Emirates to opt out of Sri Lankan Airlines

COLOMBO: Emirates Airline will not be renewing a 10-year contract to operate Sri Lankan Airlines when it expires on March 31.

From April 1, Sri Lankan Airlines will be managed by the Sri Lanka government, but Emirates will retain its 43.6% equity in the company for the time being, according to an Emirates statement.

It will also continue to have a board presence.

The Sri Lankan government holds 51.05% of the airline and employees have a 5.32% stake.

Reports in Asia suggest that the Sri Lankan government wants a bigger role in managing the carrier and that it had complained the existing contract was “heavily tilted” in favour of Emirates financially.

Emirates president Tim Clark and government authorities in Colombo held talks over the weekend following the decision by Sri Lanka to cancel the work permit of the Emirates-appointed chief executive of Sri Lankan Airlines, Peter Hill.

Sri Lanka cancelled Hill’s work permit after the national carrier refused seats to president Mahinda Rajapaksa and his entourage.

Rajapaksa went on a private visit to the UK in December to watch his son’s graduation from a naval college but couldn’t get a place on the flight home because of heavy holiday traffic.

The Sri Lankan government says the airline “misled” it and had promised seats to Rajapaksa and his 35-member entourage – which airline sources deny.

Hill will continue to run Sri Lankan from Dubai until Emirates’ 10-year management contract with SriLankan runs out.

The latest moves in the increasingly bitter dispute between Emirates and Sri Lankan raises questions about the ability of Sri Lankan to continue under government management.

Peter Harbison, head of the Centre for Asia Pacific Aviation, said: “Where terrorists, tsunami, SARS, civil war and difficult market conditions failed to destroy the nearly 40 year-old airline, it may be that politics and market change may soon succeed.

“In the past, Sri Lanka benefited from India’s restrictive international aviation policy. Thanks to its relative openness towards the small island neighbour, Colombo became India’s major sixth freedom gateway hub.

“India is now allowing its own private airlines to fly internationally and is rapidly opening up access generally. Point to point services are being established every day.

“As a result, Sri Lanka’s strong sixth freedom base is progressively being eroded; opportunities for its flag carrier to exploit India’s market are accordingly evaporating.”

The Sri Lankan Airlines group posted a post-tax profit of US$7.8 million for the financial year to March 31, 2007, down 50% from the previous year.