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25 June 2024

Emirates-SriLankan contract in jeopardy

By Shweta Jain


Emirates’ prospects of renewing its contract with SriLankan Airlines have run into rough weather as the Sri Lanka government has revoked work and residence permits of the airline’s Chief Executive Officer, Peter Hill.

Hill, a Briton who was appointed SriLankan Airlines’ CEO by Emirates, lost his work permit after he refused to accommodate Sri Lankan President Mahinda Rajapaksa and his entourage of 35 on a London-Colombo flight.

Emirates currently holds a 43.6 per cent stake in SriLankan, the 10-year contract for which expires on March 31, 2008. Discussions have been taking place for the renewal of the contract for more than 18 months.

“This incident is bound to have a bearing on our ongoing negotiations with the Sri Lanka Government with regard to the contract renewal. That is all I am able to say at this point of time,” Tim Clark, Emirates’ President, told Emirates Business.

Clark said in September a final agreement on the contract was to be reached by the end of this year, leaving the size of its stake in SriLankan unchanged. However, according to a SriLankan source, the final round of talks between the two airlines is to take place in January. SriLankan entered into a partnership with Emirates in 1998, with the Sri Lankan government retaining a majority 51 per cent stake.

Hill, however, will retain his position as the CEO of SriLankan until the end of the management contract, according to Clark. “As per the contract terms, Hill remains the CEO of the airline. The government has not asked him to step down as the CEO of SriLankan. It has revoked his work and residence permits,” he stated.

According to Chandana Desilva, SriLankan Airlines’ spokesperson, Hill has been notified he has to leave the country by December 28. “The airline has received a statement from Dhammika Perera, the head of the investment regulatory authority, stating Hill’s residence permit has been terminated,” Desilva told Emirates Business in a telephone interview from Sri Lanka.

Meanwhile, the tension over contract renewal can be felt from the other side as well. “This occurrence will have an impact on the talks between the airlines. However, it is up to SriLankan’s shareholders to take the next step,” said Desilva, adding that the airline would want the contract to go on. “Emirates is the best partner that SriLankan has,” he said.

Clark, meanwhile, said in September Emirates expects to renew its contract to manage flag-carrier SriLankan Airlines for at least another five years and aims to double its fleet to 30. “It has not been an easy operation. The new contract could be for five years, extendable for another five,” he had said.

Analysts are divided on their views on contract renewal. “Emirates should walk away from the deal it has with SriLankan Airlines. Sri Lanka is a mess – as a region as well as everything else,” said Addison Schonland, a California-based aviation analyst with Innovation Analysis Group.

Other aviation experts say ending the partnership will be a nuisance for both the carriers. The Sri Lanka government has said in the past it wants a bigger role in managing the carrier as the existing contract is financially tilted in favour of Emirates.

‘Selling shares an option’

Emirates is proposing to sell shares of SriLankan Airlines to the public as it aims to renew a management contract with the South Asian island’s largest carrier, according to Emirates’ President Tim Clark.

“Selling shares is an option. In fact, all options would be open to us from April 1, 2008, when our contract is up for renewal with SriLankan. We will keep the profitability factor in mind,” Clark told Emirates Business.

Emirates owns 43.6 per cent of SriLankan.