Biman’s lease blunder

Biman Bangladesh Airlines leased two aircraft from EgyptAir in 2014 to fly them for five years, but in reality, it could put them in use for only a year, causing the national flag carrier a huge loss.

And not only that, it had to finally return one aircraft in July this year by paying the Egyptian airlines a penalty of Tk35 crore.

Biman wants but cannot return the other plane too because the aircraft could not be made airworthy – a precondition that the plane must be returned in its original condition.

Both aircraft remained grounded because of engine defects since 2017.  

Biman had to waste about Tk1,300 crore on the two Boeing 777-200ERs – as lease amount and on repairs and replacement of engines.

Industry insiders now question the deal of Biman to lease such old aircraft, and more so because the money it had spent on the two Boeings could easily be used to snap up two brand new planes if another Tk700 crore was spent.

Biman purchased a brand new Boeing 787 Dreamliner for around Tk1,000 crore which was added to the fleet in July this year. The price of each of the EgyptAir aircrafts would be almost half of that.     

The waste on these age-old planes ultimately hit the bottom line of Biman that suffered a loss of Tk201 crore in 2017-18. The company was making profits for the previous three years in a row.

Since then, Biman was in the process of returning the aircrafts to the lessor to stop further bleeding, one of which has been completed.

The other aircraft is now under maintenance by Vietnam Airlines Engineering Company (VAECO), a maintenance and engineering subsidiary of Vietnam Airlines. It is likely to be returned to EgyptAir this month after a test flight.    

"Aviation ministry initiated return of the aircraft to save Biman from further losses," Md Mohibul Haque, secretary of the Ministry of Civil Aviation and Tourism, told The Business Standard.

One was returned but the other could not be because of Biman's non-cooperation, he said.

Action was taken against two Biman officials for creating barrier to returning the leased aircraft, he said.  

"The parliamentary standing committee on aviation ministry has initiated an investigation to find out the persons responsible for the lease," he said.

In the latest development, the Board of Biman has taken punitive actions against two officials for their alleged involvement in delaying the return of the aircrafts.

According to a Biman report, of the total amount the company spent on the two Boeings, around Tk700 crore was paid to EgyptAir for rent until February 2019, around Tk300 crore for the lease of four engines from EgyptAir, around Tk280 crore to the US-based United Airlines for engine repair, and around Tk7 crore to VAECO.

How it all started

Between 2013 and 2014, two old Biman aircraft were removed from the fleet, resulting in a shortage. It then leased the aircraft from EgyptAir to fill the shortage.

However, the aircraft did not help Biman increase its fleet capacity. Rather, they became an extra burden due to inefficient dealing with the lessor, creating huge trouble for the national flag carrier.

For instance, the age of the aircraft and its engine condition are the major factors to consider while taking out a lease.

But Biman compromised on both factors. The aircraft it leased were 18 years old. The spare parts of such old aircrafts are not readily available in the market.

Also, it took Pratt and Whitney engines for the aircraft, and their spare parts are also unavailable.

An aircraft that has been leased is required to be returned in its previous condition according to the lease agreement, but Biman paid compensation for returning one as its spare parts were not available.  

Because Biman's manpower was familiar with only General Electric (GE) Aviation engine, the company had to invest extra money to train the workers to operate Pratt and Whitney engines, according to a Biman review report on the lease of the aircraft.

Despite having the two aircraft grounded for two years, their return was being delayed due to unavailability of the necessary parts of such old aircrafts, according to the report.

The analysis made before the lease showed that the aircraft were not financially viable. But then managing director of Biman, Kevin John Steel, defended the lease, saying that growing the fleet capacity and operation will reduce overhead costs and increase profit.   

Lease process

Any Bangladeshi airline can take out two types of lease. One is a dry lease, which is taken for more than a year. The other, wet lease, is taken for a maximum of one year.

Wet lease is taken out on a temporary basis to operate Hajj flights or during special occasions. In case of wet lease, the provider of the plane will bear all costs of the aircraft, crew, maintenance and insurance while the user of the plane will pay only the hourly rent.

For dry lease, the user will bear all costs and pay monthly rent to the supplier.

How Biman was harassed by EgyptAir

In March 2014, one Boeing 777-200ER (registration No. S2-AHL) was leased from EgyptAir and a month later, another similar aircraft (registration No. S2-AHK) joined Biman's fleet.

Both aircrafts provided uninterrupted service for a year until February 2015 when one engine of an aircraft was affected by sulfidation.

Sulfidation is a chemical reaction that occurs at high-temperature ranges. Sulfur contained in the aircraft's fuel combines with salt and other airborne contaminants in the intake air to create a corrosive mixture that attacks metal components. Sulfidation could lead to major engine damage if proper maintenance is not done.   

Biman did a check-up and found that all four engines of both planes had some problems. It decided to keep one of the aircrafts grounded and sent the engines to United Airlines for repair at intervals. The other one was also grounded later.  

While repairing, United Airlines found that most of the engine parts are irreparable and need to be replaced. Even the manufacturer of the engine, Pratt and Whitney, could not provide the necessary parts.

On May 5, 2017, Pratt and Whitney wrote to the Biman managing director, apologising for its inability to provide spare parts.

When Biman contacted EgyptAir, it agreed to bear a portion of the parts replacement costs.

Meanwhile, Biman was incurring huge losses because of the grounded aircraft. It then leased four more engines from EgyptAir to keep the aircraft operational.

Two of the engines were leased in November 2015 and faults were detected again within nine months, in August 2016.

Biman had to repair those engines as per the terms of the lease. For this, Biman had to spend around Tk11 crore.

The two other engines were also found faulty within a year and Biman decided to return those to EgyptAir. As part of the returning process, Biman requested the lessor to relax the return conditions.

But EgyptAir did not grant the request. Rather, it warned that Biman would have to bear the total repair cost – which it said might be up to Tk350 crore – if the condition of the engines was found to have deteriorated beyond the limit.  

Biman then hurriedly repaired the two engines and returned them to EgyptAir in July 2017.

A month later, Biman went for early termination of the EgyptAir lease agreement.

Captain Ishrat Ahmed, director of flight operation of Biman, led the team that inspected the two aircraft before the lease was finalised and labelled them satisfactory.

Shafiqul Alam Siddique, then head of engineer of Biman, led the team that accepted the delivery of both aircraft in 2014.