Sri Lanka Seeks Investor for Airline Mired in $3.2 Billion Debt

  • Government offers to absorb debt of money-losing carrier
  • Asks Airbus to stop production of four aircraft it ordered

Sri Lanka said it is looking for an airline or an investor to pick up a stake in its national carrier and offered to absorb its debt of $3.2 billion in an effort to revive the ailing state-run company.

“Closing down the company was not an option as it will drag down the economy and lead to the collapse of the tourism industry,” Prime Minister Ranil Wickremesinghe told reporters in capital Colombo on Tuesday. The $79 billion economy, almost a quarter the size of Singapore’s, is dominated by money-losing state-owned firms and relies mostly on tourism and exports.

SriLankan Airlines Ltd., which is facing competition from Middle Eastern operators including Etihad Airways PJSC and Emirates Airline, reported a loss of 16.3 billion rupees ($112 million) in 2015 on a revenue of 134.3 billion rupees. The carrier was mired in controversy last year when a board appointed by the government recommended a criminal probe into a $2.3 billion re-fleeting process of the airline under the former administration.

Prime Minister Wickremesinghe is also under pressure to reduce government debt after Standard & Poor’s cut the nation’s sovereign outlook to negative from stable in March, saying robust economic growth prospects are countered by high debt at 72 percent of gross domestic product.

The state carrier had 128.2 billion rupees of accumulated losses as of March 2015 and 6,987 workers on average last year, according to its annual report.

Former Chairman Ajith Nissanka Dias said in the report the fundamental question before him when he took charge in February 2015 was to determine if a “realistic and sustainable turnaround was possible.” That would be “a daunting task undoubtedly,” then-interim chief executive Rakhita Jayawardena had said.

The government also asked Airbus Group SE, the Toulouse-based plane maker, to stop production of four aircraft it ordered, and will seek buyers for some more planes ordered by the airline.

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