Sri Lanka Assumes $510 Million Debt to Facilitate Sale of National Airline

Sri Lanka announced on Tuesday its decision to absorb $510 million of debt in efforts to find a buyer for its struggling national airline, SriLankan Airlines, following disruptions caused by a stowaway rat aboard one of its flights.

Amidst a challenging economic landscape exacerbated by a severe economic crisis in 2022, the island nation has been eager to divest itself of SriLankan Airlines, a long-standing financial burden on the national budget.

Aviation minister Nimal Siripala de Silva disclosed that the government had extended the deadline for proposals to “restructure” and take over the airline by 45 days. However, there was no confirmation if any offers had been received prior to the deadline.

De Silva stated that the government would absorb over a quarter of the airline’s reported $1.973 billion accumulated losses up to March 2023 to enhance its appeal to potential investors.

Additionally, the government plans to inject $60-70 million into SriLankan over the next six months to sustain the airline and safeguard the employment of its 6,000 personnel until privatization.

SriLankan Airlines has faced operational challenges, including grounding three Airbus aircraft for over a year due to insufficient funds for mandatory engine refurbishments.

The airline’s woes escalated last month when a rat was discovered aboard one of its Airbus A330s, prompting a three-day grounding as authorities conducted safety checks.

Previous attempts to privatize SriLankan Airlines have faltered, with a prior administration even offering to sell the airline for a symbolic one dollar, yet attracting no bids.

The airline’s profitability declined following the termination of a management agreement with Emirates in 2008, sparked by a dispute with then-president Mahinda Rajapaksa. The disagreement arose after the airline refused to displace fare-paying passengers to accommodate 35 members of Rajapaksa’s family returning from a London holiday.

Ironically, one of SriLankan Airlines’ most prosperous years was in 2001, amidst a turbulent period during Sri Lanka’s civil war, when half of its fleet was destroyed in an attack on the main international airport. Insurance settlements and the removal of excess capacity offset the decline in ticket sales, enabling the airline to remain profitable.