Selling a troubled airline
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Last week’s headline in this column ‘Scraping the barrel’ hit the nail on the head when it comes to foreign reserves. While the ‘gross official foreign exchange reserves’ were US$1.8 billion in April, the usable reserves (amount available to be used freely for any import or transaction) were less than $5 million! We are literally scraping the barrel when it comes, not only to forex reserves but also cash flows for local expenditure.
In the meantime, the Central Bank announced on Thursday, after a routine interest-rates policy review meeting of its Monetary Board, that it was leaving unchanged, the interest rates. Last month, in a decision that stunned the market, the Central Bank increased by 7 per cent, interest rates to 13.50 per cent and 14.50 per cent – aimed at curbing inflation and promoting more savings.
As I dwelt on these issues, the phone rang. It was my jolly economist friend, Samiya (short for Samson) on the line.
“Hello, hello….how are you,” I said in a warm welcome.
“Fine…..fine. I see, according to Prime Minister Ranil Wickremesinghe’s statement, that SriLankan Airlines is once again up for grabs. I mean the government wants to sell it,” he said.
“This has been debated for many years but nothing has been done, ever since the hugely-successful Emirates Airlines exited from a management agreement and partly-owned stake. The national carrier is bleeding money and that’s why the new PM must be seeking to secure some foreign exchange through selling a stake in the airline in addition to offering management control,” I said.
In a statement last week, soon after he assumed office as Prime Minister, Mr. Wickremesinghe said: “I propose to privatise SriLankan Airlines which is incurring extensive losses. The loss for the year 2020-2021 alone amounts to Rs. 45 billion. By 31st March 2021, the total loss was Rs. 372 billion. Even if we privatise SriLankan Airlines, this is a loss that we must bear. You must be aware that this is a loss that must be borne even by the poor people of this country who have never stepped on an airplane.”
The airline has been in negative territory for many years but on April 18, 2022, it ‘happily’ reported that it had recorded its first profitable fourth quarter (Q4) since 2006 for the financial year that ended on 31st March 2022 with a group net profit of $1.7 million despite pandemic challenges.
However, the statement steered clear of accumulated debt since April 2008 after Emirates exited from management and part-ownership.
The airline has been losing money for many years and even during the Maithripala-Ranil alliance in government in 2015-2019, there had been discussions on privatising the airline which didn’t make any headway.
According to the airline’s annual reports, in 2007/2008 (under Emirates management), it showed a net profit of Rs. 5 billion, while in the following year (after Emirates’ exit) the loss was Rs. 10 billion. The accumulated losses continued to rise over the years with 2018/19 recording a negative Rs. 41.7 billion; in 2019/20, Rs. 44.1 billion; in 2020/21, Rs. 50 billion; and now an accumulated loss (accounting for over the years) of Rs. 372 billion.
The airline should never have exited its arrangement with Emirates, the world’s most successful airline, in April 2008 and ironically the reason for this is Mahinda Rajapaksa, the then President, once again this time in the centre of a storm – after his supporters came out after a meeting at Temple Trees last week and attacked peaceful protesters demanding the Rajapaksa family resign from their positions.
The parting of the ways in 2008 came because the airline refused seats to an entourage of Mr. Rajapaksa who was visiting Britain. Angered by the snub, President Rajapaksa ordered the government to exit the relationship and take over control. The government also revoked the work permit of Peter Hill, the Chief Executive Officer of SriLankan Airlines, who was seconded from Emirates.
As stated earlier, the debate over privatising SriLankan Airlines has been in the air for several years but no progress has been made in bringing in a management partner and/or selling a stake in the state-owned company.
Emirates paid $70 million for the stake in the airline then and when exiting the relationship said it was looking for about $150 million to sell its then-44 per cent stake in the airline.
SriLankan hit the headlines recently after it announced that it was seeking offers to lease up to 40 aircraft, a move that was protested vigorously by opposition politicians and others. The Parliamentary Committee on Public Enterprises directed the airline to delay the process by three months, in view of the country’s dire economic situation and the airline agreed to postpone the move.
The accumulated debt and unviability of running a national carrier comes just as forex-starved Sri Lanka is discussing a bailout package with the International Monetary Fund (IMF) in the hope it could secure $4 billion in assistance. Among conditions by the IMF in past agreements have been to either transform loss-making enterprises into profitable centres or sell them, eliminating the government burden of funding unviable ventures.
As I ended the discussion with Samiya, the trio was under the margosa tree discussing, as usual, the country’s crisis.
“Mama hithanawa, aluth agamethi Ranil Wickremesingheta amaru-wei kiyala parlimenthuwe athule saha eliye sahayogaya labaganna rate thiyena arthika prashna wisanda ganna (I think the new Prime Minister Ranil Wickremesinghe will have a hard time in getting support within and outside Parliament to solve the economic problems of the country),” said Kussi Amma Sera.
“Eyage palamuweni kaaryaya wenna visadum hoyanna, janathawata indana saha uyana gas laba denna saha kalakirana polim adu karanna. (His first task should be to find solutions to provide fuel and cooking gas supplies to the people and reduce queues which are very frustrating),” noted Serapina, who had incidentally waited in a queue for cooking (LP) gas for many hours and returned home empty as the dealer didn’t get any supply.
“Egollo ‘Gotagogame’ inna virodatha-karuwanta apahu pahara dena ekath walakwanna oney (They should also prevent any further attacks on ‘Gotagogama’ protesters),” added Mabel Rasthiyadu.
An example in the region of selling a national airline was when India’s national carrier, Air India, was handed over to the Tata Group, which bought the debt-ridden airline for nearly $2.4 billion in October last year.
Will the authorities here similarly succeed? A success story in Sri Lanka of a viable privatisation was when Sri Lankan Telecom sold a near 50 per cent stake to a Malaysian entity. The telecom firm has been doing well since then. Similar to India, will Sri Lanka be able to find a buyer for its airline? Only time will tell.
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