Sri Lanka Equity Forum
Dear Reader,

Registration with the Sri Lanka Equity Forum would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
Sri Lanka Equity Forum

Discussion Forum for Stock Market Investors in Sri Lanka

සිංහල පරිවර්තනය

Latest topics

» ALHP WILL MOVE UP SOON
by wisdom79 Yesterday at 8:47 pm

» Need Healp
by Imanka.Amarakoon Yesterday at 1:57 pm

» SL has negative outlook as of January 2018 - Moody’s
by ranferdi Yesterday at 12:22 pm

» Tea Auction -Jan -18
by wisdom Yesterday at 11:41 am

» Political instability???
by Yahapalanaya Fri Jan 19, 2018 6:18 pm

» Wiser's TA Chart Room
by wiser Fri Jan 19, 2018 2:47 pm

» Sri Lanka’s USD500mn development bond oversubscribed
by ranferdi Fri Jan 19, 2018 1:09 pm

» CITH AMALGAMATION....
by Miss-Sangeetha Thu Jan 18, 2018 6:26 pm

» Don't Go to LB Finance...LEE BONNA FINANCE...
by venura Thu Jan 18, 2018 5:44 pm

» HVA getting ready once more
by anjelo Thu Jan 18, 2018 1:23 pm

» BERU.N0000
by lakmal87 Wed Jan 17, 2018 11:48 pm

» sira.......2.40/=
by TuTanKaman Wed Jan 17, 2018 2:32 pm

» TIME TO BUY KZOO.........
by max shanu Wed Jan 17, 2018 1:05 pm

» RAL.N at Rs2.40
by lakmal87 Tue Jan 16, 2018 7:04 am

» ONLY GOODNESS OF YAHAJADAAPLANAS
by Ryan Hudson Tue Jan 16, 2018 5:50 am

» Pan asia power PAP
by Ran49 Mon Jan 15, 2018 8:11 am

» Lanka Cement
by Ran49 Mon Jan 15, 2018 8:09 am

» CTBL-Rights
by ruwan326 Fri Jan 12, 2018 11:57 am

» US revamps travel warning system; SL gets an okay
by TraderCSE Fri Jan 12, 2018 8:07 am

» What do you expect in CSE performance prior to LOCAL GOVT.ELECTIONS?
by ONTHEMONEY Thu Jan 11, 2018 10:35 am

» best stocks to buy now
by ranferdi Thu Jan 11, 2018 8:49 am

» FATAL ATTRACTION??????????
by samaritan Wed Jan 10, 2018 11:13 am

» CFT share එක මොනව හරි දෙයක් වෙනව වාගෙ.
by 2017 Cse Tue Jan 09, 2018 11:02 pm

» Treasury posts Rs22bn primary surplus in Budget, first time in 63 years
by kovida Tue Jan 09, 2018 4:23 pm

» UNION BANK (UBC)
by peiris Tue Jan 09, 2018 2:42 pm

HashFlare

You are not connected. Please login or register

Sri Lanka Equity Forum » Stock Market Talk » Treasury posts Rs22bn primary surplus in Budget, first time in 63 years

Treasury posts Rs22bn primary surplus in Budget, first time in 63 years

View previous topic View next topic Go down  Message [Page 1 of 1]

ranferdi

avatar
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Jan 08, 2018 (LBO) – Government has achieved 21.9 billion rupees surplus in the primary balance of the fiscal accounts during the first ten months of 2017, for the first time in 63 years.

Finance Ministry said in the post independent Sri Lankan history a surplus in the budget deficit was first recorded in 1954 and later in 1956. In the meantime the surplus in the current account was registered from 1950 to 1970 and later from 1973 to 1994.

“Since then up to now overall budget deficit, deficit in the current account and the deficit in the primary balance were in negative growth continuously,” Finance Ministry said.

During the first ten months of the year 2017, the surplus in the budget primary balance was 21.9 billion rupees. It was in negative by 37 billion rupees during the corresponding period of 2016.

“Treasury officials are in the opinion that the favourable situation in the primary balance is a sign of positive growth in the economic development and it would further enhance the capacity to manage the debt repayment efficiently.”

State revenue when compared with the first ten months of 2016 has increased by 10.4 percent to 1,473 billion in 2017. It was 1,333 billion during the same period in 2016. Tax revenue during the same period has increased by 14.2 percent to 1,470 billion in 2017.

