’s predecessor, was a drag on the national economy on a greater scale than Mihin is today. But there were good people including Mr. Lal Jayasundera, the legendary chairman of the Hayleys Group, Mr. Lakshman de Mel and other high calibre people the government was able to co-op into the Air Lanka board and turn the company around. Having a modern airline, even though it was for long a losing proposition, brought many technological and employment benefits to the country. Lankans were able to gather the necessary experience to qualify for jobs in the international aviation industry. Let us also not forget that when Black July of 1983 exploded and we became a virtual pariah nation in the eyes of the world, the fact that we had a national carrier permitted us to keep afloat the tourist industry into which huge investments had been made when many airlines decided not to touch down in Colombo.

Tightly managing the airline, retaining its people at a time better pay and perks are dangled before them, keeping the mediocre greedy for perks out of the SriLankan board, and, if necessary, finding the right partner who can give us benefits of economies of scale particularly on aircraft procurement are all challenges the new management must face. Hopefully, government will not load deadwood and make demands that will make that journey more difficult if not impossible.