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Monday, 17 February 2014 00:00 - - {{hitsCtrl.values.hits}}
Airlines worldwide have been hit by rising fuel costs and Sri Lankan is obliged by the Government to operate unprofitable European routes because the country’s economy, hard-hit by the 26-year war that ended in 2009, relies heavily on tourism.
The national carrier needs new capital to fund its drive to break even by 2016. It has been running at a loss since 2008 when a 10-year contract for Dubai’s Emirates to manage the airline came to an end.
“This year we are looking at roughly around $ 250 million (of new debt). We are talking to the market,” SriLankan Airlines Chief Executive Kapila Chandrasena told Reuters in an interview.
“We are looking at the first half of 2014. The funds will be used to execute our business plan; 50% will be for working capital and the other 50% is for the fleet-related investment,” he said.
He did not detail the kind of debt the airline might raise, or where, besides saying it was looking for the most cost efficient way to fund its business plan.
The State-run carrier has revised its growth projections due to under-estimated fuel pricing and an investment plan that had assumed capital infusion at zero cost.
In 2012, Sri Lankan completed a $ 175 million sharia-compliant four-year loan facility with Abu Dhabi Islamic Bank, Abu Dhabi’s Al Hilal Bank, Mashreqbank, Dubai’s Noor Islamic Bank and United Bank Limited for additional capital.
It suffered a record loss of $ 173.2 million in the year to March 2013, much greater than its original estimate, and expects a loss of $ 170.3 million in the financial year under way.
“Raising debts mean there is a cost of capital, which is about minimum of 6% for US Dollar loans and 16% if it is a local loan. So certainly that impact we have to now absorb into the projections,” Chandrasena said.
According to a revised business plan seen by Reuters, the airline expects to make a loss of $128.7 million in 2014/2015 and $30.9 million in 2015/16 before breaking even in 2016/2017.
The airline has signed a deal with Airbus worth $ 1.3 billion to buy six A330-300 and four A350-900 aircraft between 2014 and 2023 to replace ageing planes, which Chandrasena expects to narrow the company’s losses.
“Right now our target is to reduce up to 7% in operational costs through the new aircrafts. Certainly that is going to be the biggest contributor” to the airline’s turnaround plan, he said.
The State owns 51% of Sri Lankan, while three State-run banks and a State-managed pension fund own a total of 43.6%.
Opposition politicians have criticised perceived mismanagement at the airline and the Government’s critics say it has filled the carrier’s management with political appointees, entrenching the poor performance. The Government denies this.
