PM Sogavare worried, sacks board

Alfred Sasako
Solomon Airlines is in deep trouble. And Prime Minister Manasseh Sogavare is worried. After sacking the airline’s board last month, Sogavare ordered an investigation into the airline’s new acquisition, the Brazilian-manufactured Embraer 170 jet.

His intervention was prompted by a steady stream of complaints from passengers.

Offloading passengers and their luggage have become a daily occurrence on the lucrative Brisbane-Santo-Honiara route since Solomon Airlines acquired the 76-seater aircraft on a lease-purchase arrangement earlier this year.

There simply isn’t enough seats on the aircraft. Regular technical and mechanical mishaps add to Solomon Airlines’ woes. These have caused major delays and in some instances, cancellation of flights.

Although the airline has increased the frequency of flights to meet the demand, it is barely coping with the growing passenger numbers on the sector. Passengers some times get told at Brisbane Airport there were no seats.

Seat availability is at the heart of Sogavare’s intervention. Knowing as they should, why did the board of Solomon Airlines approve the lease-purchase of the Embraer, a smaller aircraft compared to a Boeing 737-400 at a time when passenger number was on the rise? 

But there’s more to Sogavare’s intervention.It is an open secret in the corridors of power in Honiara that since the national carrier took delivery of the aircraft, Solomon Islands taxpayers have had forked out S$22 million to meet the lease-purchase and associated costs for the aircraft, staff salary increases of up to 14 percent and for the hiring of executives who were lured from Air Vanuatu.

Solomon Airlines’ financial woes came to light in June this year when staff salaries were paid three days late.

To meet its commitment, Solomon Airlines allegedly used false invoicing to get additional funds from the government, its owner. This, too, is being investigated. Sogavare wanted to know if false invoicing was used, how this could escape Finance Minister, Gordon Darcy and his army of financial advisors at the Department of Finance and Treasury. Government ministers confided that Darcy could face the music.

“The Prime Minister was really angry when Darcy did not show up at the first cabinet meeting after the board of Solomon Airlines was fired. The Prime Minister wanted to brief cabinet on the matter, but Darcy’s unexplained absence made the boss really angry,” one minister said.

The minister said Darcy’s position as finance minister remained under the cloud.

The first thing Sogavare did was to order the immediate sacking of the airline’s board, headed by Member of Parliament, Martin Maga. He was replaced by locally-born Chinese businessman, Alex Wang, who owns the Iron Bottom Sound Hotel and a restaurant in Honiara. Apart from being the authorised Mitsubishi dealer in Honiara, he also handles freight on behalf of the TNT group.

Insiders say Wang was handpicked as a reward for helping the government on many occasions. Last year, for example, Harvest Pacific, one of Wang’s companies, supplied a fleet of Mitsubishi executive Sedans to the government at a cool S$200,000 per unit duty-free—a price tag many say is doubled the normal duty-free price.

Only days after his appointment, Wang was said to have sought advice on how to quit quietly, using conflict of interest as the reason for his exit—his TNT connection being the culprit. Whether he went through with the reported resignation was not known when this edition went press.

But insiders say the conflict of interest was a mere alibi. Wang was said to have been advised by his banker that taking up the appointment was fraught with risks, given the airline’s precarious financial situation.

As chairman, his assets could be used as security for any new commercial loan the airline may negotiate, a scenario being seen as unlikely because Solomon Airlines is already S$12 million in debt with the former the National Bank of Solomon Islands (NBSI).

Former airline chairman, Michael Maina said NBSI is already demanding that it controls the new board, unless the government recapitalises the airline, a move Sogavare is unlikely to entertain.

“Furthermore, the airline had sold off all its assets, exposing the airline to even greater risks. The airline has nothing left by way of assets,” Maina said.

Even the airline’s foreign reserves in Geneva have been depleted, according to Maina, who said he still received reports on these matters from IATA.

“As a result, IATA (International Air Transport Association) has placed Solomon Airlines on its most watched list. In fact, Solomon Airlines is one of 29 airlines around the world on IATA’s watchlist,” Maina said.

