Thursday, Dec 20, 2007

COLOMBO (AFP)--A row between SriLankan Airlines (SLAL.YY) and Emirates Airline (EA.YY) over the renewal of the contract to run the tropical island's airline deepened Wednesday when Colombo revoked the work permit of the carrier's chief.

The work permit of British national Peter Hill was withdrawn because he had failed to "look after the interests of the majority shareholder," said Dhammika Perera, the head of the investment regulatory authority.

Perera declined to give reporters further details about the decision.

Hill was named chief executive of SriLankan Airlines by Dubai-based Emirates.

His office said that he would not comment on the move, which comes ahead of a January meeting with Emirates to discuss plans to renew its contract to manage SriLankan.

Talks about the deal, which runs out next March, have so far have been inconclusive, leaving the future of Emirates' role in doubt.

Hill had made no secret of his belief that the talks had dragged on too long.

"The negotiations between the government and Emirates have been going on for 18 months. I would have liked to have seen them resolved by now," Hill told reporters in New Delhi last month.

Media reports say the Sri Lankan government wants a bigger role in managing the carrier and that it has complained the existing contract is "heavily tilted" in favor of Emirates financially.

Emirates, which fully manages the airline, owns 43.6% of SriLankan. The Colombo government holds 51.05%, while employees have a 5.32% stake.

Emirates and Colombo were discussing a five-year contract as another 10-year contract would be too long in the fast-evolving aviation market, Hill has said.

Aviation experts say the two carriers' codesharing and other links mean that dissolving the partnership would cause big headaches for both airlines.

The decade-long tie-up with Emirates, which has a strong reputation for service, has vastly improved the catering, punctuality and the overall profile of the Sri Lankan airline, analysts say.

SriLankan Airlines entered into the partnership with Emirates in 1998, with the Colombo government retaining a majority stake.

The SriLankan Airlines Group posted a post-tax profit of 862.18 million Sri Lankan rupees ($7.8 million) for the financial year to March 31, 2007, down 50% from the previous year.

Hill has said the escalation in Sri Lanka's ethnic separatist conflict was partially responsible for the profit fall as it had deterred foreign tourists.

(END) Dow Jones Newswires

20-12-07 0608GMT