Sri Lankan Airlines Seeks to Restructure After Failed Privatization Attempt

Sri Lanka had a significant financial crisis in 2022 that sparked a series of events seeking to bring financial discipline and stability to the country. Of the outcomes of this is the push by the government to privatize its flag carrier Sri Lankan Airlines.

Government-owned airlines are often plagued with inefficiency and commonly serve as a matter of national pride and prestige instead of a sound business. This comes at a significant cost since it is a direct drain of government and ultimately taxpayer pocketbooks. There will eventually come a time when the government decides that the expense is not worth it and will do its best to sell off part or all of the airline.

The Sri Lankan government, as they were reeling from an unprecedented financial crisis, had their moment of clarity and decided to privatize the airline. The plan was to issue a request for proposals in February 2024 and ultimately make the sale by June 2024. In the meantime, a political roadshow started to get potential buyers excited.

However, a bizarre incident with rats on aircraft resulting in flight delays soured the rosy picture the government was trying to paint. In order to keep the idea afloat, the Sri Lankan government decided to take a page from the Air India privatization book.

It agreed to take over more than a quarter of the airline’s nearly $2 billion in debt in March of 2024. The government also agreed to keep funding the airline until the sale could be made.

It was rumored that entities such as the Adani Group and Tata Sons were among the bidders. However, that would likely have posed foreign ownership challenges.

No Bidders Means Restructuring Instead

According to the Sri Lankan government, there were no suitable bidders and now the government will take a different approach. Instead of trying to sell the airline, the new strategy is to restructure it.

The government provided little to no details on what that would mean. One would imagine that this sort of restructuring would start with a way to reduce debt and increase operational efficiencies.

The country and the airline are also not in the greatest of places geographically to reboot their airline. The Middle Eastern airlines are large players in moving people in and out of the country and Air India is looking to join the big leagues in the near future.

The airline needs to find a niche where it can operate with relative success and minimal losses. The government is in no position to provide large investments into the airline given its financial troubles so it will need to come up with a way to fix the troubled airline in a way that doesn’t cost much money. It’s possible this may mean significant cost cuts and layoffs but all of that is unlikely to happen until after the Sri Lankan presidential election later this year.

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Hemal Gosai

Hemal took his first flight at four years old and has been an avgeek since then. When he isn't working as an analyst he's frequently found outside watching planes fly overhead or flying in them. His favorite plane is the 747-8i which Lufthansa thankfully flies to EWR allowing for some great spotting. He firmly believes that the best way to fly between JFK and BOS is via DFW and is always willing to go for that extra elite qualifying mile. Hemal's opinions are his own and do not reflect those of his employer.

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