The Former Mihin LankanChairman and CEO Nishantha Ranatunga shed light on his tenure as the head ofthe organisation while revealing what plans had been set in place to turn theairline’s heavy losses around.
He explained that despite recent claims that the airline was making heavylosses, the organisation was on the brink of a turn around which he believed,with commitment, would have been possible in a few years.
“The challenge when I took over in March 2014 was to run the organisation in acommercially viable manner without compromising the safety and the services tothe passengers. The three tasks that were set out for the staff was to get ridof unnecessary waste, reduce cost and increase revenue,” he said.
Together with the Mihin HR team Ranatunga set up a process to allow the staffto put forward their recommendations within a two week period of hisappointment. Within a month he claims they were able to come up with therecommendations from the staff while simultaneously preparing the business planfor a four-year period. Early projections pointed to the fact that Mihin was inno position to run profitably unless changes were made.
From Boeing to Airbus
Two Boeing aircrafts had already been ordered at the time of Ranatunga’sappointment and the matter was taken up with the Ministry of Aviation as wellas the Treasury.
“We told them that with these two products coming in, it would be difficult torun the organisation in a profitable manner for the next seven to eight years.We gave them a second option in switching to Airbuses which would allow us toachieve our target in three years,” he said.
The Government gave the green light for negotiations to commence with Boeingand at the time the additional cost was around $35 million. The reasons behindthe additional costs were, as Ranatunga explained, expenditure on technicalknowledge enhancement and training for pilots and cabin crew. The airline wouldalso have to spend on spare parts and accessories for the new aircrafts.
Negotiations with Boeing resulted in Mihin managing to bring down theadditional cost to about $5 million but making profits was still not apossibility within the ensuing five years.
After several discussions with the Aviation Ministry, the Treasury and thestaff, a decision was taken to switch to three Airbuses instead.
The former Mihin Lanka Chief confirmed that the organisation had ordered twoAirbus A320neos and A319 which will arrive in 2016.
“We found then that according to our business plan we would be able to makeprofits by the third quarter of 2017. The month I took over, we had losses ofabout $2.4 million and within a month those losses were halved to $1.2 million.By May the losses had reduced to $800,000 and in June it reduced further to$600,000 and July to $300,000. In August, Mihin made approximately $300,000 inoperational profits,” Ranatunga stated.
Following the month of August, Mihin encountered three bad months in September,October and November, when its aircrafts had to undergo C-checks, which areextensive aircraft maintenance checks. In January, once again Mihin managed toturn in a small profit.
“Our anticipated budgeted loss for this year was $13 million but the way thingsare going we can end with around $11 million in losses which is $2 millionbetter than expected. I am confident that if we run the organisation in thesame manner, we will be able to become profitable by the first quarter of 2017.Then we no longer have to depend on the stakeholders or the investments unlesswe need more aircrafts.”
Mihin’s battle againstrising costs
Fuel is Mihin’s major cost and amounts to around 43% of its total cost whereasaircraft leasing and maintenance amounts to only around 12% each.
Fuel costs had reduced significantly from the months of October-November in theinternational market and Ranatunga claimed that the benefit of the reduced fuelcosts will become clearer in time to come.
The small scale aircraft purchases also hurt Mihin in the short term as highleasing costs were directly attributed to the fact that only one or twoaircrafts were purchase at a time. According to Ranatunga, Mihin’s competitorswere purchasing around 20 to 50 aircrafts and getting them for 40% to 50% less.
Ranatunga identified two aspects that have emerged as Mihin’s main strengths,which are its staff and the support it receives from SriLankan Airlines. Staffcost is around 6% out of which 80% is paid to the cabin crew and technical crew.They constitute around 60% of the staff which as Ranatunga stated, meant thatthe rest of the staff was not very well paid.
New administration andamalgamation plans
When asked for his opinion on the proposed plans of the Government’s toamalgamate SriLankan Airlines and Mihin Lanka, Ranatunga claimed that theplan’s success hinged on the policy makers but admitted that he could not seethe benefit of doing so as he believed costs would rise as a result.
