SriLankan Airlines: Flying in circles with no flight plan

By Dhananath Fernando

Originally appeared on the Morning

SriLankan Airlines (SLA) is not a new name in the country’s long list of financial headaches. It is our National Carrier, a symbol of pride when it flies, and a source of embarrassment when it falls into losses and political meddling. Governments have changed, but the story has remained the same.

Today, the situation is worse than ever. The airline is practically impossible to rescue in its current form. The previous Government invited investors to take over or partner with the airline, but not a single credible party showed interest. The reason is simple: the balance sheet is deeply negative.

Last year, SriLankan Airlines made a profit of about Rs. 7.9 billion. This year, it has reported a loss of about Rs. 2.7 billion. Some argue that the airline should remain under State control. But even if the Government wanted to divest, the question is who would want to buy an airline buried in debt.

The truth is, the problem is more serious than it appears. The saddest part is that there is no restructuring plan at all. The Government seems to have accepted the airline’s own proposals and continues to operate without a clear direction.

According to the National Audit Office, continuous Government support is required just to keep the airline running. Last year alone, taxpayers injected Rs. 20 billion into it.

Let us look at how much public money has been spent over the years:

2010: Government buys back Emirates’ 43.6% stake for $ 53 million

2011/’12: Capital infusion of Rs. 14.3 billion through Treasury bonds

2014: Treasury settles Rs. 26.11 billion owed to the Ceylon Petroleum Corporation (CPC) for unpaid fuel bills

2016: Cabinet approves absorbing Rs. 461 billion of SLA liabilities

2023–2024: Government agrees to absorb $ 510–553 million of SLA debt

H1 2024: Equity top-up of Rs. 5 billion for cash flow support

Budget 2025: Rs. 20 billion allocation for legacy debt service

Since parting ways with Emirates, we have repeatedly returned to the Treasury for help.

Even though the airline shows an operating profit, it is not enough. The load factor is around 70%, while the break-even point is about 76%. The main losses come from finance costs, which are roughly Rs. 30 billion each year — a huge amount compared to revenue.

To stay competitive, the airline needs investment to modernise its fleet and improve efficiency. But the Government has no funds, and no investor or lender will come forward without a Treasury guarantee. The new Public Debt Management Act makes such guarantees more difficult and costly.

Revenue and passenger numbers have also declined compared to the previous year, even as tourism recovers. According to the Sri Lanka Tourism Development Authority, SriLankan Airlines carries only about 27-30% of tourists, while nearly 70% arrive through other airlines. This suggests that service issues, repair delays, and stronger competition are taking away loyal passengers.

At the group level, monopoly businesses such as ground handling and catering help to cover some losses, but they also make the entire aviation industry less competitive.

Even if the airline were liquidated today, it would still need Rs. 379 billion to settle its debts. Around Rs. 90 billion is owed to State banks such as Bank of Ceylon and People’s Bank. Writing off those loans would hurt the stability of the banking sector.

Despite its financial troubles, SriLankan Airlines still operates on important routes and has an excellent safety record. The brand has emotional value for many Sri Lankans, which is why restructuring will face resistance from employees, trade unions, and politicians.

So what can be done?

Option 1: Dress up the balance sheet once and for all. Inject the required taxpayer money, absorb the liabilities, and then look for a strategic investor.

We have tried partial fixes for years, taking over some debt and hoping the airline will perform better, but that approach has failed. If we want to attract a serious investor, we must clean it up completely and find a partner with deep experience in aviation.

However, this must be done with a clear legislative direction and timeline. Otherwise, once the debt is absorbed and the airline begins to show a profit, a new debate will arise questioning the need to privatise a profit-making National Carrier. The political economy will then move quickly to block reform, forgetting that the taxpayer had already paid for the cleanup.

Option 2: Package SriLankan Airlines with other State assets such as the Mattala or Ratmalana airports to make it more attractive to investors.

This might require relocating some Air Force operations and preparing a comprehensive restructuring plan. But such an approach takes time, and time is exactly what we do not have. The longer we wait, the deeper we fall, and the more political and geopolitical interests get involved.

There is no point blaming the airline or its employees. The problem is not in the sky but on the ground. We simply have no plan.

It is time to get our act together, because a national airline without a flight plan can only keep flying in circles.

