Sri Lankan Airlines in Deep S**t !!

AFP News Item

A US equity firm that bid to buy a stake in Sri Lanka’s loss-making national airline has pulled its offer, officials said Saturday as the carrier scrambled for a new partner. TPG, a San Francisco-based private equity firm, has withdrawn its bid for a 49 percent stake in Sri Lankan, dashing hopes of a quick revival of the airline. “After completing the due diligence, regrettably TPG have informed us they will not pursue a potential investment in Sri Lankan airlines,” Sri Lankan Chairman Ajith Dias said in a memo to his staff. “It is their opinion that allocating the human and financial resources to make the airline profitable will not realise sufficient returns compared to the many other investment opportunities that are available to them,” Dias said. There was no immediate comment from TPG. Chairman of Sri Lankas national carrier Sri Lankan Airlines Ajith Dias addresses journalists during a press conference in Colombo on October 5, 2016. (ISHARA S.KODIKARA/AFP/Getty Images)

Sri Lanka’s flag carrier has accumulated debts and losses of over $2 billion. Talks are now underway with Dubai’s Emirates, which had managed and owned a minority stake in Sri Lankan for a decade and was interested in a new management deal, official sources said. There was no immediate comment from Emirates.

Sri Lankan was profitable before Rajapakse cancelled a management agreement with Emirates in 2008 following a personal dispute. The carrier had refused to bump fare-paying passengers and give their seats to Rajapakse’s family members. An angry Rajapakse removed the Emirates-appointed CEO of Sri Lankan from the post and replaced him with his own brother-in-law, who had no airline experience, and is now under investigation for corruption.

Late last year, in an effort to cut costs, Sri Lankan cancelled the previous government’s order to lease four brand new Airbus A350-900 long-haul aircraft after paying a penalty of $115 million to aircraft leasing giant AerCap. A separate order for four Airbus A350-900 planes will also be cancelled, the government has said. Rajapakse had ordered all eight planes as part of a $2.3-billion re-fleeting programme for the airline, which is now being investigated for corruption.

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 Wade Shephard:  “Sri Lanka’s Mismanaged, Cash-Hemorrhaging Airline Is For Sale (And There Are Actually Takers),,”  7 October 2016,  https://www.forbes.com/sites/wadeshepard/2016/10/07/sri-lankas-mismanaged-cash-hemorrhaging-airline-is-for-sale-and-there-are-actually-takers/#7ec0abad263f

I travel to emerging markets around Asia and report on what I find. SriLankan Airlines used to make money. The national carrier was a profitable airline for the ten years that it was operated as a joint venture with the Dubai-based Emirates Airline. Then Emirates sold its share in 2008, and one year later the financial downward spiral for SriLankan began.

Seven years later, SriLankan Airlines has racked up $3.25 billion in debt, and over the first three months of this year alone its losses have been in the ballpark of $112 million. In May, the Sri Lankan government announced that it would be selling four of its new Airbus A350s, and orders for four more were canceled, which resulted in a $170 million penalty.

In March, it was announced that Sri Lanka was looking for foreign investors interested in taking over their their beleaguered, debt-laden national carrier. In July, the government began taking offers for a 49% share and management control of the airline. According to the government, this is part of a broader strategy to privatize state companies and reduce national debt, but it seems more like a Morse code operator feverishly ticking out S-O-S aboard a sinking ship.

Sri  Lankan Airlines has long been criticized for mismanagement since splitting from the joint venture. From appointing “unqualified political lackeys” to positions of power — which included then-president Mahinda Rajapaksa’s brother-in-law, who served as the airline’s chairman — to said former president using the airline as his personal charter service, to buying unneeded aircraft, to generally poor business decisions, Sri Lanka has struggled to profitably run the airline that bears its name.

This issue was no better manifested than the government forcing the airline to operate a second hub at Mattala International Airport between 2013 and 2015. This was Sri Lanka’s second international airport, which was built next to an elephant preserve in remote Hambantota — the site of a large-scale, multi-faceted development endeavor that has yet to gain momentum. This world-class airport lacked nothing except passengers, and was mainly used as a transit hub. According to a government report, an average of just seven passengers per flight were being served at Mattala throughout 2014, and stories abound about how planes would touch down there to neither pick up nor drop off anyone. Needless to say, this second, reportedly unneeded, hub hemorrhaged cash for SriLankan Airlines, and today the government is also looking for foreign companies interested in taking the entire loss-generating airport off their hands.

 That said, half a dozen firms have submitted offers to take the Sri Lankan government up on their offer. Namely, the private equity firm TPG and BlackRock have shown interest in taking over SriLankan. The “winner” will be selected within a couple of months, according to a senior finance ministry official.

Apparently, SriLankan Airlines still has promise and may be salvageable. It has a fleet of 21 leased Airbus planes, attractive routes to India, and is based out of a country that is becoming a prime international tourist destination.

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Filed under accountability, economic processes, politIcal discourse, power politics, Rajapaksa regime, sri lankan society, vengeance, world affairs

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