SriLankan Airlines to make losses for four years after Easter blasts

ECONOMYNEXT – State-run SriLankan Airlines will lose less than originally feared from Easter Sunday blasts, but the hit would delay a break-even date of a re-structuring plan by another year to four, , Chief Executive Vipula Gunatilleke said.

"Based on conversations with top operators they think they can bring back tourists in the winter," Gunatilleke told the parliament’s Committee on Public Enterprises.

"Winter season is getting better. We think now loss will be lower than the 188 million (dollars) estimated. But depends on political stability and elections."

Gunatilleke said under a restructuring plan which aimed to reach break-even in three years a loss of 73-75 million dollars had been budgeted for the current year after deducting interest of 69 million dollars and withholding tax.

Internal cost cutting could have saved another 30 million dollars, he said. Cost cutting such as shifting offices from the World Trade Centre would continue, he said.

But the Easter Sunday blasts had slashed tourist arrivals. 

The firm had originally estimated a revenue loss of 120 million dollars, which may reduce with better tourism arrivals.

Based on July financial results, there was a 19 million dollar passenger revenue loss, 3 million car and another 10 million dollar revenue loss on ground handling and catering.

A directive form the Prime Minister to cut ground handling fees for six months would lose another four million US dollars for the airline, officials said.

In a restructuring plan devised by the current management, the airline was expected to break-even in three years.

"Now it has been stretched for another year," Gunatilleke said.

SriLankan sought a withholding tax waiver and lower interest on is dollar loans from Bank of Ceylon and People’s Bank which were priced around 5.5 percent above the London Interbank Offered Rate.

SriLankan had steadily lost money after Emirates was removed as managing shareholder over a dispute with ex-President Mahinda Rajapaksa.

It had also lost money on large wide body aircraft ordered during the time, leaving it accumulated losses of 240 billion rupees.

Treasury Secretary R H S Samaratunga said Ceylon Petroleum Corporation had agreed to cut aviation fuel prices to the same level as India, but it other agencies such as state banks were on a commercial footing.

He said based on various unexpected events and fuel price volatility SriLankan tended to make losses.

When Tamil Tigers hit Colombo Airport damaging parked SriLanan Aircraft, Emirates used the insurance money, laid off staff and became a surrogate carrier to the Maldives, without burdening Sri Lanka tax payers.

Officials revealed that due to a collective bargaining agreements, unions had put in clauses forcing the airline to carry up to 50 percent more crew than was required by regulations. SriLankan Airbus A 330s had to carry 12 crew when only 8 were required.

The airline was also ‘top heavy’ at management level, official told COPE.

Sri Lankan needed at least 250 million dollars in investment to modernize even after taking off 500 to 600 million dollars in debt, Sri Lanka’s Public Private Partnership Chief Thilan Wijesinghe said.

Sri Lanka’s elected ruling class is keen to keep state enterprises under their full control. COPE Chief Sunil Handunetthi said a plan to sell a part of the airliine to a foreign strategic partner should be re-considered since the current managemtn is promising break-even in three or four years. He was backed by some members of the board.

After taking a 49 percent stake and investing 250 million dollars, what if the foreign investor makes a billion US dollars in profits? he asked.

Nodoby told him that the government would own 51 percent of the profits and woudl also be able to charge corporate income tax on he whole amount and it could be used to pay down the debt was removed from the balance sheet. (Colombo/Aug24/2019)