After TPG offloads SriLankan, Govt. to approach individual airlines for PPP

Monday, 8 May 2017 01:20 -     - {{hitsCtrl.values.hits}}

  • Preliminary level discussions for management deal with Air Asia, Qantas and Emirates 
  • PM convenes meeting of ministerial committee on SriLankan today

By Chathuri Dissanayake

With the Texas Pacific Group (TPG), one of the largest private equity investment firms in the world, offloading SriLankan Airlines from a negotiation for a public-private partnership, the Government is to approach individual airlines to bail out the debt-ridden national carrier.

“We followed the initial process to ensure transparency, however unfortunately it did not work. TPG, the only credible party which bid, also terminated discussions as they felt this was not a worthy investment at the moment. Now we have to directly approach airlines to discuss possible partnerships,” Deputy Minister of Public Enterprise Development Eran Wickramaratne told the Daily FT.

The Government called for bids in July last year. TPG, Peace Air and a Maldivian company were shortlisted from about nine bids for the 49% stake and TPG was selected on the strength of its proposal.

However, after completing its due diligence, TPG had informed the national carrier it would not pursue a potential investment in SriLankan Airlines.

According to the national carrier’s Chairman Ajith Dias, TPG was of the opinion that “allocating the human and financial resources to make the airline profitable would not realise sufficient returns compared to the many other investment opportunities that are available to them.”  

Industry analysts weren’t convinced that TPG did a proper due diligence, the cost of which had to be shared by TPG and SriLankan. KPMG was the transaction advisors to the exercise which was initiated by the National Savings Bank (NSB) which is a shareholder in the national carrier. 

TPG has approximately $ 72 billion under management with investment and operational teams in 16 offices around the world. Having invested in more than 400 companies, TPG has built a diverse set of asset classes, including private equity, growth equity, public equity, credit and real estate, to help its LPs achieve their investment objectives.

Whilst TPG was engaged in due diligence, with the Government stating it would entertain fresh proposals from airlines, there had been overtures to the State or approaches by it.

Air Asia, Qatar Airways (a member of the Oneworld alliance which SriLankan is also a part of) and Emirates, which held minority equity in Sri Lankan Airlines a decade ago, were among those interested.

According to sources with knowledge of the matter, both Emirates and Air Asia have indicated an interest in a management agreement but are not interested in investing in SriLankan Airlines.

Wickramaratne declined to comment on the status of the discussions but said that “the conversations with some of the airlines SriLankan was familiar with already are at very preliminary stages.”

“We need to discuss and see what these companies are interested in. This is a highly competitive industry and it is difficult to say the type of partnership which will be possible yet. Traditionally we could have sold part of the company and entered into a partnership. However, in the current business environment this is not possible,” he said, adding that they would have to speak to different parties to find a “strategic fit.”

In a related development, Prime Minister Ranil Wickremesinghe has convened a meeting of the special Committee on Matters of SriLankan Airlines today to discuss the way forward. The committee comprises Ministers Malik Samarawickrama, Dr. Sarath Amunugama, Kabir Hashim and Deputy Minister Eran Wickramaratne along with advisor R. Paskaralingam.

This committee was established by the Premier to make a final decision on matters when the Board of SriLankan had differences of opinion on matters relating to the national carrier.

SriLankan has accumulated debts and losses of over $ 2 billion. Last week it announced unaudited results for the financial year ended 31 March 2017. Total operational revenue increased to Rs. 136.68 billion from Rs. 129.48 billion in FY16. However, difficult market conditions resulted in the airline recording an unaudited net group loss (before finance and one-off charges) of Rs. 6.49 billion ($ 15.12 million) for the year. 

“This is an increase from the Rs. 2.90 billion ($ 3.15 million) loss recorded in the prior year – but a significant improvement from the deficit that had been budgeted for the year, the national carrier said in a statement. 

At present SriLankan serves 36 international destinations from its hub in Colombo, with an operating fleet of 24 aircraft.