Govt. infuses fresh capital of Rs.46bn to SriLankan Airlines

• Equity was infused in two tranches under capital enhancement and restructure programme
• Cabinet on October 26, 2020 approved US $ 500mn recapitalisation programme for UL
• For FY21, UL reported a net loss of Rs.45.2bn, taking its accumulated losses to Rs.372bn

The government has infused fresh equity to the tune of Rs.45.7 billion to SriLankan Airlines in two tranches through April 2021, under the capital enhancement and restructure programme announced last year to help the airline stand on its own. 

According to the fresh reports from the Finance Ministry, the government had infused Rs.18.0 billion in fresh equity in April this year, after Rs.27.7 billion was injected in November 2020, which was the first such capital infusion since 2014.  

Starting from 2015, the good governance regime vowed to restructure the national carrier either via an outright sale or a public-private partnership to untie the airline from being a constant burden on the national budget, as their policies skewed towards private ownership of business assets for better performance. 

However, the exercise didn’t materialise, as the authorities could not strike a deal with a foreign party, due to its humongous liabilities, which far exceed the airline’s assets. 

In fact, during the year ended on March 31, 2021, the total equity of SriLankan Airlines had fallen to a negative Rs.289.5 billion.  

And the airline’s net assets or equity were less than half of its stated capital and faced a serious loss of capital. 
The Cabinet of Ministers on October 26, 2020, approved a US $ 500 million recapitalisation programme for the airline in the next five years and the said two capital infusions form part of this programme, as the present government, which came into power in November 2019, has a policy of restructuring business assets while keeping them under state ownership. 

However, the restructuring programme derailed, as the pandemic halted global air travel. As a result, cargo business became the main line of operations for SriLankan.

For the year ended on March 31, 2021, SriLankan Airlines reported a net loss of Rs.45.2 billion, taking its accumulated losses to Rs.372 billion. 

In order to optimise costs, the airline also restructured aircraft lease agreements, which resulted in a permanent reduction in lease rentals by US $ 27.5 million per annum as well as deferment of payments, helping to improve the liquidity.  The staff cost optimisations, which were undertaken include: offer of voluntary retirement scheme, restructuring of allowances, mandatory salary reductions ranging from 2.5 percent to 25 percent, freezing all salary increments and recruitments and the repudiation of all collective bargaining agreements during 2021.  Further supporting the finances of the airline, “the government through the general Treasury approved to reissue of all Letters of Comfort that expired during the period amounting to US $ 205.4 million and Rs.27.6 billion, in favour of two state banks, in order to continue with the provision of short-term loan facilities,” the Finance Ministry said. 

Further, based on the Cabinet approval, Treasury guarantees were also provided to the two state banks — Bank of Ceylon and People’s Bank — to disburse new facilities of US $ 75 million for the airline’s working capital.