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Sri Lankan Airlines in London court due to leasing agreements

PIA Premier at London Heathrow airport its only destination at the moment. Photo by: John Taggart https://www.flickr.com/photos/tagsplanepics-lhr/

SriLankan Airlines is taken to a London court by SASOF II Aviation Ireland over A330 leases. The airline deal with PIA for wet to dry lease of 3 to 4 Airbus A330 aircrafts did not materialise and as a result the planned leasing agreement with SASOF II Aviation Ireland was affected too. According to Namini Wijedasa of  The Sunday Times of Sri Lanka the SriLankan Airlines backed out of an extension on the lease of three A330-200 aircraft from SASOF II Aviation Ireland. The airline maintains that the extension agreement was not legally binding, but SASOF contends that it represents a breach of contract.

This transpires against the backdrop of a major clash within SriLankan’s board of directors, with a faction saying CEO Suren Ratwatte signed the contracts without approval–a charge that he vehemently denies.

As per the records SriLankan leased three A330s – 4R-ALA (msn 303), 4R-ALB (msn 306), and 4R-ALC (msn 311) in 2010. The leases were expiring in January and February 2017. But in 2016, SriLankan CEO Suren Ratwatte signed an agreement with SASOF II Aviation to extend the leases. According to the Sri Lanakan airlines claims this decision went against the wishes of the airline board, which wanted to extend the contracts only if a separate dry-lease arrangement with PIA – Pakistan International Airlines was secured.

When Pakistan International airlines ditched Srilankan and things did not go ahead as planned, SriLankan airlines advised SASOF that it would be returning the aircraft at the expiration of the original lease. To this the lessor SASOF replied “Your purported notice is rejected and your intended action is a breach of contract,”.

With PIA not interested to take even one of Sri Lankan Airbus A330s even for wet lease the whole thing is coming to cost the struggling carrier a fortune. As estimated “should SriLankan be forced to fulfil the contract, it will come at a cost of USD225,000 per aircraft per month, or USD8.1 million per year.” SriLankan is yet to collect US$2 million plus interest from PIA.

On his part the Srilankan CEO Ratwatte says that the extension was agreed in order to avoid grounding the aircraft from August 2016 for lease return checks. He says “in order to forestall this (which is a very expensive exercise with no return on investment) and ensure the schedule could be flown, the decision was made to extend the leases on very favourable terms,”.

On the other hand half of the SriLankan board says that Ratwatte exceeded his mandate, and arranged for the lease extension without their approval. PIA acquired an Airbus A330-300 from Srilankan airlines for the launch of its premier service on 14 August 2016. The airline agreed to take 3 and according to some reports 4 Aribus A330-300s from Srilankan airlines on intially wet lease but converting the wet lease to dry once PIA crew were trained. Initially the leasing was delayed after the first aircraft 4R-ALN arrived in Pakistan and then PIA changed mind sighting mounting losses. According to various sources PIA lost interest in the deal due to decreasing leasing prices in international market.

SASOF II Aviation Ireland is a special purpose vehicle (SPV) for Apollo Aviation Group, an aviation investment management group. Though its various SPVs, Apollo manages 132 aircraft.

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