Biman Bangladesh Airlines is now plagued with multifarious constraints due to severe cash crunch stunting its smooth operation and growth outlook, its managing director said in a letter to finance ministry last week. The letter sought policy support from the government and an immediate cash injection of around Tk 1,426 crore to stop ‘the collapse of Biman’. The fund will be spent to clear off the outstanding bills of the carrier owed to different government agencies including customs and fuel supplying company.
‘Biman is asset rich, cash poor,’ Kevin John Steele, managing director and CEO of the national carrier, said in a letter to Secretary, Finance Division, Ministry of Finance.
The letter highlighted four major difficulties the carrier is now riddled with affecting its future business plan badly.
‘As at 15 August 2013, we have a debt mountain of around Tk 1,426 crore ($175 million). In addition, we are purchasing one GE engine for B777—300 ER for $36 million, and expected to make a (much approved) loss of $10 million in 2013/14, before profitability in 2014/15. That means by 15 August 2014, our debt mountain will be around $220 million,’ the letter reads.
‘That is not sustainable.’
Kevin said the national carrier needs to reduce ‘outgoings’. Retiring the fuel-hungry DC10 in favour of much more fuel-efficient B777—300 ERS will help, but more needs to be done, he added in the letter.
On injecting cash into Biman, the letter highlighted two pressing issues.
‘The small, short-term issue of what to do about the pre-delivery payment of roughly $53.5 million due on December 1, 2013, for Biman’s two new B737-800 aircraft, due for delivery in Nov/Dec 2015. If we do not pay, then a) a $7 million ‘fine’ b) delivery delayed until roughly 2019,’ the first issue included in the letter on delivery payment, said.
‘Biman needs an urgent cash injection of a) $50 million, if it can significantly reduce its outgoing costs b) $100 million, if no cost reductions, or if it takes on more debt,’ the second issue it highlighted.
The letter, however, gives a brief picture of its future profitability to hit for the first time in 2014-2015 fiscal year with the extent of losses becoming lesser to $25 million in 2012-2013 and $10 million in current fiscal year.
Describing the national carrier as ‘asset rich, cash poor’, the letter said Biman had new aircrafts, new engines, lots of equipment, many properties, but no cash.
The Biman CEO urged the government to issue Sovereign Guarantee worth $ 53.5 million to procure B737-800 aircraft and sought approval to sell out all current and future B777-3000 ER aircraft.
Of Tk 1,426 crore, sought on an urgent basis to be injected with Biman will be spent to clear off the outstanding bills of Padma Oil Company—to the tune of Tk 752 crore, Tk 314 against Civil Aviation Authority of Bangladesh, Tk 157.89 crore to National Board of Revenue, Tk 86.92 crore to different suppliers in foreign stations including that of London and Tk 63.95 crore on the head of bank loans taken under Voluntary Retirement Scheme.
When asked, finance ministry officials said no immediate cash injection would be possible right at the moment, which could be considered at the end of the current fiscal year.
‘We have budgetary allocations earmarked in the area of revenue expenditure. If anything has to be made for Biman outside the original allocation procedure, that only could be done when the budget will be revised in next March or April or be adjusted from the Block Allocation at the fag end of the fiscal year,’ a senior finance official told New Age on Monday.
He, however, said they were seriously contemplating to issue Sovereign Guarantee to procure aircraft for Biman.
The Biman managing director concluded his letter saying, ‘Again, we would request government support as mentioned above. We must stress that a Sovereign Guarantee for the B737—800 of $ 53.5 million is not sufficient, and will not stop the collapse of Biman. It needs some immediate cash injection, or at least approval to proceed with sale and Leaseback on all Biman aircraft.’
-With New Age input
