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Monday April 22nd, 2024

SriLankan Airlines to restructure US$680mn in debt, slashing costs to survive after Covid-19

AFRICAN AIRLIFT: Three SriLankan Airlines discharging supplies at O R Tambo International Airport in Johannesburg, South Africa.

ECONOMYNEXT – SriLankan Airlines is in talks to get 75 million dollars of new finance, re-structure around 400 million in bank debt and also reduce staff to survive in the post-Covid-19 environment, top officials said.

SriLankan owes about 220 million US dollars to state-run Bank of Ceylon and 187 million US dollars to the People’s Bank on which they are paying interest on time.

Chairman Ashok Pathirage said the cabinet of ministers had given the approval to re-structure the debt and also get 75 million US dollars in new loans from the two banks.

The airline wanted to convert the short term debt to long term debts with a grace period so that a part of the capital could also be serviced.

“That will also be good for the banks,” Pathirage said.

SriLankan has been paying interest on time, but the loans had been rolled over. A 6 million dollar interest payment on dollar bond would also be paid this month on time, he said.

SriLankan owed 275 million US dollars to state-run Ceylon Petroleum Corporation, which has been bank rolling its operations.

Pathirage said the airline also wanted to re-structure, the debt in whole or in part.

SriLankan also had a 30 million dollars remaining in a facility from Credit Suisse which was being paid down.

SriLankan had also asked for a capital infusion from the government in an original restructuring plan approved early this year, which could not be fully put into effect when the Coronavirus crisis hit.

The cabinet of ministers had agreed to lift withholding tax from aviation which would save the airline about 30 to 40 million US dollars a year. Interest costs were about 67 million US dollars.

In the year to March 2020 SriLankan had lost about 130 million US dollars.

SriLankan was internally cutting costs to make it viable in the long term.

“We started the process of before the crisis,” Pathirage said. “If anything it accelerated it. We have to make hard decisions. The airline does not want to be a burden.”

He said SriLankan had an important role to play in the growth of Sri Lanka but that had to be done without making large losses.

SriLankan was one of the few airlines that were operating as many airlines were grounded as the Coronavirus crisis worsened.


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SriLankan’s 80 million dollar revenues had dropped to about 20 million US dollars now with carrier taking cargo and repatriating passengers.

The airline had sent 407 contract staff on no pay leave, cut salaries and also halted about 500 outsourced workers to survive the crisis, taking the cadre to about 6,000, saving about 30 million US dollars a year in costs.

SriLankan was planning a voluntary retirement scheme for about 500 staff, subject to regulatory approval.

“This will be completely voluntary, nobody would be forced to leave,” Pathirage said.

Chief Executive Vipula Gunatilleke said the carrier had re-negotiated with suppliers and shaved off about 30 million US dollars a year in costs.

Talks were also underway with lessors on aircraft for which high lease rentals are being paid.

“We are negotiating with the lessors,” Pathirage said. “These are legacy costs that we have to deal with.”

SriLankan had lost about 130 million US dollars in by March 2020, but had broken even in the month of January when Covid-19 hit, Pathirage said. (Colombo/June22/2020)

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IMF official: Sri Lanka’s road ahead is challenging, critical to keep up with reform momentum

ECONOMYNEXT –International Monetary Fund’s First Deputy Managing Director Gita Gopinath said Sri Lanka’s future with many reforms are challenging, but it is critical to keep up with the reform momentum.

Gopinath stated this after meeting the island nation’s State Finance Minister Shehan Semasinghe Central Bank Governor Nandalal Weerasinghe, and Treasury Secretary Mahinda Siriwardena on the sideline of the IMF/World Bank Spring Meetings in Washington.

“I commended them on hard-won economic gains in the past year. The road ahead is challenging and it’s critical to keep up with the reform momentum,” Gopinath wrote on her X platform.

Under IMF programme, President Ranil Wickremesinghe has implemented a raft of hard reforms including higher taxes.

Sri Lanka agreed to the IMF programme after it declared bankruptcy with sovereign debt default in April 2022.

Semasinghe after the meeting tanks Gopinath for acknowledging Sri Lanka’s economic progress.

“Our discussion was insightful and productive, and we appreciate the opportunity to delve into the challenges and opportunities ahead,” the State Finance minister said in his X platform.