SOE closure is good, but is only the beginning

By Dhananath Fernando

Originally appeared on the Morning

The Government’s recent decision to shut down 33 State-Owned Enterprises (SOEs) is commendable and a step in the right direction. Sri Lanka has far too many SOEs, with the State entangled in almost every sector imaginable – aviation, retail, banking and finance, agriculture, ports, insurance, transport, energy, and even chemical production.

What many people do not realise is that government involvement in business is not just inefficient. It is at the heart of our debt and economic crisis. SOEs are heavily indebted, crowd out credit that should go to the private sector, and operate in areas where private businesses could be far more productive.

Once upon a time, there was an argument that the government should be in business to ensure a ‘level playing field.’ That argument has long expired. Today, SOEs do not level the field, they tilt it. With mounting losses, inefficiency, and distortions, they have undermined competitiveness rather than protected it.

The State already has a stake

It is worth remembering that the Government already has a built-in stake in every business through taxation. Corporate tax is 30% of profits, and once businesses cross the Value-Added Tax (VAT) threshold, a further 18% is levied on value addition. In other words, the State captures a significant share of private profits without having to own or operate businesses.

The problem is that Sri Lanka has too few private businesses because the State has occupied their space and run it unproductively.

The real giants of losses

Closing 33 SOEs is good, but it is only the beginning. Sri Lanka has more than 500 SOEs if one includes subsidiaries and sub-subsidiaries. Some even operate as departments – railways and postal services, for instance, which are technically not SOEs but still run as commercial operations.

In reality, around five large SOEs account for 80% of the losses. These are:

• Ceylon Electricity Board (CEB)

• Ceylon Petroleum Corporation (CPC)

• National Water Supply and Drainage Board (NWSDB)

• Sri Lanka Transport Board (SLTB)

• SriLankan Airlines

Restructuring these giants is critical. Attempts have already been made with the CEB, but as this column has previously argued, reform has been slow and the hurdles to attracting capital remain high.

SriLankan Airlines is another pressing case. Our sovereign credit rating remains partly hostage to the airline’s bond restructuring. The CPC and SLTB are not far behind in the severity of their problems.

A web of loss-making interconnections

One reason Sri Lanka went bankrupt was the unhealthy web of financial interconnections between these SOEs. When the CEB sold electricity below production cost, it borrowed fuel from the CPC, making the CPC loss-making as well.

The CPC, in turn, tried to recover losses by charging SriLankan Airlines higher-than-market prices for jet fuel. The airline was compelled to buy from the CPC since both were Government-owned and it too bled losses.

When all three made losses, they turned to the People’s Bank and Bank of Ceylon for loans, exposing depositors’ money to undue risk. With large amounts of credit guaranteed by the Treasury, private businesses were crowded out both by lack of funds and unfair competition.

A tilted playing field

The distortion is not confined to energy and transport. In insurance, for example, the law required all companies to split life and general insurance operations. The only exception? Sri Lanka Insurance – the State player.

In gaming, the new regulatory authority does not cover the National Lotteries Board or the Development Lotteries Board and private players are barred from entering the lottery market.

In ports, the problem is even more blatant. The Sri Lanka Ports Authority is both regulator and operator. It owns shares in private terminals such as Colombo International Container Terminal (CICT) and South Asia Gateway Terminal (SAGT) while running its own Jaya Container Terminal. It is regulator, competitor, and shareholder all rolled into one. That makes the very idea of a level playing field a joke.

Mixed signals

While shutting down 33 institutions, there are also news reports of the Government expanding into new businesses, such as opening outlets for sugar sales. These mixed signals send the wrong message.

The principle must be simple: the Government should focus on its core mandate – ensuring the rule of law – and let the private sector drive commercial activity. If necessary, regulate. But only when necessary. The State should take its 30% tax share, make tax administration efficient, and leave the rest to entrepreneurs.

The way forward

The next step is the passage of the proposed SOE holding company bill. This will bring most SOEs under a single holding company structure, paving the way for divestiture, Public-Private Partnerships (PPPs), and, where appropriate, outright privatisation.

Some SOEs must be privatised fully. Others should enter PPPs. But the guiding principle should remain the same: let the private sector run businesses, not the State.

Closing 33 SOEs is a start. But unless we confront the inefficiency of the big five and end the distortions that SOEs create across the economy, Sri Lanka will remain stuck in the same cycle of loss, debt, and stagnation.