SriLankan-Mihin Air merger: Marriage of two sick individuals

By Chandeepa Wettasinghe
One of the country’s leading economists said that future operations of the national carrier SriLankan Airlines will be hindered due to the decision to merge it with the bankrupt budget airline Mihin Air in the coming months.

“One of the glaring mistakes we have done in the recent past is the amalgamation of the Mihin Air budget airline with SriLankan Airlines. Of course, the people who don’t know about the two airlines will think this is a good policy,” former Central Bank Deputy Governor W. A. Wijewardena said.
Delivering the keynote address at the Sri Lanka Economic Association Annual Sessions, Wijewardena, who has consistently been pointing out poor government decision making, said that the merger will further handicap SriLankan.

“Both institutions are sick institutions. What we have done is we have married one sick woman to another sick man. And those two sick people cannot produce good children. The children will also be sick. Instead of closing down Mihin Air, we have added it to another sickness,” he said.
The problems in SriLankan are not just financial mismanagement and corruption, with the Weliamuna Report which was commissioned by Prime Minister Ranil Wickremesinghe also pointing out various scandals which had taken place involving the airline.

Current SriLankan Chairman Ajith Dias however had downplayed the relevance of the report earlier this month, while the portfolio minister Kabir Hashim since said that the allegations of the report have to be further investigated.

Mihin Air, one of the many projects started under the previous regime that bears the namesake of Former President Mahinda Rajapaksa, was founded in 2007, and has operated since then without making any profit, accumulating losses of up to Rs. 17 billion by the end of the 2016 financial year. SriLankan, which has accumulated losses exceeding Rs. 100 billion from 2010-2015, improved its position in 2016, adding just  Rs. 11.59 billion to the losses due to a windfall from cheap fuel prices, compared to a Rs. 16.33 billion loss in 2015. Cabinet approval was given this April to clear all liabilities of SriLankan totalling US$ 3.2 billion, of which US$450 million was in interest bearing liabilities.

Wijewardena noted that wide sections of Sri Lankan society are against the closing down of loss-making state corporations. Many are also against privatization of such institutes. “So the state enterprise losses have been a drain on government resources, and what we have done is, without getting approval of parliament, without having a public discussion, secretly, losses of these state enterprises have been recouped by the Treasury by taking in debt with government bonds. Which again have to be repaid by the taxpayers over the period,” he said.
According to the government, the previous regime had taken over Rs. 1 trillion in debt through state-owned enterprises. Mihin Air’s flights will be absorbed into SriLankan Airlines at the start of November, with changes to the budget pricing to reflect the change in service quality SriLankan will bring. Only a very limited number of Mihin Air flights which operated to saturated markets where SriLankan also operated will be cancelled.

SriLankan is currently on a restructuring drive also to become a regional airline. The Mihin Air company will be liquidated in December, and almost all of its 300 staff will be transferred to SriLankan.

Tourism Development, Land and Christian Affairs Deputy Minister Arundika Fernando, a former Rajapaksa loyalist, had also opposed the merger last week, saying that Mihin Air has its own brand and has drawn interest from investors.