State expenditure has increased by 9.5 percent from 1,881 billion to 2,060 billion while interest expenditure during the first ten months of 2017 is 609 billion apart from the domestic and foreign debt repayment of 856 billion.

Having an excess in the state revenue more than the whole state expenditure minus the interest payment is known as the surplus in primary balance.
Source : http://www.lankabusinessonline.com/treasury-posts-rs22bn-primary-surplus-in-budget-first-time-in-63-yrs/

http://::::THIS EMAIL DOESNT WORK.. PLEASE CONTACT ME ON FB ACCO

Ryan Hudson


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
[size=48]Cancellation of the four Airbus A350-900 leases and the downfall of SriLankan Airlines
[/size]

[size]



Comments /  633 Views / Monday, 8 January 2018 00:00
 5  58[/size]



[size=17]
By Sanjana Fernando

The cancellation of the four Airbus A350-900 leases, executed under the current management led by the pilot CEO, was one of the most controversial decisions ever taken in the history of the airline. It also turned out to be the decision that finally broke the airline.

The politically motivated decision is costing the airline accumulated P&L losses of over Rs. 35 billion, including lease cancellation costs (phase 1) and lease cancellation loan payments (phase 2). Although the penalty fee to the lessor (AerCap) is now paid in full, the bank loan that was taken to pay the penalty still sits in the Balance Sheet of the company and will need to be paid out at a cost of around Rs. 1.5 billion every year for the next 12 years. 

A breakdown of the Lease Cancellation Costs (phase 1), are as follows:
[/size]

  • $ 7.5 million security deposit forfeited
  • $ 17.7 million paid as compensation for one aircraft due on November 2016. No Cabinet approval at the time of payment
  • $ 98.0 million paid as compensation for the remaining three aircrafts but with two conditions
  • Lease another additional aircraft (a 10 year old aircraft with wrong seat configuration which is unusable. Subleased out)
  • Extend existing aircraft (at a lease cost above market prices)

[size][size]
The story begins in June 2013when the previous management made a strategic rational business decision to replenish the ageing fleet with new assets including 8 new A350 widebody aircrafts.  These aircrafts are the future of medium-to long-haul airline operations and its fuel efficiency provided a natural hedge against the challenges of volatile fuel prices at a time when fuel prices were at record levels and when over 50% of the Revenues earned was spent on fuel costs in that year. With 25% lower fuel consumption it is fast becoming the plane of choice for airlines around the world fighting against the common enemy, the fuel prices. The A350s are so popular that over 500 planes were ordered by various airlines around the world and only around 20% have been delivered so far. Such was the demand that it took AerCap (the lessor) only 3 weeks to find another home for the orphaned SriLankan aircrafts, placing them in the hands of Sichuan Airlines in China. Although it remains a mystery as to why Sri Lankan Government’s own efforts to sub-lease them to Turkish Airlines and Iran Airlines failed. 

A preliminary analysis shows that if the four leases were not terminated the airline may have generated additional gain (Incremental EBITDA) of over Rs. 50 billion over the 12 year lease period. The number used to justify the cancellation was Rs. 70.1 billion loss, which may have been cooked-up to support the politically motivated decision. Apart from the initial staff training costs and the tooling and equipment costs, the 4 planes could have had a positive impact to the P&L, generated additional income of over Rs. 4 billion per year, as seen below:

P&L Impact – Leases Cancelled (Actual)
[/size][/size]

  • 2016 – Rs. 2.6 billion loss (lease cancellation costs)
  • 2017 – Rs. 14.4 billion loss (lease cancellation costs)
  • 2018 – Rs. 1.6 billon loss (bank loan payments)
  • 2019 – Rs. 1.6 billon loss (bank loan payments)
  • ……..
  • 2029 – Rs. 1.6 billion loss (bank loan payments)

[size][size]
P&L Impact – Leases NOT Cancelled (Forecasted)
[/size][/size]

  • 2016 – Rs. 0.2 billion loss (staff training)
  • 2017 – Rs. 2.6 billion loss (tooling and equipment)
  • 2018 – Rs. 4.4 billon profit (incremental EBITDA)
  • 2019 – Rs. 4.4 billon profit (incremental EBITDA)
  • ……..
  • 2029 – Rs. 4.4 billion profit (incremental EBITDA)

