The Minister of Aviation, Nimal Siripala de Silva, recently announced that the Government would take over 210 million in dollar loans and 41.4 billion in rupee loans borrowed by Sri Lankan Airlines from state-owned Bank of Ceylon and Peoples’ Bank.
Sri Lankan Airlines is bankrupt. No buyer will be prepared to take on both a loss-making airline and such large debts. Therefore, these debts must be absorbed by the Government with the burden passed on to taxpayers to enable the sale of a loss making SOE. It is a necessary part of the restructuring process.
Yet it’s also imperative that the Government disposes of the airline as quickly as possible to avoid future losses burdening Sri Lankan taxpayers.
If not sold quickly, it will establish a dangerous fiscal precedent with other viable SOE’s clamoring for taxpayer-funded relief.
As long as it remains in the State's hand and continues to make losses the accumulation of debt will continue. In 2023 SriLankan reported losses of LKR 73.6 Bn, which is equal to approximately 40% of the budgetary allocation for education.
Drawing parallels to our neighbors across the Palk Strait, the Indian government was forced to take similar measures during its sale of state-owned Air India which had also racked up billions of dollars in debt.
There was an absorption of approximately US$6bn (75 percent of its then outstanding debt) prior to the sale, making it a much more attractive
package to the investor.
Sri Lankan Airlines has an outstanding total debt of US$1.2bn before the aforementioned absorption of US$510mn, a gigantic burden that can no longer be borne by the State.
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