By: Staff Writer
April 15, Colombo (LNW): SriLankan Airlines is poised for a major turnaround with an ambitious plan to double its fleet over the next five years, despite lingering uncertainty over its privatization. This move aligns with a broader strategic vision aimed at revitalizing the national carrier after years of financial struggle, legacy debt, and operational challenges.
While the airline has achieved operational profitability in recent years, it continues to face a significant debt burden. CEO Richard Nutall, speaking to Bloomberg, emphasized the importance of leasing new aircraft and receiving continued government support to sustain operations. The government, after previously exploring privatization, has now opted to retain state ownership while pursuing alternative restructuring strategies.
A revised business plan, approved by the airline’s board, outlines a comprehensive five-year transformation strategy. Although SriLankan Airlines recorded a pre-tax loss of Rs. 1,960 million between April and October 2024—contrasting sharply with the Rs. 4,133 million profit during the same period in 2023—the government stepped in with a Rs. 9.8 billion equity injection to ease its cash flow constraints. Additionally, efforts are underway to restructure a sovereign-guaranteed $175 million international bond, though specifics remain pending.
The new restructuring plan, crafted by global aviation expert Sanjana Fernando, aims to streamline operations through fleet optimization, route rationalization, and partial public listings. Unprofitable routes—especially 15 loss-making Indian destinations—will be discontinued, potentially saving $400 million in direct operating costs and $30 million in ancillary expenses annually.
Key to the plan is the transition to an all-wide-body fleet, which is expected to reduce operating costs by $90 million and crew-related expenses by $20 million per year. This shift will also allow the airline to maximize cargo capacity, which strongly correlates with route profitability.
Furthermore, the airline plans to list 49% minority stakes in its lucrative ground handling, catering, and engineering subsidiaries on the Colombo Stock Exchange, with the goal of raising $150 million. These funds could alleviate the financial pressure caused by a $179 million backlog in unpaid invoices and the airline’s Rs. 177 billion debt load as of March 2024.
Although the first year of the plan is projected to incur a $31 million loss due to lease terminations, profitability is expected to follow, with projected earnings of $35 million in the second year and $55 million by year five. Even with revenue estimated to drop to $433 million—down from over $1 billion in FY2024—the plan targets healthy profit margins between 8-10%.
Nonetheless, the airline’s revival hinges on political backing and avoiding past missteps, such as the costly cancellation of A350 orders in 2015, which resulted in Rs. 12.6 billion in penalties. Addressing systemic issues—political interference, inefficient decision-making, and an overstaffed workforce—remains critical to success.
The plan also includes shifting from a hub-and-spoke model to point-to-point operations, while focusing on high-yield cargo and long-haul routes. With India being Sri Lanka’s top tourist source market, the airline’s connectivity remains vital to tourism, accounting for over 25% of arrivals.
The five-year business plan is currently being finalized, and an implementation team will soon be appointed, pending board approvals.
