By: Staff Writer
July 15, Colombo (LNW): Sri Lanka’s Commercial High Court has extended an enjoining order barring any legal proceedings to wind up the country’s national carrier, SriLankan Airlines, over a bond default, until July 30. The extension was granted following submissions by legal representatives of the airline and the Trustee of the defaulted bond, as the legal battle over a significant financial default continues to unfold.
The dispute arises from a $175 million international bond issued by SriLankan Airlines, which the airline defaulted on. With accrued interest, the outstanding claim has now ballooned to approximately $209 million.
The bond in question was issued with a government guarantee in 2019 to support the financially troubled airline’s operations. However, amid the country’s worsening economic crisis over the last few years, SriLankan Airlines has struggled to meet its debt obligations.
Lawyers representing the Trustee of the bond had earlier moved to demand full payment of the defaulted amount and signaled intentions to initiate legal proceedings to wind up the airline. In response, the legal team for SriLankan Airlines filed for an enjoining order, successfully halting any winding-up action temporarily.
At the recent court hearing, attorneys for SriLankan Airlines argued that under Sri Lankan company law, the foreign representatives of the bondholders do not have the legal standing to seek a winding-up order against the airline.
They further informed the court that the government, as the sole shareholder of the airline, is currently engaged in negotiations with bondholders in an attempt to reach a mutually acceptable solution without triggering liquidation.
SriLankan Airlines, which has been grappling with chronic losses and operational inefficiencies for over a decade, is at the center of the government’s state-owned enterprise reform agenda. The airline has posted significant financial losses year after year and was further hit by the COVID-19 pandemic and the country’s broader economic collapse in 2022, which saw Sri Lanka defaulting on its sovereign debt for the first time in its history.
The current legal impasse also raises questions about the implications for Sri Lanka’s broader debt restructuring program and its commitment to creditors. Legal experts point out that allowing SriLankan Airlines to be wound up would set a precedent with wide-ranging ramifications, particularly as the country continues to navigate a complex restructuring process with both bilateral and commercial creditors.
Meanwhile, bondholders are closely watching how the government addresses this dispute, especially amid wider privatization plans for the national carrier. The Finance Ministry had earlier announced a restructuring plan that could include strategic partnerships or full divestiture of SriLankan Airlines.
The case will be taken up again on July 30, with the court expected to hear further arguments on the legal standing of the bondholders and the government’s efforts to resolve the matter outside of litigation.