[size][size]
Summary of accumulated P&L impact under the 3 scenarios:

1.R s. 70 billion loss – this was the number used by the “government” to justify the cancellation

2. Rs. 35 billion loss – actual loss impacting the P&L

3. Rs. 50 billion gain – forecasted gain based on above analysis

The above preliminary analysis is based on the Lease Cost of the A350 and then applying revenue margins from the 2017 Audited Financials. I have also used manufacturers efficiency margins including fuel cost savings. Although lease costs are marginally higher, compared to the A330-300s which are currently used by the airline, it is more than off-set by the benefits brought about by costs savings from fuel & maintenance efficiencies and enhanced revenues due to more seating (ASK) and cargo space. While this is not a detailed analysis it highlights that the airline may have been able to make money with the A350s in use. 

In fact the use of the A350s in the high yield European routes may have even turned the routes profitable. Germany is the largest outbound tourist market in the world and has been a strong high value inbound market for Sri Lanka for decades. Terminating the key European routes resulted in a Revenue drop of Rs. 6 billion in 2017 for the airline and the loss of a highly sought after exclusive routes. The routes form part of the intangible assets of the business and the terminations of these valuable routes is equivalent to an asset destruction exercise. The impact and the damage by this decision to the Tourism and Hospitality industry of the island is unmeasurable. 

If not for the politically motivated destructive decisions by a corrupt few, SriLankan airlines would be proudly flying these brand-new beauties today. 


(The writer is a former Investment Banker from London with Mergers & Acquisition and Corporate Strategy experience. He has worked for a number of International companies in London including HSBC Bank and Goldman Sachs. As an Investment Banker in London he was also involved in the team that advised Emirates when they were looking to sell their stake in SriLankan Airlines at the time. He holds an MSc in Engineering from Imperial College London) [/size][/size]

Ryan Hudson


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
So Ranferdi ruined another company jointly with his Ponil and Waira3

ranferdi

avatar
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Ryan Hudson wrote:[size=48]Cancellation of the four Airbus A350-900 leases and the downfall of SriLankan Airlines
[/size]






Comments /  633 Views / Monday, 8 January 2018 00:00
 5  58



[size=17]
By Sanjana Fernando

The cancellation of the four Airbus A350-900 leases, executed under the current management led by the pilot CEO, was one of the most controversial decisions ever taken in the history of the airline. It also turned out to be the decision that finally broke the airline.

The politically motivated decision is costing the airline accumulated P&L losses of over Rs. 35 billion, including lease cancellation costs (phase 1) and lease cancellation loan payments (phase 2). Although the penalty fee to the lessor (AerCap) is now paid in full, the bank loan that was taken to pay the penalty still sits in the Balance Sheet of the company and will need to be paid out at a cost of around Rs. 1.5 billion every year for the next 12 years. 

A breakdown of the Lease Cancellation Costs (phase 1), are as follows:
[/size]

  • $ 7.5 million security deposit forfeited
  • $ 17.7 million paid as compensation for one aircraft due on November 2016. No Cabinet approval at the time of payment
  • $ 98.0 million paid as compensation for the remaining three aircrafts but with two conditions
  • Lease another additional aircraft (a 10 year old aircraft with wrong seat configuration which is unusable. Subleased out)
  • Extend existing aircraft (at a lease cost above market prices)


The story begins in June 2013when the previous management made a strategic rational business decision to replenish the ageing fleet with new assets including 8 new A350 widebody aircrafts.  These aircrafts are the future of medium-to long-haul airline operations and its fuel efficiency provided a natural hedge against the challenges of volatile fuel prices at a time when fuel prices were at record levels and when over 50% of the Revenues earned was spent on fuel costs in that year. With 25% lower fuel consumption it is fast becoming the plane of choice for airlines around the world fighting against the common enemy, the fuel prices. The A350s are so popular that over 500 planes were ordered by various airlines around the world and only around 20% have been delivered so far. Such was the demand that it took AerCap (the lessor) only 3 weeks to find another home for the orphaned SriLankan aircrafts, placing them in the hands of Sichuan Airlines in China. Although it remains a mystery as to why Sri Lankan Government’s own efforts to sub-lease them to Turkish Airlines and Iran Airlines failed. 

