SriLankan Airlines May Privatize as Government Looks to Cut Losses

Photo credit:  Flickr / Kevin Hackert

The cash-strapped government of Sri Lanka will go ahead with the partial privatization of its national carrier, SriLankan Airlines.

The government plans to sell a 51 percent stake in the airline, as well as 49 percent takes in both its catering and ground-handling units, Sri Lankan aviation minister Nimal Siripala de Silva said on August 29. He said that the government can no longer afford to inject money into loss-making SriLankan as the country suffers from a severe economic crisis.

Calling SriLankan a burden on the government treasury, de Silva said the government spends between $80-200 billion annually on the airline. SriLankan currently has $1.1 billion in debt, he added. Revenues from the sales could be used to pay off some of those debts.

The privatization proposal follows comments by Sri Lanka’s newly-elected prime minister Ranil Wickremesinghe. In his first address to the nation, he proposed a privatization plan for the country’s flag carrier to help generate funds and tackle the economic crisis.

A sale by the Sri Lankan government of a majority stake in its namesake airline would be the latest in a series of state-owned airline privatizations. Last year, the Tata Group bought Air India from the country’s government in what many see as a catalyst to revitalize the airline. And in Europe, the Italian government is nearing the sale of a majority stake in ITA Airways to a consortium led by private equity firm Certares that includes Air France-KLM and Delta Air Lines.

SriLankan recorded its first profitable fourth quarter since 2006 for the fiscal year that ended on March 31, with a group net profit of $1.7 million. The financial turnaround was the result of various measures, including scaling down staff costs and overhead, renegotiating supplier contracts, increasing cargo revenue, and creating an ambitious growth plan that capitalizes on pent-up travel demand.

That growth plan sparked opposition from some Sri Lankans in April owing to the country’s dire economic situation.

A jet fuel shortage, as well as foreign exchange challenges, is costing SriLankan roughly $7 million a month in added expenses and lost revenue, SriLankan Chief Commercial Officer Richard Nuttall told Economy Next in August. At the time, the carrier was flying roughly 90 percent of its schedule.

SriLankan, which celebrated its 43rd birthday on Wednesday, is a tiny player in Asian aviation scene. In 2019, the Oneworld alliance carrier flew less than 1 percent of passenger capacity in the region, according to Diio by Cirium schedules. Its share, at nearly 2 percent, was only slightly higher in South Asia.

The carrier operates 24 aircraft, split evenly between Airbus A320 family and Airbus A330 jets. Its fleet includes six new A320neo and A321neo aircraft.

The Sri Lankan government has owned the airline since 2010 when former shareholder Emirates sold its stake. The Gulf carrier held a sizable minority stake in SriLankan from 1998 until its sale to the government. The airline, formerly known as Air Lanka, was launched in 1979 when it replaced former flag carrier Air Ceylon.