SriLankan Airlines accumulated debt is Rs.65 bln, airline says
View(s):SriLankan Airlines, dented by accumulated losses and seeking a management partner, on Friday said losses for the year ending March 31, 2016 stood at Rs. 8.9 billion, however 46 per cent lower than the same period last year. But total accumulated losses as at 31st March 2016, stood at Rs. 64.92 billion against the previous year of Rs. 56.92 billion. “The airline has recorded a significantly improved performance at the close of the Financial Year ending 31st March 2016 (based on un-audited financials) compared to the previous year – despite several legacy issues still remaining unresolved,” the airline said in a statement.
Given the complexity of the business these issues are being addressed in a responsible manner together with the shareholder, as part of the restructuring programme of the airline. The losses were calculated without ‘one-off’ extraordinary payments related to restructuring activities.
A capital infusion of US$S150 million (for SriLankan and Mihin Lanka) in the budget presented to the Parliament in November 2014, and approved, was not included in the Interim Budget presented in March 2015. The November 2015 budget did not contain it either. The finance charges of the airline stood at Rs. 5.6 billion, for the current year an increase of 16 per cent from last year.
Due to the non-receipt of the capital infusion of $125 million, additional bank borrowing had to be taken which resulted in an additional interest charge for the financial year of Rs. 1.73 billion. While the steep drop in fuel prices contributed to the airline’s improved performance, this benefit was significantly eroded with its revenue declining 4 per cent year-on-year to Rs. 115.9 billion in 2015/16 from Rs. 120.4 billion in 2014/15. Addition of capacity to the Colombo market by other airlines, accompanied by a dramatic drop in airfares in certain markets largely contributed to the declining revenues.
The performance was further impacted by the depreciation in the exchange rate compared to the previous year, the announcement said. Notwithstanding these challenges, the airline has been able to make significant savings in controllable cost items which have also contributed to the improved performance. This has been due to increased focus on and scrutiny of costs across all areas. “The airline’s staff has come forward to make constructive suggestions towards cost saving initiatives and also worked hard at negotiating cost reductions with vendors. Given market realities, revenue enhancements are going to be challenging.
Therefore the airline will continue to work on costs, streamlining processes and improving productivity without which the airline cannot achieve financial self- sufficiency,” it said. The Restructuring Plan which was approved by the Cabinet last year recognised that, for a sustainable future, the airline needed to address certain fundamental problems. Re-structuring the fleet and addressing the issue of the A350-900 aircraft which had been ordered by the previous management was a priority. These aircraft are both inappropriate and too expensive for the airline, given the current operating environment and the excessive lease costs.
The airline said in the media statement that the company is exploring all options in this regard and hopes to continue with the acquisition of more narrow body aircraft, while delaying or otherwise changing the future wide body aircraft already committed. These negotiations are now at an advanced stage and the airline has been continuously interacting with the shareholder on this matter. The Restructuring Plan also recognised that significant route rationalisation was required given the recent unprecedented shift in the marketplace. However, the airline took a measured and phased approach towards route rationalisation, to ensure that any decisions would not have a negative impact on the tourism industry.
Therefore all changes are taking place in a phased manner with adequate notice being given to both the travel trade and our customers.
“At the same time, given the magnitude of the inherited adverse financial situation, the Ministry of Finance and the Ministry of Public Enterprises have reviewed the funding requirements for the immediate future. The Ministry has advised the airline that within the next six months it intends to re-structure the financials (including the outstanding debt) of the Airline.
The shareholder (government) has also indicated that it is exploring the option of a Public Private Partnership (PPP) for the company and has appointed a Special Committee to provide direction on the broader expectations of the Government of Sri Lanka. The airline will be working closely with the Committee, and under its guidance implementing certain steps necessary to prepare for a possible PPP. The airline expects that in this process, a clear path to a sustainable, long term future which would be in the interest of all the stakeholders will be identified and implemented within the next six months,” the release said.