• Ravi Karunanayake on Air Lanka - Emirates deal
  Alienation, not privatisation

I read with interest an article in a 'Sunday' newspaper where Mr. Tim Clarke, Chief Executive Officer of Emirates Airlines has refuted certain matters raised by me. Whilst reconfirming the doubts, I hasten to repeat with full responsibility that the terms and conditions negotiated for the Air Lanka privatisation (I term it an alienation) are the most disastrous contained in a one-sided Agreement, leading to much speculation regarding its transparency.

Let me not labour too much but prove beyond doubt that denials are useless when there is an indelible trail left behind.

1) ORDERS PLACED:
The business plan submitted to Air Lanka by Emirates, signed by Mr. Tim Clarke, is dated January 1998. This plan very clearly indicates the strategic requirement of airbuses for Air Lanka. These assumptions are thus a condition for the privatisation. Annexure 1.

Mr. Tim Clarke categorically states that orders were not placed in January 1998. I attach Annexure 2. Annexure 2 is an Internet extract on orders taken by Airbus Industrie in 1998. The internet table indicates that the Air Lanka order was placed on January 30 for six A330s equipped with Rolls Royce Trent 700 engines. The stipulated delivery date is 1999 which is an Airbus Newsletter that orders from the beginning of 1998 to date. This information is now common knowledge that can easily be accessed on the WEB Site of Airbuses on the Internet WWW.AIRBUS.COM. (Diskette copy has recorded this information). This will indeed allay all fears and corroborate all claims.

2) WHEN WAS THE ORDER PLACED
Mr. Clarke says, Emirates began negotiations in January 1998. However, the orders were placed only after the Agreement was signed on the 31st March 1998.

Mr. Clarke's acknowledgement that negotiations started in January 1998, corroborates my claim to the 1st Question. However, this leads to an interesting revelation. How were Emirates privy to the knowledge that they were to be awarded the tender? It is on record that the PERC Board were negotiating matters until the very last moment, how then did they know what the Cabinet decision on the Tender would be?

Notwithstanding the above information, Air Lanka shares were transferred to Emirates only at 17.30 hours on the 30th March 1998. We are informed that a sum of USD 26.5 million was remitted on 31st March 1998 as an order confirmation. Mr. Clarke further says that the aircraft order was placed only after the Agreement was signed, so does he mean that within 3 — 4 hours of completing the Air Lanka privatisation, negotiations were finalised with Airbus and Rolls Royce to buy 6 aircraft for Air Lanka? Does he really expect us as Sri Lankans to believe this? It should be mentioned in passing, that Emirates Airlines negotiations with the PERC officials would have been plain sailing and lucky with the latter agreeing to anything that was placed before them. However, please do not judge the rest of the Sri Lankans on the same basis and do not insult our intelligence because we are not so gullible and will not be duped so easily.

3) DATE OF ORDER IN THE AGREEMENT
Mr. Clarke states that the aircraft orders were placed after the Air Lanka Agreement was signed on the 30th March 1998. I attach Annexure 3 to disapprove such nebulous statements. Could he please substantiate the reasons as to why the Airbus Agreement and the Rolls Royce Engine Agreements entered into with Sri Lanka have been dated as January 1997. I quote the specific words from the Agreement.

"The basic prices have been established in accordance with the delivery conditions prevailing in January 1997 and are subject to adjustments, in accordance with the sellers price revision formula set out in Clause 4."

4) The next argument that I have been constantly upholding is that these aircraft were never meant for Air Lanka. They were orders placed for Emirates Airways which have been transferred to Air Lanka. Let me give you 4 irrefutable points.

A) REFUND
Why is the refund of the aircraft coming to Emirates instead of Air Lanka directly?

B) TENDER
Why didn't PERC and Air Lanka (as per the Finance Manual of Air Lanka tenders must be called if the cost exceeds SLR 750,000) agree to call in for Tenders? As this is the single largest procurement purchased in Sri Lanka and there is no Tender called, it undoubtedly questions the transparency of this ultra vires act.

C) COMMONALITY
It is repeatedly mentioned that commonality of equipment is the success of these negotiations. For your information, Air Lanka which has 5 airbuses in service at present are fitted with CFM engines. This being the case, why is it that whoever negotiated on behalf of Air Lanka did not take this into consideration? Why did they choose Rolls Royce Engines? Isn't Rolls Royce the standard engine for Emirates? So is it commonality for Air Lanka or Emirates Airways.

D) BUY, SELL AND THEN ENTER INTO A DRY LEASE
The new management contemplates buying 6 aircraft. They then propose to sell it the day they receive possession and enter into a dry lease. Being well aware of recessionary trends in Asia and the Middle East, many airbus orders have been cancelled or deferred idefinitely. Why couldn't we have looked around for such situations, to obtain the best price for Air Lanka.

