Could an Indian airline be in race for SriLankan Airlines stake buy?
As Sri Lanka battles the worst economic crisis in its history, the government has announced that it will privatise the national carrier SriLankan Airlines. The country’s civil aviation minister Nirmal Siripala de Silva finally announced on August 30 that the process will kick off with a 49 per cent stake sale in the airline’s catering and ground handling business.
While the country has a negligible domestic aviation market due to its small geography, SriLankan Airlines is a strategic asset in feeding the country’s international tourism. The tourism industry is one of the biggest contributors to the country’s GDP, contributing as much as 12 per cent every year to it.
Over the years, SriLankan Airlines has built an enviable flyer base that ferries thousands of well-heeled western tourists and backpackers alike to the country. In 2019-20, the flagship airline carried 5.6 million passengers, mostly international. Air India, on the other hand, India’s largest international airline with four times the fleet strength of Sri Lankan Airlines carried around 7 million international passengers during the same period.
Although it has a fleet of just 24 aircraft, it was able to transport millions through code sharing agreements with various airlines that allowed it to channel traffic from 122 cities in 55 countries.
SriLankan Airlines connects to every major airport in Southern India including smaller ones in Tamil Nadu like Coimbatore, Madurai and Tiruchirappalli. Its fleet mix is composed of only Airbus wide-bodied planes like the A330s capable of making non-stop trans-oceanic journeys across the world. While much of the five million odd passengers it carries every year may not be origin-destination passengers for the country, its tickets sell cheaper than many other international carriers. This has made Colombo an important hub for connecting to Australia and South East Asia. More importantly, since neighbouring Maldives does not have its own carrier, Sri Lankan Airlines has become the country’s de-facto national carrier, ferrying many tourists via Bandaranaike International Airport to the much sought after island nation.
The importance of Sri Lankan Airlines to the country was evident by the fact that much before the present economic crisis engulfed the nation, its government had approved a capital infusion of $500 million into the airline. Out of this $225 million had already been given as loans and equity investments till April 2021. Clearly, if things hadn’t taken a turn for the worse with the nation’s foreign exchange reserves having dipped below $50 million for the first time in its history, the government had the intent to keep the national airline running.
But now, even if things improve gradually in the coming years, it would be hard to keep funding the airline’s operations. Despite its importance to Sri Lanka’s tourism sector, the airline has been bleeding money for a while. In 2019, the last pre-pandemic flying year, its losses touched a decadal high of almost $130 million. In the subsequent two years, losses have kept on mounting as the pandemic grounded flights and hit tourism hard. It has barely added any new aircraft to its fleet over the decade. Since 2019, it has reduced its fleet from 27 to 24 aircraft. It reportedly owes $1.2 billion to various banks and financial institutions.
So can any Indian carrier buy SriLankan Airlines? While the Tata group has the financial muscle, it is busy with Air India and synchronising operations with Vistara and AirAsia, its other two airlines. Indigo, India’s largest airline by market share has comfortable cash reserves but has been mounting losses since the onset of the pandemic. High aviation turbine fuel prices are battering most airlines despite impressive rebounds in revenue as domestic air travel picks up steam with removal of most pandemic induced travel restrictions.
Ajay Awtaney, aviation analyst, said, “In the next 2-3 years, there is going to be a lot of consolidation in the Indian aviation market and newer players will come in. With all the chess board moves, a lot of focus will be on the domestic market which itself is a huge untapped opportunity for Indian airlines. There is still a huge train to plane transition that is waiting to unravel and domestic carriers would not like to be distracted by going for SriLankan Airlines. If the move of selling SriLankan Airlines does go through, I expect any of the West Asian airlines or alliances like the International Travel Group (IAG) to go for it.”