“We remain steadfast in our commitment to our reform agenda and eagerly anticipate continued collaboration with the IMF to advance our shared goals.”

Sri Lanka was compelled to go for IMF after the unprecedented economic crisis which was followed by a political crisis that ousted former president Gotabaya Rajapaksa and his government who were legitimately elected.

The IMF programme has included reforms in state-owned enterprises, fiscal sector and financial sectors to ensure debt sustainability.

The global lender also has pledged its support to speed up the island nation’s lingering debt restructuring process with private creditors including sovereign bond holders. (Colombo/April 22/2021)

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Sri Lanka motor racing crash claims 7 lives, 4 critical

ECONOMYNEXT – A deadly accident at motor Race Sri Lanka’s hill country town of Diyathalawa has claimed at least 7 lives police said, after a racing vehicle, in the seasonal Fox Hill Super Cross ploughed in to spectators after running off the track.

Another 21 spectators were injured Sunday, and hospitalized and at least four were critical, police said.

Thousands of people come to watch the Fox Hill Super Cross race, which is usually held in April, as large numbers of people head to the cooler climes in the hills.

According to footage taken by spectators one car overturned on the side of the track.

Sri Lanka’s Newsfirst television said Marshalls were waving flags to caution other vehicles, when another car went off the track and crashed into spectators. (Colombo/April21/2024)

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Widespread support for Sri Lanka debt workout, reform progress at IMF/WB meet: Minister

ECONOMYNEXT – There was widespread support for Sri Lanka’s debt restructuring and acknowledgement of progress made under an International Monetary Fund program, at meeting of the fund and World Bank, State Minister for Finance Shehan Semasinghe said.

“The strides made in our economic recovery and financial stability have been acknowledged as significant advancements towards our country’s prosperity by our stakeholders and international partners,” Minister Semasinghe said in an (twitter) post after attending the meetings.

“Further, it was heartening to note the widespread appreciation and support for Sri Lanka’s debt restructuring process.

“We remain steadfast in our commitment to reaching the restructuring targets and confident of smooth progress in the continued good-faith engagements for a speedy debt resolution that will ensure debt sustainability and comparability of debt treatment.”

Sri Lanka ended a first round of talks with sovereign bondholders in March without striking a deal but some agreement on the basis for a deal.

An initial deal with bilateral creditors have been reached, but they may be awaiting a deal with private creditors to sign formal agreements.

International partners have appreciated reforms made under President Ranil Wickremesinghe, Minister Semasinghe said.

“It was great to engage in productive bilateral discussions with all of whom appreciated the recent economic developments, progress in debt restructuring, strengthening of tax administration, and ongoing governance reforms,” he said.

Sri Lanka’s rupee has been allowed to re-appreciate by the central bank amid deflationary monetary policy, bringing tangible benefits to people in the form of lower energy and food prices, unlike in past IMF programs.

Electricity prices were cut as a strengthening currency helped reduce the cost of coal imports.

Related Sri Lanka central bank mainly responsible for electricity price cut

The currency appreciation has also allowed losses to the Employment Provident Fund imposed to be partially recouped, helping old workers near retirement, as well as raising disposable incomes of current wage earners on fixed salaries.

Related Sri Lanka EPF gets US$1.85bn in value back as central bank strengthens rupee

The IMF, which was set up after World War II to end devaluations seen in the 1930s after the Fed’s policy rate infected other key central banks, started to actively encourage depreciation after a change to its founding articles in 1978 (the Second Amendment).

The usefulness of money as a store of value, or a denominator of current and future values then decline, leading to loss of real savings, real wages and increases in social unrest.

Before that, members who devalued more than 10 percent after printing money for growth or any other reason, faced the threat of suspension from the organization as punishment.

Sri Lanka’s rupee has appreciated to around 300 to the US dollar now from 370 after a surrender rule was lifted in March 2023.

But there is no transparency on the basis that economic bureaucrats are allowing the currency to gain against the US dollar (the intervention currency of the central bank).

The rupee is currently under pressure, despite broadly prudent monetary policy, due to an ‘oversold position’ in the market after recent appreciation made importers and banks to run negative open positions as the usefulness of the currency as a denominator of future value declined with sudden strenghtening. (Colombo/Apr21/2024)

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