In conclusion, it is decided that Air Lanka lease back aircrafts at USD 900,000 a month, when many international leasing companies specialising in leasing aircraft have been keen to enter into a dry lease with Air Lanka for SLR 750,000 a month. Why has Air Lanka overlooked an aspect of this magnitude? After all these quotations are in the possession of many senior managers?

Ravi Karunanayake,
(Member of Parliament)

Annexure

Foreword
The Business Plan for Air Lanka sets out the way forward for the airline in the period 1998/99 to 2007/08, subsequent to Emirates purchasing 40% of the Company's equity and having complete management control for ten years.

The Plan is both profitable and cash positive. Air Lanka will be turned into a high quality carrier with expanding international markets and will draw many benefits and synergies from the Emirates Group.

Cornerstone of the plan is fleet replacement, particularly the ageing Tristars. A mix of A340-300s and A330-200s will provide a substantive means of reducing unit costs whilst at the same time enhancing the airline's reach into its major international markets such as Australasia, Japan and Europe.

The Plan is conservative in nature, driven by the need to produce profits and therefore dividends, whilst at the same time providing sufficient cash to meet the costs of expansion without resorting to funding from the principal shareholders. Clearly, this is achievable and we would expect to expand upon the plan, most probably in year three, subject to improved aeropolitical entitlements and market access.

We plan a great future for Air Lanka as one of the foremost carriers of the region. Its style and marketing muscle will make it a formidable force in its principal markets, and we are confident that the Government and people of Sri Lanka will be justifiably proud of their national carrier.

T. C. Clark,
Chief Director (Airline)
Emirates
Dubai, January 1998

Annexure 3

PRICES AND TAXES

3.1 Basic Price of the Aircraft
The Basic Price of the Aircraft is the sum of: — the Basic Price of the Airframe as defined in Clause 3.1.1 and — the Basic Price of the Propulsion Systems as defined in Clause 3.1.2; and is exclusive of any variation resulting from price revision provisions and, if any, other provisions of this Agreement.

3.1.1 BASIC PRICE OF THE AIRFRAME
The Basic Price of the Air Frame is the sum of:

(i) the basic price of the airframe as defined in the Standard Specification described in Clause 1.2.1, which is: USD 85,315,000 (US Dollars Eighty Five Million Three Hundred and Fifteen Thousand)

(ii) the sum of the basic prices of all SCNs that are selected by the Buyer in Appendix 1 to Exhibit "A" in an amount of: USD 2,264,000 (US Dollars Two Million Two Hundred and Sixty Four Thousand) and of the basic price of any additional SCN as may be selected by the Buyer.

(iii) the sum of the basic prices of all Buyer Furnished Equipment (BFE), to be installed on the Aircraft at delivery which is: USD 5,330,000 (US Dolalrs Five Million Three Hundred and Thirty Thosuand).

The basic prices have been established in accordance with the delivery conditions prevailing in January 1997 and are aubject to adjustment in accordance with the Seller's Price Revision Formula set forth in Clause 4.1.

3.1.2 BASIC PRICE OF THE PROPULSION SYSTEMS
The basic price of a set of two (2) Rolls-Royce RB 211 TRENT 772 Propulsion Systems including standard equipment, nacelles, thrust reversers, Engine Build Up-fully dressed (including interface items) and installed is:

The basic prices quoted in clause 3.1.1 are subject to adjustment for USD 23,975,000 tons as measured by data obtained from the US Department of Labor, Bureau of Labor Statistics and in accordance with the provisions of (US Dollars Twenty Three Million Nine Hundred Seventy Five Thousand) (the "RR Basic Price")

The RR Basic Price has been established in accordance with the delivery conditions prevailing in January 1997.

The RR Basic Price is subject to adjustment in accordance with the Rolls-Royce Price Revision Formula set forth in Clause 4.2.

3.2 FINAL PRICE OF THE AIRCRAFT
The Final price (the "Final Price") of each Aircraft shall be the sum of the Basic Price of the Airframe as adjusted at the time of Aircraft delivery in accordance with the Seller's Price Revision Formula set forth in Clause 4.1;

the RR Basic Price as adjusted at the time of Aircraft delivery in accordance with the Price Revision Formula set forth in Clause 4.2; or as the case may be

any further amount provided for or resulting from any other written agreement between the Buyer and the Seller entered into subsequent to the date of this Agreement.

3.3 TAXES
3.3.1 The seller shall pay and shall indemnify the buyer against any and all taxes, duties, imposts or similar charges of any nature whatsoever levied, assessed, charged or collected for or in connection with the fabrication, manufacture, assembly, sale and delivery under this Agreement of any of the aircraft, services, instructions, data and Initial Provisioning material (as specified in Exhibit E hereafter) delivered or furnished hereunder.

3.3.2 The Buyer shall bear the costs of and pay any and all taxes, duties and similar charges of any nature whatsoever levied upon buyer and not covered by preceding Clause 3.3.1 but not limited to any duties or taxes due upon or in relation to the importation or registration of the Aircraft in the State of Sri Lanka.