Several firms have shown interest to buy SriLankan Airlines, says CEO

SriLankan Airlines is in a race to restore flight frequencies and increase the number of aircraft in service by replacing the ones that are going off-lease by mid-next year.

The GCC markets, especially Dubai and the UAE, remain vital for the airline to achieve at least some - if not all - of these goals, said its CEO Richard Nuttall. It will continue to be hard work as the airline has been struggling with legacy issues surrounding its financial viability.
At the same time, there is also the broader context of the country itself having to rebuild its economy.

But Nuttall is quite clear of what the airline needs to be doing. SriLankan Airlines has to double its capacities on its high demand routes. The airline operates 43 daily flights to Dubai, Abu Dhabi, Doha, Riyadh, and Kuwait, serving predominantly Sri Lankan expats.

“This is much less capacity than pre-Covid operations of twice daily flights from all these destinations,” said Dimuthu Tennakoon, Head of Worldwide Sales and Distribution of SriLankan Airlines. “Leisure traffic has to pick up because there is a growing demand for tourism to Sri Lanka from this region.”

Nuttal said SriLankan Airlines cannot copy the financial models of other carriers, especially those in the Gulf.

“We need to identify where we can compete and where we cannot,” he added. “The challenge is that there’s not enough supply of airline seats. So, the yields are quite high.

“Which actually might not be great for consumers. But it’s quite good for airlines trying to restore balance-sheets after pandemic times.”

Non-stop flights are also an advantage for some travellers, and SriLankan Airlines is focusing on flying eastwards to the Gulf where they can get their fair share of point-to-point traffic. They also plan to codeshare with Gulf carriers to boost Sri Lanka as a hub, said Nuttal.

Selling the airline?

Last year, the Sri Lankan government agreed to restructure and partially privatise several state-owned enterprises (SOEs), including the airline, with the International Monetary Fund (IMF). The first step is to find a way to restructure the company’s balance-sheet. The government established a State-Owned Enterprise Restructuring Unit (SRU) under the Ministry of Finance to help privatise SOEs working with international contractors. “At some stage during that process, we will ask for Expressions of Interest for buying the airline,” said Nuttall. When asked if any prospective buyers approached the airline for a takeover, including India’s Tata Group (the owners of Air India), he said, “There have been a couple (of buyers) who said they might be interested, but all we are saying to everyone at this moment is they need to wait until the company balance-sheet is restructured.”

“I think there is interest (to buy the airline). The Sri Lankan government would like to complete the (balance-sheet restructuring) process by the end of the year though I think that may be optimistic.”

Losing pilots

The airline is also struggling to retain talent, losing several of its technical staff and pilots to GCC carriers, said Nuttal. He explained, “It is a concern, but we’re still OK. Fleet numbers are limited at the moment. We’re starting cadet prograns, and we are recruiting expatriates.”

New fleet

The airline operated under harsh conditions last year amid scarce jet fuel supplies. SriLankan Airlines spent around $20 million on fuel in January 2022, accounting for 25 per cent of the costs.

However, when fuel prices skyrocketed in July and August, and there were supply issues in the country, fuel costs went up to over $40 million. “Currently, fuel costs have gone down to just over $30 million, and as long as they remain stable, we should be able to manage our expenses,” said Nuttal. “Any sudden and significant increases in fuel prices would pose a challenge for us as it takes time to adjust fares accordingly.”

The airline is also struggling to get its fleet of 23 aircraft back up in the air because it is finding it hard to procure engines, particularly for its A320Neos. “We have 18 aircraft flying and four that are on the ground due to engine problems and one that’s under heavy maintenance,” Nuttal said. The airline has placed a request for proposal to lease five Airbus A330 aircraft and five A320 jets to grow its fleet size to 27 by mid-2024.