In a bid to strengthen the balance sheets of the main three state banks—Bank of Ceylon, National Savings Bank and People’s Bank, the government has decided to buy back the investments these banks have made in the ailing national career, SriLankan Airlines.

“The investments made in SriLankan Airlines by these banks, which have not yielded any returns, will be bought back by the government relieving the banks of such long-term investments,” the latest annual report of the Finance Ministry noted.

The investments by state banks in SriLankan Airlines have been a bone of contention for a long time as it is widely considered that the business model of the airline is unviable because it has relied almost entirely on loan capital. The airline, which was then known as Air Lanka, was established with no equity capital.

According to the Finance Ministry data (provisional), the outstanding debt to banks by SriLankan in 2013/14 stood at Rs.27,684 million, up from Rs.19,600 million in the previous year.


The investments made in SriLankan Airlines by these banks, which have not yielded any returns, will be bought back by the government relieving the banks of such long-term investments


 The ministry has forecasted the number would surge to Rs.36,310 million in 2014/2015.In 2013/14, SriLankan’s revenue fell 7.2 percent year-on-year (YoY) to Rs.116,321 million, while the expenditure falling at a slower pace of 1.3 percent YoY to Rs.145,148 million, widening the operating loss 32.5 percent YoY to Rs.28,827 million.

The accumulated operating losses of the airline also widened to Rs.73,4333 million. In 2013, the government provided Rs.12,600 million as capital contribution to SriLankan. Further, as proposed in the budget 2014, the government infused US $ 150 million in March 2014 as recapitalization to SriLankan, increasing the total recapitalization to Rs.US $ 375 million.

Further, in the same month, SriLankan raised a syndicated loan of US $ 150 million from a consortium of banks led by Standard Chartered Bank with a government guarantee for US $ 50 million at LIBOR +400 bp pa. This loan was utilized to settle the outstanding loan of US $ 112.5 million obtained from Mashreq Bank at LIBOR + 400 bp pa. SriLankan is expected to issue an international bond of US $ 175 million, which will be fully guaranteed by the government, for re-fleeting purposes.

SriLankan has embarked on a re-fleeting programme to replace the entire wide-bodied fleet with new ones and a purchase agreement in this regard has already been entered into with Airbus for the purchase of six A330-300 aircraft and four 350-900 aircrafts for which delivery is expected to commence in October, this year.