SriLankan Airlines Faces Third Bond Payment Default Amid Financial Challenges

In a recent development, SriLankan Airlines has announced its inability to meet the bond repayment scheduled for December 25, 2023. This marks the third instance of the airline defaulting on its bond payments, following previous defaults in December 2022 and June 2023. The announcement made on January 16 indicated a continuation of the airline’s financial difficulties.

The airline’s formal statement highlighted the occurrence of events of default under Condition 8(a)(i) of the 2024 Bonds, stemming from missed coupon payments. The latest default pertains to the coupon that was due on December 25, 2023, indicating a “further event of default.”

Investors are currently holding bonds valued at USD 175 million, carrying an annual interest rate of 7.0%. These bonds, which are due to mature on June 25, 2024, are backed by the Sri Lankan government. The persistent defaults reflect the airline’s ongoing financial struggles and the broader economic challenges faced by the country.

Complicating matters, the Sri Lankan government’s efforts to privatize the state-owned airline have encountered setbacks. The process of selecting pre-qualified bidders for the sale has faced delays, with the latest extension pushing the deadline to February 5. This delay is indicative of the complexities involved in the privatization process overseen by the Finance Ministry.

Additionally, the airline’s operational capacity is under threat. Chairman Ashok Pathirage has voiced concerns about a potential capacity squeeze in the upcoming 12 months. This is due to the airline’s inability to proceed with its leasing plans for replacing several aircraft due to be returned to lessors. The Request for Proposal (RFP) for acquiring replacement aircraft is currently on hold, following parliamentary hearings and negative public reactions.

In light of these challenges, SriLankan Airlines has assured that it will maintain communication with the holders of the 2024 bonds, providing updates as the situation evolves. This situation underscores the airline’s precarious financial position and the broader economic challenges facing Sri Lanka.