SriLankan’s A350 business plan and termination
View(s):SriLankan Airlines this week clarified reports appearing in the media on the penalty amount paid to return the three A350 aircraft.
“The total penalty paid was US$98 million or Rs. 14.7 billion not Rs. 150 billion as reported,” the airline said in a statement to the media. It said among the many challenges inherited by the present management of the national carrier, was the decision to order eight A350 aircraft by the previous management of SriLankan Airlines. There was no existing business plan that supported the acquisition of this, or any other new long-range aircraft. A study commissioned by a consultant for the airline, compared the A350 vs B787, but at no stage were the economics of a new long range aircraft ever considered, it added.
“Continuing with the pragmatic approach to returning the national carrier to profitability, the decisions was made to withdraw from some of the European destinations. With this difficult decision, the A350 aircraft became an unnecessary type for the airline. It was decided to negotiate with the owner and lessor Aercap to enable the cancellation of these aircraft,” the airline said.
The previous management had also ordered 7 X A330-300 aircraft as replacement for the ageing A340 aircraft for operations on our European Routes. “These which attracts a lease cost of approximately $1 million per aircraft, incurred losses of $29,640 million in 2015/16 and had we taken and operated the A350 aircraft at a monthly lease cost of $1,425,000 per aircraft, the losses would have been significantly higher. We would also have a contingent liability of $ 800 million over the 12 year period and also an operating loss of $ 50 million a year or $ 600 million over the same period. As such SriLankan averted payment of $100 million a year by returning these 4 x A350 aircrafts and the termination fee will be recovered in 14 months. The termination agreement and charges were discussed and approved by all the relevant ministries, the CCEM and the Cabinet,” the statement said.
The suggestion of purchasing these aircraft from the lessor to sell these off in the secondary market was rejected by Aercap, who clearly informed that they are not in the business of selling aircraft but only leasing them. The market value of a new A350 is in the range of $170-200 million and it was highly unlikely that the airline would have been able to sell these aircraft anywhere close to this price, the airline said.