Ahoy! Rats on board

Ahoy! Rats on board! That was the call on board SriLankan Airlines after a rat was discovered on one of its planes which had to be grounded for three days. This and other issues, including delays, facing the airline have forced the authorities to extend the date inviting offers for a part-stake in the airline.

This is not the first time that the airline faced calls for selling its stake and bringing in private sector partners. In the early part of 2016, almost one year after Maithripala Sirisena won the presidential poll, there was an outcry to sell the airline, the call for bids was made but somehow the process stalled somewhere.

At that time, an interesting Business Times poll – seeking responses as to whether the debt-ridden airline should be sold or not – found a majority of Sri Lankans opting for the management to be handed over, while stating that ownership was needed to be retained by the state.

One respondent said: “Reorganise the airline; sell part of the stakes to foreign and local investors with those experienced in the tourism sector (John Keells Holdings, Aitken Spence and Jetwing, etc) being encouraged to invest. Thereafter, list the company on the stock market.”

What would be the reaction today to calls for selling/managing the airline? Most probably, sell it lock, stock and barrel, industry observers affirmed, given the tight financial constraints of the government to absorb the airline’s long, outstanding debt.

The current crisis facing the airline is of a worse nature than what has been seen in recent years and this was the topic of conversation when I fielded a call from Kalabala Silva, the often agitated academic, on Thursday morning.

“I say……SriLankan Airlines is once again in the doghouse,” he said. “Yes…..it is but this is not the first time the airline has faced difficulties,” I said.

“Rats on an aircraft…..flight delays and airline ground handling staff protesting? What is going on,” he asked.

“I think this is the last straw, which is unfortunate as the airline seems to be turning around with an operating profit though it has a huge debt problem,” I said.

“What are the chances of anyone even making a bid on an airline that has a huge debt running into millions of dollars,” he asked.

“Well the government has said it would take care of half the debt,” I said.

Briefing the media this week on the status of the national carrier, Ports, Shipping and Aviation Minister Nimal Siripala De Silva said the government will absorb half the debt of US$ 1.2 billion which will then bring it down to around $500 million.

This is similar to the takeover of Air India, India’s national carrier, by Tata Sons in January 2022, where its offer of Indian Rs. 180 billion ($2.4 billion) emerged as the highest bid for the airline. According to media reports, that acquisition entailed a cash payment of Rs. 27 billion rupees to the government, while Rs. 153 billion went to repaying part of the airline’s debt.

The Sri Lankan minister said SriLankan Airlines’ short-term interest bearing liabilities amounted to Rs. 234.5 billion as at 31 March 2023 and long-term amount was Rs. 154 billion. These figures may seem confusing, since according to the annual report of the airline posted on its website, the net loss for 20222023 (end March) was Rs. 71,306.66 million and Rs. 163,583.08 million in the earlier year (2021-22). The operating profit for 2022-23 from all services including ground handling and catering was Rs. 43,371.56 million against Rs. 1,692.66 million in the previous 2021-22 year.

The government is looking at selling a 49 per cent stake – essentially bringing in foreign management like it did in the case of Singapore Airlines (largely technical expertise) and Emirates (full management control) – while retaining the balance 51 per cent. The timing of the privatisation is also tricky and the deadline of six months – up to September 2023 – to complete the process, is unlikely to be met as political turmoil takes over. In the coming months all hell will break loose when the momentum for presidential or parliamentary elections steps up. By around June/July, election drama and rhetoric take over and trying to sell state assets will be a difficult proposition given current protests over the sale of assets like Sri Lanka Telecom, Sri Lanka Insurance and other government entities.

It’s no use going back in time to find out what happened to the lucrative deal with Emirates which exited the airline in 2008 largely due to the refusal of the airline to remove paying passengers to accommodate a large entourage of then President Mahinda Rajapaksa. Angered by the refusal (which was purely a commercial decision), the government cancelled an extension of the management agreement and the Emirates carrier bid goodbye. When this happened, Emirates-managed SriLankan Airlines had made a profit of Rs. 4.4 billion in its books ending March 2008 against a profit of Rs. 862 million in 2006-07.

In the very next year (2008-09) under government control and management, the profitable airline reported a net loss of

Rs. 9.9 billion and that debt has ballooned to more than Rs. 70 billion today! What a state of affairs! We just can’t seem to manage our own affairs without political influence.

To catch my breath after a breath-taking column on the plight of the national carrier, I walked towards the kitchen where my second mug of tea had already been prepared. Taking a sip, I looked towards the margosa tree where the trio had gathered and were deep in conversation.

“Basil mama lankawata enavath ekkama, ratey udyogayak thiyenawa (Basil mama has come and there seems to be some excitement),” said Serapina.

“Mama danne nae loku wenasak weida kiyala pohottuwe nilayan atharey (I don’t know whether he will make a big difference in the Pohottuwa ranks),” said Mabel Rasthiyadu.

“Mama hithanawa, pohottuwa thaama eyage daksha-kama pavichchi karai kiyala chandey dinanna (I think the Pohottuwa still relies on his expertise to win elections),” noted Kussi Amma Sera.

Winding up the column, I can only surmise that Sri Lanka’s privatisation agenda will run into problems in the coming months with election fever rising.