The government of Sri Lanka is moving to sell 49% of the profitable catering and ground services arms of SriLankan Airlines (UL, Colombo International) in a bid to reduce the state-owned carrier's debt levels which, Aviation Minister Nimal Siripala de Silva said this week, stand at USD1.05 billion.

"SriLankan Airlines doesn’t have the financial ability to repay the debts and lease rentals owed to the local and foreign parties, including the lessors of aircraft, and the government is not in a position to continue to fund the airline under the present environment," de Silva told a news conference in Colombo.

According to the minister, the airline owes USD446 million to local banks, USD80 million to aircraft lessors, and USD325 million to domestic entities including the Ceylon Petroleum Corporation, Sri Lanka's Airport and Aviation Services Ltd, and the Civil Aviation Authority of Sri Lanka. The airline also soon faces paying out a USD175 million bond.

The minister said the Sri Lankan government has decided to invite expressions of interest from private investors to acquire 49% stakes in SriLankan Catering Ltd. and SriLankan Cargo Ground Handling - the only SriLankan Airlines business units making money.

SriLankan Airlines Chairman Asoka Pathirage said given their track record of profits, the two business units could be worth up to USD1 billion each. The airline's catering business generated a profit of USD7.78 million in the 12 months to March 31, 2022, while the ground handling business made a USD13.95 million profit. Both business units have consistently made profits over the last decade.

de Silva added that the government would initially retain a 51% stake in both business units but maintain an arm's length policy regarding management. Funds raised would go towards paying down SriLankan's debt, with aircraft lessors and the state-owned Bank of Celyon (owed USD80 million) reportedly top of the list.

Despite an economic crisis at home and an acute shortage of hard currency reserves, SriLankan Airlines continues to maintain scheduled flights. According to ch-aviation fleets module, the carrier has 19 aircraft in service out of twenty-four in total including four of five A320-200s, one of two A320-200Ns, one A321-200, three of four A321-200Ns, three of five A330-200s, and all seven A330-300s. However, according to the carrier itself, it will return three A330-200s (aged more than 20 years) and four A320 family jets (aged 10-15 years) to their lessors in 2023 and 2024.

The government wants to privatise the loss-making airline and the aviation minister says reducing the debt load will make the airline more attractive to investors.

Meanwhile, notes of a Cabinet Meeting on August 22 published online indicate changes will be made to the country's Carriage by Air Act No 29 (2018) to release the local airline industry from some international civil aviation responsibilities per the Montreal Protocol. The government says the limitations of certain aspects of the Protocol are "an obstacle to the improvement of the aviation industry in Sri Lanka."