Sri Lanka’s new government plans to sell off the national airline.
Sri Lanka’s new government plans to sell its flag-carrier airline to stem ongoing losses.
The new administration plans to privatize Sri Lankan Airlines, Prime Minister Ranil Wickremesinghe said in a televised address to the nation Monday. The carrier lost 45 billion rupees (US$124 million) in the year ending March 2021, he said just days before the nation is set to formally default on foreign debt.
“It should not be that this loss has to be borne by the poorest of the poor who have not set foot in an aircraft,” Wickremesinghe said.
His rationale: the country’s poorest people who’ve never flown shouldn’t be saddled with its losses. But finding a buyer might not be easy.
In 2010, the government in Colombo bought back a stake in Sri Lankan Airlines from Dubai’s Emirates. The national carrier, which has a fleet of 25 Airbus planes, flies to destinations in Europe, the Middle East as well as South and Southeast Asia, with a pre-pandemic network spanning more than 60 countries.
Sri Lankan Airlines, which joined the Oneworld alliance and became a nominal Qantas partner in 2014, only recently increased flights to Sydney and Melbourne as the carrier rebuilds its post-pandemic network.
From is home hub of Colombo the airline flies many passengers onwards to key cities in India including Bangalore, Chennai, Delhi and Mumbai; as previously reported, Qantas already flies from Melbourne to Delhi and will add Sydney-Bangalore flights from September 14.
“I don’t expect much interest from airlines,” said Brendan Sobie, Singapore-based founder of consultancy Sobie Aviation.
“Many of the airlines that made overseas investments in prior years have shifted their strategies and are no longer eager to acquire airlines in other markets. SriLankan also isn’t that attractive given its history and the challenges it still faces.”
SriLankan’s predicament carries risks for aircraft-leasing firms, including Air Lease and Avolon Holdings, analysts at Bloomberg Intelligence wrote in a report last month.
While the size of the Sri Lankan aviation market isn’t close to Russia’s, where lessors face writedowns of billions of dollars, the crisis could exacerbate their problems, analysts including Adrian Sim wrote.
Sri Lanka has previously failed to find a buyer for the debt-laden airline. In 2018, the country revived a process of privatizing the carrier after talks with TPG Capital collapsed following due diligence of the airline. But two years later, that plan was taken off the table.
At least eight parties had showed interest in a 2016 attempt to sell the flag carrier, including U.S. buyout firm Blackstone Group, Bloomberg News reported at the time.
Sri Lanka’s allure in part is down to its proximity to India, from where travelers are increasingly taking stops in Colombo to either visit the island or the neighboring Maldives and Seychelles.
India’s largest conglomerate Tata Group, which recently bought formerly state-run Air India, and European carriers such as Lufthansa, Air France-KLM or Turkish Airlines could be interested in buying SriLankan, according to Mark Martin, founder of Dubai-based Martin Consulting.
A successful bid could help them establish a second hub in Asia, enabling them to take on Gulf carriers that dominate the continent’s south and southeast, he said.
Sri Lanka is also home to many European expatriates, creating demand for the Visiting Friends and Relatives travel segment, which holds significant potential, Martin said. “Will SriLankan find a buyer? Absolutely it will. It had a foreign airline investor before, and it again will.”
However, the crisis in Sri Lanka has plunged the flag carrier further into crisis, sending its dollar bond to a record low and indicating a distressed level, according to data compiled by Bloomberg.
It has also slashed jobs and salaries, and renegotiated aircraft leases after grounding about 95% of its fleet during the worst of the pandemic. The carrier has about two dozen Airbus jets.
“Sri Lanka is in a very bad shape, so anyone thinking of buying its flag carrier is therefore taking a huge risk,” said Shukor Yusof, founder of aviation consulting firm Endau Analytics in Malaysia. It would be “better to let the airline go down and let market forces dictate the future of air connectivity for Sri Lanka.”
The airline brings “more problems than advantages given its legacy issues,” Yusof said.
Some potential buyers, like Singapore Airlines, would struggle to justify shelling out for it after receiving government bailouts, while a cash-rich carrier like Qatar Airways is helmed by a chief executive who is “not easily swayed, no matter how cheap the valuation,” he said. IndiGo, India’s biggest airline, may not “bite off more than it can chew” given its own issues.
Additional reporting by David Flynn
This article is published under license from Bloomberg Media: the original article can be viewed here
Executive Traveller is published by Business Travel Media Pty Ltd, a corporate authorised credit representative (#515763) of MGS FINANCIAL PTY LIMITED (#337568)
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