SriLankan Airlines for sale for $ 1 dollar; any buyers?

With a Rs. 28 billion ($ 200 million) loss, Rs. 90 billion ($ 600 million) of debt and unable to find an equity investor even for a dollar, the Sri Lankan Flag Carrier is in trouble. The loss over the last six months has increased by over 300%, according to reports.

On the controversial instructions of Nyras in early 2016, the incompetent management of SriLankan cancelled the leases of four A350s and paid a fine of $ 150 million to Airbus. The fine was financed by a loan which still sits in the balance sheet and loan repayments of over $ 10 million will be paid every year for the next decade. An NPV analysis will show that the cost of cancellation is higher than if they were not.

Ironically the same aviation consultant is hired again today, at a cost of over $ 1 million, to help restructure the business, according to reports.

Mihin Air, the budget airline of the Flag Carrier, was also ceremoniously liquidated, incurring unnecessary closing down cost, as an act of political revenge from the previous Government. It is ironic and surprising that the budget carrier was liquidated given that the global trend is for flag carriers around the world to start sister “leaner, meaner” low cost carriers. Since then a number of low cost carriers (AirAsia, Lotus Air) have expedited their ambition to enter Sri Lanka. Some (Super Group Malaysia) even asking for Mihin Air to be reinstated, under their new brand.

The hope of Turkish Airlines entering as an equity partner also seem to be fading due to tough negotiations including access right to the lucrative Male route, according to reports. Any decision to remove the debt from the airline’s balance sheet to make the company more attractive to a buyer will result in significant debt put on the public, and will be highly controversial.

The airline is headed by a former pilot with no previous management experience but happens to be a friend of the Prime Minister of the country, who himself is accused of large-scale corruption. The CEO is reportedly paid a monthly salary of over Rs. 3 million ($ 20,000) and had also requested a performance bonus of Rs. 10 million ($ 65,000) for managing a Rs. 28 billion ($ 200 million) loss in that year.

The powerful SriLankan trade unions have also now started revolting against the Chairman and the CEO with the possibility of full-blown public confrontations in the next few weeks. While there are talks that the Chairman may resign soon, the CEO seems to have no plans to give up his large pay cheque that easily.

S. Fernando