Sri Lanka’s Ministry of Finance, or Treasury, will likely take over the USD1 billion debt that SriLankan Airlines (UL, Colombo International) owes, and the government will soon start looking for an investor for the troubled carrier, according to Sujeewa Rajapakse, chairman of the state-owned commercial bank the People’s Bank.

He provided these details without elaborating during a news conference on the broader issues surrounding the country’s struggling banking sector, after the Treasury had moved to take over more than one billion dollars in debt that the Ceylon Petroleum Corporation (CPC) owed to the People’s Bank, Ceylon Today reported on February 21.

He said that the People’s Bank had stopped lending to SriLankan Airlines but assured that the state-run flag carrier was also working to settle its loans, Sri Lanka’s Sunday Times newspaper reported, again without further elaboration.

In December 2022, it emerged that SriLankan Airlines had failed to repay installments for up to five years on loans obtained from local financial institutions dating back to 2016 and 2017. As of the end of March 2021, the total amount owed and unpaid was LKR71.62 billion rupees (USD210 million).

It has also been revealed that the carrier has an outstanding USD300 million debt to both state-owned commercial banks the Bank of Ceylon and the People’s Bank, plus USD325 million owed to both the CPC and Airport and Aviation Services Limited, the country’s state-run airport operator.

No bank loan defaults

In an interview on Bloomberg TV on February 28, SriLankan Airlines CEO Richard Nuttall clarified that the company had not defaulted on any of its bank loans and had met the interest payments but had not been in a position to pay back the principle amounts - a debt the government is in the process of restructuring with the local banks.

“The government is going through a process with the IMF, they’re looking to privatise many of the state-owned enterprises, and that includes the airline, and the first step is to find a way to restructure the balance sheets. But that’s a work in progress and we’ll have to see what the Ministry of Finance has to say about it. But we’re part of a national restructuring of state-owned enterprises.”

Quizzed about the possibility of filing for creditor protection, he responded: “There’s no equivalent of Chapter 11 in Sri Lanka at the moment, so that’s not an option.” He added: “We have an airline that brings in, in round numbers, a billion dollars in revenue a year. Most of the traffic we bring comes to Sri Lanka, it’s critical to the Sri Lankan economy. As an airline group operation, we plan to make about USD100 million return this year, but it’s all going into servicing past debts and has very little to do with running the airline today. If we can restructure the debt, we have a very rosy future.”