“There’s no real advantage unless they amalgamate and keep two separate PnLaccounts,” he stated.
Ranatunga explained that the amalgamation would result in increased staff costsas Mihin currently has around 100 employees per aircraft who earn far less thanSriLankan employees.
“Although our budgeted staff strength is 330, we have only 301 as of January,so around 100 per aircraft; But SriLankan has around 260 to 280 per aircraftand their salaries and perks are higher than ours.”
Instead he suggested that the two airlines be run as separate entities, addingthat it was also important that a member of Mihin Lanka continues to be on theSriLankan Airlines Board and vice versa in order to maintain the understandingbetween the two organisations.
Mismanagement allegationsand waning reputation
Ranatunga admitted that when he took over at Mihin, the carrier’s reputationhad been compromised and focus had to be diverted into improving its publicimage.
“When I took over I held discussions with the staff and explained to them thatthe perception of Mihin in the market was not very good. We had busted asubstantial amount of money from the tax payers and we needed to change that,”he said.
Several allegations of malpractice and financial mismanagement have beenlevelled at Mihin Lanka in the past but the former Chairman and CEO stated thathis task was to try to turn things around at the organisation in terms ofprofitability and not to conduct a fact-finding mission. He claimed that he hadno time during his tenure to look into matters of misconduct or corruptionthough he assured the public that no such malpractice or misconduct took placeduring his time at Mihin.
In response to recent revelations made by Minister Karunanayake regarding thelarge amounts of losses made by Mihin Lanka as well as SriLankan Airlines,Ranatunga stated that the Minister may not have been aware of the budgetedlosses.
“From an airline’s perspective you shouldn’t only look at what the airlinemakes. You must look at the contribution you made to the economy and in termsof tourism; in terms of businesses we transport a substantial amount ofvegetables and fruits to the region; we provide opportunities of employment andtraining etc. There are so many unseen opportunities in the aviation industry,”he said.
Way forward for Mihin andreorienting the aviation sector
Adequate funding has always been a problem for Mihin according to the formerChairman. He claimed that 60% of the total investment for the organisation camejust last year. He pointed out that it sucked Mihin into a vicious cycle whichresulted in borrowing from banks and paying higher interest.
“When the fuel bill is not paid on time, the CEB (Ceylon Electricity Board)charges us interest so we get whacked there as well. I don’t know if it’s amatter of malpractices or bad management. I’m not a judge on that but I cantell you that scale and timely funding were two issues that contributed to notallowing the organisation to run profitably,” he said.
He further suggested that his personal view was that if Mihin Lanka had around eightto ten aircrafts, it would be able to become profitable. Mihin also hadidentified several other avenues of income to improve its balance includingtraining and cargo services.
Finance Minister Ravi Karunanayake stated earlier this week that Sri Lankaneeded to reorient the aviation sector to act as a gateway to India andRanatunga agreed with the Minister’s vision but stated that the countryshouldn’t only look at India but also China.
He suggested that Mihin should look to target regional travel as well as focusits efforts on regional businesses, limiting its flying time and allowingSriLankan to specialise in long-haul flights.
“India and China are the two largest growing markets in the aviation industryas well as Indonesia. We have the links and infrastructure to provide servicesto those three countries. Mihin should look at 3½-4½ hours of flying time.”
Importance of a secondcarrier
In the debate regarding the necessity for a small nation to maintain a secondcarrier, Ranatunga made his stance clear by stating that competition for thenational carrier should not be dismissed as unnecessary.
Pointing to the understanding between the two organisations, he concluded thatboth airlines complement each other and have developed a somewhat co-reliant relationship.
Referring to a presentation he had conducted for the new SriLankan AirlinesChairman Ajith Dias, he added that the fate of Mihin’s success rested squarelyon the new SriLankan administration which needed to continue the work done atthe organisation and put into implementation the plans that have already beendrawn up.