Sri Lanka's government taps IFC to oversee sale of SriLankan Airlines
The Sri Lankan government has chosen to overhaul state-owned firms in accordance with an International Monetary Fund programme that seeks to rein in losses from government-owned enterprises. Advisors from International Finance Corporation are assisting with the overhaul.
At the start of the year, the Sri Lankan Ministry of Finance named International Finance Corporation – the World Bank’s investment and transactions arm – as the transaction advisor for the government’s sale of its majority ownership in three state-owned enterprises: SriLankan Airlines, Lanka Hospitals Corporation, and Sri Lanka Telecom.
The Director General of the government’s Restructuring Unit, Suresh Shah, said that the planned divestitures will be important for promoting the long-term competitiveness of the companies, as well as Sri Lanka’s broader economic growth agenda.
The sell off of state-owned companies is a fundamental component of the nation’s overall plan to mitigate losses incurred by state-owned businesses, which is a critical goal under the terms of a $2.9 billion IMF loan which Sri Lanka secured.
After sending out bid documents earlier this year, bidding for SriLankan Airlines has already started. The national carrier, which has a fleet of 23 Airbus aircraft and flies to 39 destinations globally, has faced significant financial issues in recent years. These issues surged however during the Covid-19 pandemic, which brought most airlines to a standstill.
In the years since 2015, SriLankan Airlines racked up $575 million in operational losses, making it one of the country’s highest loss-making enterprises. A rebound in tourism, coupled with financial and operational restructuring has helped SriLankan Airlines to recover some ground. In its latest fiscal year, the airline did manage to make an operational profit of $93 million, according to financial data published in the bid documents.
The most likely buyer?
The objective is to conclude the sale by next June. “Interest is being shown by both aviation and non-aviation companies. They are based in many countries, including India,” Shah said in a statement.
Indeed, several Indian companies have expressed interest in acquiring a stake in SriLankan Airlines, according to media reports. The interest does not come as a surprise: nearly 20% of all tourist that arrive in Sri Lanka come from India.
Indian carriers see the opportunity to capitalise on the important India – Sri Lanka route, and some see the potential of connecting Sri Lanka through India with the wider South East Asia and Australia region. Reports in the Middle East suggest that a number of Arab carriers also have shown interest in the bid process.
Sri Lanka’s government currently holds a more-than 99% stake in SriLankan Airlines, and intends to sell a majority stake.
Shah expressed hope on a successful deal close, also pointing at the growing economic prospects in the country. “There will likely be a sharp rise in the number of flights to and from Sri Lanka in the coming years, on the back of the expansion of tourism, foreign direct investment, external trade, and our ongoing investments in Colombo airport.”