A preliminary analysis shows that if the four leases were not terminated the airline may have generated additional gain (Incremental EBITDA) of over Rs. 50 billion over the 12 year lease period. The number used to justify the cancellation was Rs. 70.1 billion loss, which may have been cooked-up to support the politically motivated decision. Apart from the initial staff training costs and the tooling and equipment costs, the 4 planes could have had a positive impact to the P&L, generated additional income of over Rs. 4 billion per year, as seen below:

P&L Impact – Leases Cancelled (Actual)


  • 2016 – Rs. 2.6 billion loss (lease cancellation costs)
  • 2017 – Rs. 14.4 billion loss (lease cancellation costs)
  • 2018 – Rs. 1.6 billon loss (bank loan payments)
  • 2019 – Rs. 1.6 billon loss (bank loan payments)
  • ……..
  • 2029 – Rs. 1.6 billion loss (bank loan payments)


P&L Impact – Leases NOT Cancelled (Forecasted)


  • 2016 – Rs. 0.2 billion loss (staff training)
  • 2017 – Rs. 2.6 billion loss (tooling and equipment)
  • 2018 – Rs. 4.4 billon profit (incremental EBITDA)
  • 2019 – Rs. 4.4 billon profit (incremental EBITDA)
  • ……..
  • 2029 – Rs. 4.4 billion profit (incremental EBITDA)


Summary of accumulated P&L impact under the 3 scenarios:

1.R s. 70 billion loss – this was the number used by the “government” to justify the cancellation

2. Rs. 35 billion loss – actual loss impacting the P&L

3. Rs. 50 billion gain – forecasted gain based on above analysis

The above preliminary analysis is based on the Lease Cost of the A350 and then applying revenue margins from the 2017 Audited Financials. I have also used manufacturers efficiency margins including fuel cost savings. Although lease costs are marginally higher, compared to the A330-300s which are currently used by the airline, it is more than off-set by the benefits brought about by costs savings from fuel & maintenance efficiencies and enhanced revenues due to more seating (ASK) and cargo space. While this is not a detailed analysis it highlights that the airline may have been able to make money with the A350s in use. 

In fact the use of the A350s in the high yield European routes may have even turned the routes profitable. Germany is the largest outbound tourist market in the world and has been a strong high value inbound market for Sri Lanka for decades. Terminating the key European routes resulted in a Revenue drop of Rs. 6 billion in 2017 for the airline and the loss of a highly sought after exclusive routes. The routes form part of the intangible assets of the business and the terminations of these valuable routes is equivalent to an asset destruction exercise. The impact and the damage by this decision to the Tourism and Hospitality industry of the island is unmeasurable. 

If not for the politically motivated destructive decisions by a corrupt few, SriLankan airlines would be proudly flying these brand-new beauties today. 


(The writer is a former Investment Banker from London with Mergers & Acquisition and Corporate Strategy experience. He has worked for a number of International companies in London including HSBC Bank and Goldman Sachs. As an Investment Banker in London he was also involved in the team that advised Emirates when they were looking to sell their stake in SriLankan Airlines at the time. He holds an MSc in Engineering from Imperial College London) 

Some people think it is wise to buy elephant when you don't have money to buy elephant handling stick.

At the time of country is burdened with huge debt some insane people had contracted to buy these Airbuses, Present government had no alternative than cancelling the orders... 

Some obedient servants of previous MARA palanaya believes cancelling the same is a crime and complain a pilot is running the Airline... But these people were in utter silence when brother in LAW of MARA (O/L failed as seen in some articles) was ruining the Airline which was once in profits when it was managed by Emirates.

The people who supported MARA palanaya has no fair thinking due to reason that their brains are still clogged with the Shit that was pumped into brains by then Government Controlled MEdia..

http://::::THIS EMAIL DOESNT WORK.. PLEASE CONTACT ME ON FB ACCO

kovida

avatar
Manager - Equity Analytics
Manager - Equity Analytics
Before talking about the loss on cancellation, to those people who are talking about SRILANKAN  Airline,I would like to remind that our national carrier was grounded by MR, his brother in law and other crooks of that regime. Emirates were managing it superbly when MR took over for his personal reasons. You can see the damage MARA palanaya did to the county. This is a tip of the iceberg. We have a never-ending list of damages MR did for the country with his cronies. It is shame of him that he is asking power again. For what? Rob the country from the point they stop. For the county's bad luck we have idiotic voters to vote him.

View previous topic View next topic Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum