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SriLankan Airlines to lose US$130mn this year, $300mn injection needed

ECONOMYNEXT – Sri Lanka’s national carrier Sri Lankan Airlines is expected to lose 130 million US dollars (about 26 billion rupees) in the year to March 2020, officials said, taking total losses under full state ownership and management to 232 billion rupees.

The airline would also need a 300 million dollar capital injection to reduce a spiral of debt, officials said.
“We estimate that by this March we will lose about 130 million US dollars,” newly appointed SriLankan Airlines Chairman Ashok Pathirage told the parliament’s Committee on Public Enterprises.

Easter Sunday bombings had hurt the airline and it the ongoing Coronavirus epidemic was also negative with flight to China being cut.

However in 2021, the Airline was expecting to cut losses to about 30 million dollars, he said.

“The board has a plan we are very confident the airline will be profitable 2 – 3 years down the line,” he said, echoing forecasts made by past chairmen and chief executives.

Capital Injection

The Airlines started to lose money under state management, from 2008. Losses would total of 232 billion rupees by March 2020, including 115 million dollars paid to cancel a controversial Airbus deal.

Sri Lankan needs a 300 million US dollar (about 54.6 billion rupees) capital injection to reduce gearing, Pathirage said.

The airline is undercapitalized due to past losses. Earlier capital injections from the tax-payer had been burned in losses.

“We need to see how we can get this money,” he said.

As of March 2019, SriLankan had a 168 billion rupee gap in its balance sheet.

During the last administration plans were put forward for the government to take off some of the debt, and sell equity to a private investor, who will then stem losses and eventually pay dividends to shareholders including the state.

However nothing happened.

SriLankan Airlines was making losses when it was managed by Emirates, who owned 40 percent of the stock.

India is also planning to privatize its ailing Airline.

SriLankan is looking at acquiring 4-5 year old Airbus A330 aircraft and resuming flights to Frankfurt, Pathirage said.

It is also looking to start flights to Sydney in Australia.

Chief Executive Vipula Gunatilleke said leasing second hand aircraft was much cheaper than getting brand new aircraft.

Sri Lankan Airlines is paying above market lease installments for seven Airbus A330 CEOs it had acquired as part of a controversial deal in which is subject to a corruption probe.

SriLankan is one of several state enterprises that has pushed up national debt, and has worsened the country’s debt profile.

Circular Debt

Losses at SriLankan were also hurting other state enterprises, a phenomenon known as circular debt.

By end 2020, Sri Lanka’s central government debt was about 83 percent of gross domestic product, publicly guaranteed debt was about 5.2 percent and state enterprise debt was 14.6 percent, taking the total up to 99.4 percent of debt.

SriLankan Airlines debt obligations by end 2018 was 250 billion rupees or about 1.7 percent of gross domestic product and a part of its debt was also directly guarantee by the Treasury about to 32 billion rupees or 0.2 percent of GDP, according to the International Monetary Fund estimate.

SriLankan is also contributing to losses and debt at state-run Ceylon Petroleum Corporation, which had debt of 612 billion rupees or 4.2 percent of GDP and was indirectly financing SriLankan.

In 2018, the CPC lost 80 billion rupees by borrowing unhedged dollars, despite having a price formula that brought in cash.

Pathirage said SriLankan bought about 14 million US dollars of fuel a month from CPC, and it was only settling about6 million US dollars. But it has now been increase to 8 million dollars.

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