Govt. to take alternative route for SriLankan Airlines

• Cabinet formally decides to abandon 51% stake divestiture option initiated in October last year
• SRU says Govt. will now follow an alternate strategy to be decided on shortly, to divest airline based on framework approved by Cabinet of Ministers

The Government has formally decided to explore different options to revive the SriLankan Airlines abandoning the divestiture process that originally began in October last year. 

“The Cabinet of Ministers at its meeting held on 9 July has decided to terminate the current bidding process with respect to the divestiture of Sri Lankan Airlines. Instead, the GoSL will now follow an alternate strategy, to be decided on shortly, to divest the airline based on a framework approved by the Cabinet of Ministers,” said the SOE Restructuring Unit (SRU) in a brief statement Thursday night. 

This confirms Ports, Shipping, and Aviation Minister Nimal Siripala de Silva’s earlier statement that SriLankan Airlines will be restructured rather than sold.

 (https://www.ft.lk/shippingaviation/No-suitable-investors-have-expressed-interest-in-acquiring-SriLankan-Minister/21-763963)

Minister de Silva emphasised that current regulations limit the transfer of the airline’s shares to 49% to another entity. Despite this provision, no suitable investors have expressed interest in acquiring a stake. 

“Our strategy focuses on restructuring SriLankan Airlines rather than selling it outright,” de Silva stated. “Under Sri Lankan law, only 49% of the airline’s shares can be transferred, but there has been minimal global interest, with only six individuals showing interest, none of whom were suitable. Even a Sri Lankan entrepreneur would need to prove their capability.”

The International Finance Corporation (IFC), was the transaction advisors for the divestiture.

In mid-May the Government shortlisted three out of the six bidders. The shortlisted were Air Asia Consulting of Malaysia, Hayleys PLC and Supreme Global Holdings/Sherisha Technologies Ltd., which has claimed backing by Qatari funding and an agreement with MMAG Holdings Bhd’s wholly-owned subsidiary MMAG Aviation Consortium Sdn Bhd (MAC).

The others who responded and shortlisted for Request for Qualifications (RFQ) were FitsAir, Dharshaan Elite Investment Holding Ltd., and Treasure Republic Guardians Ltd.

The decision to explore alternative options comes amidst speculation that the Government was keen to enlist a suggested consortium comprising top blue chips John Keells Holdings, Hayleys and Aitken Spence to take up majority ownership and manage national carrier. (See https://www.ft.lk/front-page/JKH-Hayleys-Spence-consortium-to-run-SriLankan/44-762154).

The speculation of a home grown consortium also comes in the aftermath of poor global response to the original Request for Qualification for the sale of the entirety of State holding in the national carrier.

This speculated development follows a decision to enlarge the scope of the planned restructuring cum divestiture of state ownership of the national carrier. This proposal, if pursued, will see the Treasury retaining 49% as part of taking over $ 500 million of debt of the national carrier. 

The Government acting through the Ministry of Finance, Economic Stabilisation and National Policies on 31 October 2023 via international and local media, called for RfQ from potential investors for the acquisition of shares in SriLankan Airlines.

The original deadline for pre-qualification application was 5 April. However, it was extended to 22 April 2024. This was to facilitate the transfer of select Dollar and Rupee debt to the Treasury which was done in March 2024.

As at 31 March 2023, SriLankan had accumulated losses of Rs. 601.7 billion as against Rs. 529 billion a year ago. 

As per the last audited accounts (FY23) released in October, SriLankan Airlines reported a group loss of Rs. 71.3 billion, down from Rs. 163.5 billion in FY22. However, excluding foreign exchange loss, the group posted an operating profit of Rs. 43.3 billion as against Rs. 1.6 billion in FY22. Exchange loss was Rs. 63.1 billion and the finance cost amounted to Rs. 51.5 billion.

Group revenue grew nearly three-fold to Rs. 369.4 billion with 23 aircrafts in its fleet. The cargo services segment, contributing approximately 14% to SriLankan Airline’s income, generated a revenue of Rs. 51 billion in FY23.

The airline carried 11.8 million passengers in FY23 up from 5 million during COVID-hit FY22. Passenger load factor was 77.65% up from 49%. It has a route network of 126 destinations in 61 countries. The network of international destinations served by SLA has expanded from 37 destinations in 2019 to 39 in 2023. It has extensive landing rights in many Indian cities. Male, Chennai, London and Singapore are the largest destinations served, contributing to a combined 25% of the airline’s seats.