In-flight duty free sales at SriLankan Airlines FACADE OR SCAM?

Marlon Ferreira, a former employee at Phoenix Duty-Free Services Lanka Private Ltd was recruited in 2012 to provide training for the cabin crew at Sri Lankan Airlines and to enhance the duty-free sales onboard flights.

He said while providing the training and keeping track of the sales carried out on board flights, he occasionally visited the Katunayake Airport and on one such occasion, he came across a contract entered in to between the SriLankan Airlines and Phoenix Duty-Free Services incorporated in Canada.

According to this contract, Phoenix Duty-Free Services Lanka Private Ltd is to bring down goods for duty-free sale under the name of SriLankan Airlines and thereafter move them to the bonded storage at Katunayake.

According to the witness the goods have been given duty-free concessions by the Board of Investment. However, according to the contract, the understanding between the Seller and SriLankan Airlines was that the goods need to be sold or returned.

The witness said he found certain anomalies in the contract and went on to note as he kept track of the in-flight duty-free sales there was an issue about the revenue and expenses of the company.

He said from the date acquired, Phoenix Duty-Free Services Lanka Private Ltd would make annual sales of 5.54 Million US Dollars, however, when taking in to account the expenses of the company and the dues that should be given to SriLankan Airlines as commission, the company would incur a loss of 1.2 Million US Dollars.

He believed something was happening behind the scenes as the Managing Director Raju Chandiram and Finance Manager Mohamed Hamza kept financial statements a secret.

Phoenix Duty-Free Services Lanka Private Ltd was initially incorporated in 2011 as Phoenix Rising Ventures Private Limited. It’s founding Director and founding shareholder was Phoenix Duty-Free Services Lanka Private Ltd.

According to the Companies Act of 2007, provided that a company may have a single shareholder, such a single shareholder is the Secretary to the Treasury who is holding the shares on behalf of the Government of Sri Lanka. Raju Chandiram served as a Director of SriLankan Catering in 2007 and at SriLankan Airlines until 2008.

Elaborating this further the witness went on to say that the senior management of SriLankan Airlines Comprising CEO Kapila Chandrasena and Head of Commercial G.T.Jayaseelan also wrote off 37% of the guaranteed commissions Phoenix Duty-Free Services had to pay SriLankan Airlines when both parties secretly amended the existing contract to favor Phoenix Duty-Free Services.

The Board of Directors at that time need to be held accountable for the millions of dollars SriLankan Airlines subsequently were deprived of during the entire five-year contractual period.

The witness also said that there appears to be sufficient evidence that the country’s Customs Ordinance Act and the contracts signed between the SriLankan Airlines and the suppliers of duty-free goods had been violated by Phoenix Duty-Free Services.

Phoenix Duty-Free Services who signed its initial contract with SriLankan Airlines on the 25th of January 2012 under the name of Phoenix Rising Ventures who operated out of Canada, currently still operates out of Colombo Sri Lanka conducting other businesses.

However, they have now renamed their business as ‘Duty-Free Partners’ and operates out of their existing office at Park Street Colombo 2.

It has now come to light, SriLankan Airlines never knew of Phoenix Rising Ventures until they put forward a bid to enter the airlines Duty-Free Program.

Marlon Ferreira, testifying before the commission said before the company was awarded the contract, Sri Lankan Airlines had an exclusive supplier for all Duty-Free Products.

Romeo Ferdinands the In-Flight Services Manager at SriLankan Airlines who also testified said they never heard of Phoenix Rising Ventures until they came forward to bid to supply perfumes and cosmetics for the Duty-Free Program.

In 2012, Phoenix Duty-Free Services Lanka Ltd was given the contract to supply perfumes and cosmetics, but Marlon Ferreira believed the contract was awarded without following tender procedure.

Romeo Ferdinands testified to this matter in the affirmative noting the contract was to be given for 06 months and then reviewed in the fourth month to ascertain if the contract can be given for three years.

Marlon Ferreira went on to testify, Phoenix Duty-Free Services Lanka Ltd was then awarded the contract to provide liquor for in-flight consumption and that too was done without following proper tender procedure.

Finally, the contract for the entire duty-free program had been awarded to Phoenix Duty-Free Services Lanka Ltd for 2012 to 2017 without following the proper tender process.

The witness Marlon Ferreira believed, the deal for the contract was brokered by Former SriLankan Airlines Board Director Sanath Ukwatte by negotiating it with the then Chairman Nishantha Wickremesinghe and CEO Kapila Chandrasena.

With regard to the contract, Managing Director of Phoenix Duty-Free Services Lanka Ltd Raju Chandiram had signed the document as a witness while an individual knows as Rumesh Dilan Wirasinghe the CEO of Phoenix Duty-Free Services had also signed the document.

It must be highlighted, Rumesh Dilan Wirasinghe the CEO of Phoenix Duty-Free Services was named in the offshore leaks database released by the International Consortium of Investigative Journalists several years ago.

Marlon Ferreira testified when he had questioned Raju Chandiram over certain losses made by Phoenix Duty-Free Services Lanka Ltd in its services, the latter had stated: ” We must make losses here, to make profits elsewhere “.

He also testified that Phoenix Duty-Free Services Lanka Ltd had breached the contract by allegedly engaging in trading, an act which is not acceptable internationally and can have the airline sued by suppliers.