Colombo must privatise SriLankan Airlines

Sri Lanka’s State-owned Enterprise Restructuring Board has advised the government to suspend state assistance and restructure SriLankan Airlines (UL, Colombo Int’l) – along with at least four more state-owned enterprises (SOEs) that are draining the national coffers.

Apart from the national carrier, the proposals apply to the other largest loss-makers amongst the nation’s 527 SOEs, namely the Ceylon Electricity Board, the Ceylon Petroleum Corporation, the National Water Supply and Drainage Board, and the Sri Lanka Transport Board, local media report.

This comes amid renewed calls for the privatisation of the airline and other SOEs made by the Advocata Institute, a free-market economy advocacy group in Sri Lanka. At a news conference earlier this month, Advocata said 55 SOEs had recorded a cumulative loss of LKR1.2 trillion rupees (USD5.9 billion) between 2006 and 2020. The combined deficit per day of the five biggest loss makers was LKR384.4 million (USD1.9 million), according to data for the year 2019. “This is at the backdrop where the country is wading through a serious debt crisis with questions surrounding the ability to meet forthcoming debt obligations,” it said.

“Disposing of SOEs which are a burden on the public finances is the crucial need of the hour. Immediate privatisation of large SOEs will build international investor confidence,” it stressed.

“Privatising a globally visible, yet loss-making SOE, such as SriLankan Airlines, is the best solution to create confidence among investors that Sri Lanka is serious about reforms,” argued Advocata Institute advisor and policy expert, Rohan Samarajiva.

Whether investors will have any appetite for SriLankan Airlines at present is uncertain given past efforts to privatise the airline have come to naught.

In June 2021, the Ceylon Chamber of Commerce also published findings showing that the five identified SOEs generated 97% of losses during 2020, pointing out this was further aggravating economic and fiscal costs of COVID-19 for the country.

SriLankan Airlines alone had been responsible for 44% of these losses, the Chamber said. The airline’s profitability declined by 23% in 2020 versus 2019, recording a loss of LKR58 billion (USD286.3 million) in 2020 over a loss of LKR47.1 billion (USD232.3 million) in 2019, despite Treasury support of LKR27.7 billion (USD36.2 million) in 2020.

In its most recent budgetary report, the Ministry of Finance said SriLankan Airlines generated LKR28.6 billion (USD141.2 million) in revenue during April to July 2021 compared to LKR39.6 billion (USD195.6 million) for the whole financial year ended March 2021. The airline’s net loss for the April to July 2021 period was therefore LKR24.800 billion (USD122.5 million) compared to LKR58.066 billion (USD286.76 million) in 2020.