Unbelievable Loss!

SriLankan Airlines’ industry code UL can now stand for ‘Unbelievably Loss-making’ judging by the shocking figures revealed in Parliament last week.

As of March 2015, the accumulated loss of the national carrier was a staggering Rs. 128 billion while SriLankan is also saddled with Rs. 76 billion in outstanding debt. 

These shocking figures and incidents of reckless borrowing and procurements were revealed by Public Enterprise Development Deputy Minister Eran Wickramaratne last week. 

Of the Rs. 128 billion accumulated loss, the biggest chunk of Rs. 106 billion has been suffered in the past seven years between 2009 and 2015 (see table). 

The biggest annual loss of Rs. 32.4 billion was in 2014/15 while the figure has been reduced sharply to Rs. 16.5 billion in the last financial year largely owing to very low fuel prices. 

In what appears to be callous disregard for financial health, SriLankan has been on a hiring spree and acted as a safe haven for easy jobs awarded through political recommendations. Between 2011 and 2015, SriLankan had recruited 2,373 bringing the total employee base to a staggering 6,987 from 4,614 as at end 2010.

The total equity of the company is a negative Rs. 74 billion, according to data tabled by Deputy Minister Wickramaratne.   

The Deputy Minister said while the company was insolvent SriLankan has been extravagant and recklessness in ordering new planes without obtaining Treasury support for the funding plan.



In a deal worth around $ 2.3 billion, SriLankan in the 2014/15 financial year went ahead with the purchase of six A330-300s with delivery from the fourth quarter of that year, the purchase of four A350s with delivery starting from 2020/21 and the sourcing of three additional A350s on lease delivery from 2017.

Wickramaratne said the A350s that were being ordered were very expensive to operate (needing high utilisation and high yields) and revealed that the lease rentals negotiated for the aircraft were much higher than the market rates.  

“Consultants who have been brought in to study the situation have commented that poor decisions have been made and that it is unusual for a fleet to have more wide body planes than narrow body planes,” he said. 

“In the event that SriLankan continues to operate as at present (all flights and routes) as well as takes delivery of the A350s ordered the net present value of the projected losses over a 12-year period (which is the period of the leases) have been estimated at over $ 1.5 billion,” Deputy Minister Wickramaratne said. 

“Outstanding debt with the banking sector, particularly with the state banks, and results in capital being tied up, thereby preventing the banks from lending for other productive activities such as agriculture and SMEs,” he added.

Joining the chorus exposing the crisis at SriLankan, Prime Minister Ranil Wickremesinghe also told Parliament that the national carrier may not be able to repay its debt of nearly $ 1 billion. 

“The minister says the actual debt is likely to be much more than what we initially feared,” Wickremesinghe said during a parliamentary debate on the economy. 

“SriLankan Airlines will not be able to repay this debt. We will have to take a decision on this.”

“We will inform Parliament of any such decision as soon as the Cabinet of Ministers decides on it. Within the next month the Government will make a final decision on how to handle the current debt situation of SriLankan,” the Premier said.

The beleaguered national carrier has attracted controversy in recent years after an independent investigator last year found evidence of serious corruption in a $ 2.3-billion deal to buy Airbus aircraft.

Wickremesinghe said on Wednesday that he was still reviewing the deal, reached under the administration of former President Mahinda Rajapaksa despite huge losses at the airline.

The deal is also being probed by the police Financial Crimes Investigation Division.

According to reports, the SriLankan crisis also figured at a top level meeting last week chaired by Wickremesinghe. Finance Minister Ravi Karunanayake had conveyed that the Treasury could only fund the airline for the next six months. 

Public Enterprises Development Minister Kabir Hashim, who is responsible for SriLankan, was tasked with formulating new strategies within this period to pull it out of its deep financial mess. A number of options are being looked at including a possible tie-up with another airline. Even the views of different international consultancy firms have been sought by the airline. They will meet the Premier again when proposals concerning urgent decisions are ready.