“The airline could go off the radar screen any moment”.

Maina said the risk from IATA was not as great as that posed by the NBSI. The greater risk was from NBSI because of its S$12 million loan to the airline which it’s unable to service.

“NBSI could simply walk in and close down the airline...today, if they wanted. That is where the risk is greater,” he said.

So what options are there for Solomon Airlines to clean out the mess? I asked Maina over lunch in Honiara on July 14.

Maina outlined  a number of cost cutting measures which he said would be painful but necessary if the airline stood a chance of bouncing back.

He counselled against staff retrenchment. “You will only antagonise the situation by inviting industrial action, which the airline does not need right now,” he said.

But he said pruning must start at the top. “Get rid of the chief executive and the three Vanuatu officers. They must go”.

According to Maina, staff salaries increased by 14 percent since Ron Sumsum took over the reins. At the same time, overheads have risen some 36 percent.

“This is where the knife must go if the new board is serious about saving the national carrier. And the sooner they do it, the better,” Maina said.

The second area is the airline’s international routes. Maina suggested dropping the twice-weekly Honiara-Santo-Nadi route. “Leave that to Air Vanuatu and Air Pacific in a code-share arrangement.”

He also suggested that Solomon Airlines enter a code-share arrangement with Air Niugini on the Honiara-Port Moresby sector.

Solomon Airlines should concentrate on the Honiara-Brisbane route only. In doing this, Solomon Airlines’ resources could be devoted to its domestic network, a line Sogavare has already hinted.

But whether or not Sogavare has been fully briefed, particularly the costs associated with its domestic operations, no one knows. For example, in the three years to 2004, Solomon Airlines made losses totalling USS$2.7 million, thanks to the uncoordinated domestic schedules. At the time, consultants called in to prepare the airline for sale said that Solomon Airlines was suffering “extremely poor productivity”.

The absence of a reliable domestic schedule was the main culprit. This led to a 60% percent drop in domestic passengers carried between 1999 and 2002. Domestic passengers carried fell to just 36,800 in 2002 from a high of 77, 800 two years earlier. During that time, the airline’s international routes were financing the losses.
Consultants, including Michael Murray of McGregor & Co; of New Zealand, warned that any airline “that hit this level is finished”.

Solomon Airlines under Joseph Anea, a local aviator, focused on issues raised in various consultants’ reports, in particular, the airline’s domestic schedule which existed in name only at the time.

By 2005, there was a huge turnaround with the number of passengers carried on the way up. Some 60,000 passengers had been carried domestically—up 4500 passengers from the previous year. The turnaround amazed even the consultants.

“What makes Solair’s overall financial performance remarkable is that the airline is recovering from a huge (60%) fall in domestic passengers carried,” the consultants said.

They also noted the comeback was a “direct result of measures the airline had taken” to address issues identified by the consultants. These measures included a new domestic timetable. On November 2 last year, Solomon Airlines was planning to introduce a new ambitious five-day a week service between Brisbane and Honiara, linking Santo in Vanuatu, as well as new products such as competitive airfare and e-ticketing.

The new service was designed to build on past growth and take advantage of a projected growth in the tourism industry. Comparatively, Solomon Airlines’ international operation is profitable, accounting for some 80 percent of the airline’s revenue in 2004.

In 2003, for example, the airline recorded a US$$1.5 million profit, only to be swallowed up by the domestic operations. A year later, Solomon Airlines profit jumped 40 percent to US$$3.8 million.

Eighty-five percent of the 31,000 international passengers carried during this period travelled between Brisbane and Honiara. Given this growth, the other objective of the new Brisbane-Santo-Honiara service appears to be at odds with the purchase of the Embraer 170 jet.

According to Solomon Airlines, the international schedule at the time was “designed to move cargo and equipment between Brisbane and Honiara in support of major investment projects being developed in the Solomon Islands”.

It appears someone did not do his homework, homework Sogavare has now volunteered to do.