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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)