SriLankan Airlines – Total Privatization Or Liquidation?
By Rajeewa Jayaweera –January 7, 2018
As customary since April 2008, national carrier SriLankan Airlines received its regular cash transfusion by way of a government negotiated loan package of USD 200 million from Credit Suisse, USD 150 million on long-term and USD 50 million on a short-term basis.
The company’s accumulated loss since September 1979 amounts to Rs 169.755 million (USD 1.095 million). The cumulative loss of USD 3.2 billion announced by Prime Minister Wickramasinghe in April 2016 probably includes the yet unpaid total cost of Airbus purchases.
According to State Minister Lakshman Yapa Abeywardana, the loan was expected to strengthen the Government’s guarantee for the ongoing discussions with several investors to run as SriLankan a Public-Private Partnership PPP). He has further stated; “the government did not intend to liquidate the national carrier under any circumstances.”
The carrier operated without Treasury handouts during the period 1989-93 when it owned most of the aging fleet and charges for three leased aircraft were low and during 1998-2008 when Emirates managed the airline. Several recent claims speak of profits of Rs 4.4 billion earned in 2007/8, the last year of Emirates management. Note 17.1 of annual accounts state; “Profit on disposal of Property, Plant & Equipment included the gain on sale and leased back of three Airbus A340-300 aircraft amounting to Rs 5.4 billion in the financial year of 2007/8.” If not for the sale of three aircraft, the company’s loss for the year would have amounted to Rs 1 billion.
The most critical and fundamental issue requiring attention is; ‘does Sri Lanka need an airline.’ It need be a rational business decision rather than an emotional decision based on archaic concepts of ‘national / flag carrier.’ Nor should it be in the context of the welfare of its 7,000+ employees. More important is that every citizen carries a debt burden of more than of Rs 8,000 on behalf of the national carrier and it is still growing.
Archaic concept of a national (flag) carrier
Except for USA who operated a CIA funded airline (Air America 1950-76) primarily for non-commercial purposes, most other western nations owned and operated national carriers. BOAC, Air France, KLM Royal Dutch Airlines, Lufthansa, Sabena, Swiss Air, and Iberia were some of the better-known carriers. Pan American, TWA (both American) and UTA French Airlines were privately owned airlines with a global reach.
Ceylon, along with many nations gaining independence in the post-WWII period, ‘aped’ the west by launching their national carriers. It was a matter of national pride for emerging independent countries. Air travel was limited to the elite and affluent. Airlines were small. Managing airlines was not complex. High airfares ensured profitability.
The 1973 Arab Israeli war followed by the OPEC oil embargo changed the world of aviation. Ballooning costs and resulting losses swamped airlines. Western governments met the challenge by privatizing national carriers and diluting government ownership by assuming the role of minority shareholders. Professional and competent non-governmental directors replaced government directors.
Freed of the burden of loss-making state-owned airlines, western governments deregulated the industry and encouraged private airlines. It helped to cater to the increasing demand for air travel albeit at cut-rate ticket prices. Deregulation resulted in the liberalization of traffic rights and the concept of ‘open skies,’ broadly considered healthy for competition, was born.
Sri Lanka, along with its neighbors Bangladesh, India, Nepal, and Pakistan and several African countries stubbornly stuck to the ‘national / flag carrier’ concept. Misplaced national pride prevented governments from visualizing the negative impact of diminishing airfares, increase in the cost of fuel, aircraft and manpower, the resulting losses and burden on their economies. Almost all such airlines became politically rather than commercially driven. Suffice to state, besides SriLankan Airlines, Biman Bangladesh, Air India, Nepal Airlines, PIA, Kenya Airways and South African Airways are all loss-making concerns today and a severe burden to their respective national treasuries. Nigerian Airways ceased operations in 2003.
