Sri Lankan Government Allocates $335.8 Million to Settle SriLankan Airlines Debt Ahead of Privatization

In preparation for the partial privatization of SriLankan Airlines, the Sri Lankan government is set to allocate LKR109.9 billion rupees (approximately USD335.8 million) to alleviate the airline’s debt burden and enhance its financial standing. This move is part of a broader initiative to tidy up the balance sheets of state-owned entities (SOEs) in anticipation of their partial privatization.

The Ministry of Finance is expected to present a supplementary budget estimate to parliament for approval, detailing the financial package to support the debt settlement and privatization process. The allocated funds are anticipated to be partially returned to the government through the settlement of debts owed to other SOEs, including the Ceylon Petroleum Corporation.

SriLankan Airlines, burdened by debts totaling approximately USD1.2 billion, is undergoing a restructuring process ahead of the planned sale of a 51% stake. The government’s proactive financial intervention aims to create a more attractive proposition for potential investors eyeing the majority stake in SriLankan Airlines.

The International Finance Corporation (IFC), a member of the World Bank Group, is advising the Sri Lankan government on the privatization process. The government has formally invited interested parties to prequalify for bidding, emphasizing the significant growth potential of SriLankan Airlines as it becomes a pivotal hub in the Indian Ocean.

In the 12 months leading up to March 31, 2023, SriLankan Airlines reported a local currency loss of LKR75.03 billion (USD232 million) due to currency depreciation, impacting USD-denominated debt. However, the airline’s management accounts in USD, where earnings and costs are predominantly in foreign currencies, reveal a more balanced financial picture, with the airline either breaking even or marginally positive.

Since 2015, SriLankan Airlines has faced operational losses totaling USD575 million. The government’s commitment to settling the airline’s debts underscores its dedication to streamlining operations and attracting potential investors in the privatization process. Stay tuned for further developments as SriLankan Airlines moves toward a new phase of ownership and financial stability.