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Top contender flies away; SriLankan Airlines rescue bid grounded
The Government is in a quandary over debt-ridden SriLankan Airlines after Texas Pacific Group (TPG), the only credible contender for a public-private-partnership (PPP), said it was not interested.
Prime Minister Ranil Wickremesinghe has now summoned three ministers for a meeting at 10am tomorrow. The struggling national carrier faces a particularly difficult year in 2018 with rising fuel costs and interest on debt hitting US$ 55 million. Employee salaries are also set to rise as collective bargaining agreements with eight unions are up for renewal.
Development Strategies Minister Malik Samarawickrama, Public Enterprise Development Minister Kabir Hashim and Special Projects Minsiter Sarath Amunugama are expected to explore with the Prime Minister what options the Government has to reduce the burden of running the airline.
“They are looking to Emirates again, as well as Air Asia and Qatar Airways,” an authoritative source said. Emirates President Tim Clark was roped in for discussions during a recent private visit but had said his company was no longer interested in investing in a stake in SriLankan.
He had offered to send a proposal for a possible management deal but has still not delivered. Minister Samarawickrama has also met him several times in Dubai.
Private equity investment firm TPG was one of three shortlisted bidders for a 49-percent stake in SriLankan Airlines. The others were Super Group Partners and Peace Air. While TPG was found to be the contender with the best proposal, it backed out of the race after conducting a due diligence.
“TPG saw it would need a lot of resources to turn the company around,” an authoritative source said. “The returns and the anticipated timeline were not attractive enough for them to invest the money. They had a three to five year time line. It would have taken much longer.” TPG has promised SriLankan Airlines a report on its findings.
The Government had hoped to offload the airline to an investor who would help reduce its involvement, particularly financially. With the PPP option failing, however, the administration is now taking the route of direct discussions, State Enterprises Deputy Minister Eran Wickramaratne said.
Some international operators have been identified. “We will try and see if there’s a fit between them and us, in terms of their strategy and what SriLankan can do,” Minister Wickramaratne explained. “Markets have changed globally from twenty years ago. Aviation is a highly competitive industry and airlines are losing money.”
“Generally speaking, there is very little money on the table in terms of investment dollars,” he said. “We have to look at models outside of that. It can be management or alignment of strategy. We cannot look at traditional options.”
It had been necessary to go through an open and transparent PPP process, however, to avoid allegations of foul play. But no significant airline showed an interest in the proposal. The Government’s objective now was to get SriLankan’s losses down and get it past break-even, the Deputy Minister said.
“And that is not a situation of simply getting your internal management right and you’ll be okay,” he maintained.
SriLankan announced its initial 2016/2017 results this week. Based on draft unaudited accounts, the company said its total operational revenue increased to Rs 136.68 billion from Rs 129.48 billion. However, difficult market conditions resulted in the airline recording an unaudited net group loss (before finance and one-off charges) of Rs 6.49 billion (USD15.12 million) for the year.
This is an increase from the loss of Rs 2.90 billion (USD 3.15 million) recorded in the prior year – but a significant improvement from the deficit that had been budgeted for the year, the airline said in a statement.