INVESTIGATORS SAY AIR LANKA LOSSES DEVASTATING
A commission set up to unravel the
affairs of debt-ridden Air Lanka says the airline amassed
losses of up to 265 mln U.S. Dlrs in "the most devastating
financial tragedy" in Sri Lankan commercial history.
    The commission, which scrutinised financial dealings from
aircraft acquisitions to give-away cookbooks, blamed the
airline's previous board for the losses. The panel, appointed
in August by President Junius Jayewardene, submitted its report
to him on April 20. A copy was obtained by Reuters. The report
will be made available to the public by next week.
    The three-man commission recommended its findings be passed
to state law officers to decide whether penal action was
necessary against any members of the former board or Air
Lanka's management. The airline comes under the Defence
Ministry, a portfolio held by Jayewardene himself.
    The commission said Air Lanka's reports to Jayewardene
"blurred" its true financial health. It said the airline had
irretrievably lost its share capital of 3.8 billion rupees.
    To finance deficits, it had also used up a treasury loan of
800 mln rupees and part of foreign currency loans obtained for
aircraft purchases and infrastructure needs, it said.
    "Air Lanka is thus indebted to overseas lenders to the value
of one billion rupees without any productive assets or
collateral to provide for its repayment," the commission said.
    It said the airline's losses were assessed at 5.59 billion
rupees at March 31, 1986. But cumulative losses would reach 7.7
billion, implying Air Lanka lost money at the rate of 1.3
billion rupees a year between 1979, when it started, and 1986.
    "These results must rank as the most devastating financial
tragedy ever suffered in Sri Lanka's commercial history," the
commission said.
    The report said the airline's dangerously critical
financial condition was due to uncontrolled spending --
particularly the way in which the airline expanded its fleet --
poor marketing, and extreme laxity in cost controls.
    "It is clear to us that Air Lanka's misfortunes are largely
of its own creation and that the reponsibility must rest
primarily with the board of directors," it said.
    Air Lanka had blamed its problems on the effects on tourism
of Sri Lanka's Tamil separatist rebellion, the depreciating
rupee and under-capitalisation. The commission dismissed these
as invalid.
    The report said most of the major problems stemmed from
concentration of power by Captain S.R. Wikramanayake who held
the posts of both chairman and managing director.
    "It is mainly he who has to be responsible for whatever the
status of Air Lanka is in today," it said.
    Wikramanayake resigned with the other board members last
November. He could not be contacted for comment.
    The commission recommended that its findings should be
passed "to the law officers of the state ... To ascertain if
penal action is necessary against any or all members of the
former board of Air Lanka or its management staff."
    The panel recommended equity involvement of one or more
foreign airlines in Air Lanka and the granting of maximum
concessions to make the carrier attractive to foreign and local
investment. It also suggested selling assets, such as two
Boeing 747s financed by U.S. Dollar loans, to reduce debt.
    It said Air Lanka and the government should renegotiate
U.S. Dollar-denominated debts into other currencies which form
the core of earnings and obtain lower interest rates. It also
proposed negotiations for the return of two Lockheed Tristar
L1011-500s now leased to British Airways before the leases
expire next March.
 REUTER
