Airline’s chief sacked but rehired

Evan Wasuka
What happens when you mix politics with a cash-strapped business operation? The answer is what the board members of the country's national carrier—Solomon Airlines—have found themselves in as they attempt to revive the airline's bleak financial status.

With over S$55 million in losses and rising—measures put in place to stop the hemorrhaging have placed the airline board on a collision course with its political masters.

Political interference and conflicting orders have worsened an already financially dire situation.

The airline’s affairs reached an all-time low with the board’s decision to sack the airline’s chief executive officer Ron Sumsum being challenged by the airline’s owners, the government, through its commercial arm, the Investment Corporation of Solomon Islands.

The airline board appointed in August and consisting of some of Solomon Islands’ most respected professionals—with the likes of former ISLANDS BUSINESS' Man of the Year and Central Bank governor Rick Hou, and former bank governor Tony Hughes—was given the government’s blessing to bring the airline back from the brink of collapse.

Several months later—much of the blessings seemed to have dissipated with some in government circles openly criticising the board for making some tough decisions.

S$1.3m package

For years the airline’s finance department had been targeted as the source of the company’s woes and one of the new board’s first tasks was to find out just how bad the situation was.

“Overseas consultants had been engaged at a substantial cost to investigate and advise the company, but there had been almost no useful outcomes,” said chairman Hou.

Still in the dark, the board approached the airline’s former finance officer—who was then with the Forum Fisheries Agency and having worked throughout the region—Baoro Koraua—to return as financial controller.

Koraua, who was with the airline during the 1990s was pulled in on a three-year contract at a whopping S$1.3 million per annum package, making him the airline’s second million dollar man behind chief pilot and CEO Ron Sumsum.

It was essential to move quickly before Solomon Airlines became insolvent said Hou, after he was forced to defend Koraua’s recruitment and his pay package.

“Since his appointment at the end of August, the financial controller has revitalised Solair’s (Solomon Airline) finance department...he has played a key role in negotiations with other airlines which have resulted in operating cost reductions worth several million dollars annually,” said the chairman.

Local newspapers raged about Koraua’s salary package, questioning how the airline could afford his recruitment at a time when the airline was in such a poor financial state.

As politicians crawled out of the woodwork, Hou was still adamant that Koraua who had spent 10 years with the airline, as well as having worked for Air Nugini and Air New Zealand, was the right man for the job.

“The contribution of the financial controller has already produced financial benefits to Solair many times more than the cost of his employment.

"The board has no regrets about its decision to engage him,” he said in public advertisements placed in the media.

Government clashes with board

Matters came to a head in mid-October when the board carried out a number of decisions culminating in the sacking of CEO Sumsum.

Sumsum was given three months notice by the board, although it was no surprise its repercussions sent shockwaves through the government.

Two of what can only be described as the government’s staunchest and most influential members—Honiara MPs Charles Dausabea and Nelson Ne’e demanded the board’s resignation.

Duasabea told the Solomon Star newspaper the board’s action did not match what it was trying to achieve.
He demanded that the board bow down gracefully or be sacked.

Dausabea, the MP for East Honiara, said he was stepping in because a number of his constituents are airline employees.

He warned that if the board did not comply with his demands, he would release information of 'underhand' dealings.

It didn’t take long for the airline’s owners, the Investment Corporation of Solomon Islands, ICSI, to follow suite. It called on the board to reverse its decision.

ICSI chairman Martin Maga in a letter to the Solomon Airlines board warned of drastic actions if Sumsum’s sacking was not revoked.

Maga questioned why the board decided to surrender its Air Operators Certificate which it had received from the Civil Aviation Safety Authority of Australia in July.

He told the board to reverse its decision, otherwise the airline would be unable to provide international charter services.

ICSI further demanded that the board does not enter into any partnership deals with any overseas operator. No doubt the ICSI is concerned about talks of a possible mutual deal between the airline and newcomers Pacific Blue.

The Virgin Blue offshoot is expected to make its entry into Solomons’ skies this month.

S$55m debt and years of neglect

But just how did Solomon Airlines descend into this situation? Less than six months ago, the carrier had been the talk of regional aviators with the launch of its new Embraer aircraft.

As CEO Sumsum said, the new Brazilian aircraft would herald a new beginning for the airline.

It didn’t. In fact it created embarrassment for the company and pushed the airline into greater financial debt—on the verge of insolvency.

It turned out the airline simply didn’t make enough money to maintain the aircraft’s lease and after several months, the plane’s owners Sky Air World grounded it as unpaid bills continued to pile up.

However, it would be unfair to blame the airline’s current woes on the Embraer's fiasco.It took years of financial mismanagement, bad business decisions and misuse of company resources, says Hou.

Out of the airline’s S$55 million losses, S$34 million of this came by way of its international operations while S$13 million was from its domestic operation.

The road back to viability is still a long way away, says Hou.

“Solair is still a loss making business. Its international and domestic operations and overhead costs require sustained expert attention.”

Insiders say the national carrier's best bet, if not the last, rides with cost-cutting measures to be put in place by the board.

But the future of the board itself? Well, like so many things in this town, it rides on the whims of its political master.