‘National carrier matters, but profitability matters more’

By Sanath Nanayakkare

Delaying the privatisation of SriLankan Airlines will not help, however the steps towards privatisation of the national carrier should be taken in consultation with international experts who understand the aviation industry, Thilan Wijesinghe, Chairman and CEO of TWCorp (Pvt) Ltd., said at ‘Let’s Reset Sri Lanka –Reform Now’ conference hosted by Advocate Institute, recently.Thilan who is knowledgeable about many aspects of SriLankan Airlines’ operational outlook said so responding to a query on how debt-laden SriLankan Airlines can attract potential buyers to push a privatisation process forward.

“We need to enhance value within Sri Lankan airlines within a short term. However, some of the recommendations made to achieve this objective may become contentious; for example, extending the ground handling for a limited period of time and what sort of charges to be levied for budget carriers. We need to understand that airlines’ ground handling and catering have different valuation principles. So bundling all these together and saying that we want to attract a strategic investor won’t work. First and foremost, we must generate separate PnLs (profit and loss) in order to obtain the optimum valuations and that is a job for specialists,” he emphasised.

Elaborating on the topic he said:

“SriLankan ground handling and catering operations are the profitable ones, and then you have the bilateral routes where open skies policy applies, to China, India and Europe. What is really important is to essentially demonstrate that the government has thought through a path to profitability and present that particular forecast. It can be made with experts in order to show the potential investors that a path of profitability for SriLankan Airlines is in fact available as and when Tourism turns around.”

“Why should a State have a national airline? Data has shown that for each dollar an airline brings in as revenue from a tourist, it actually generates four dollars of benefit to that country. But can it justify the losses that Sri Lankan Airlines has been incurring? No. So the overall strategy still holds true even today for privatisation of Sri Lankan airlines. We failed in our attempt to privatise it during the government of 2015-2019 primarily on account of issues that arose due to Easter Sunday attack, and secondly, the infamous 52-day constitutional crisis after which the board and the chairman were changed. Also there were policy and administrative delays and thus SriLankan remains as an airline owned by the State to date. However, the overall privatisation strategy of the Airline remains the same. First and foremost, what should be the vision to retain and have a national carrier hopefully under private ownership in the not too distant future? So one of the key visions decided at that time was that SriLankan Airlines should follow what is called a ‘value model ‘which is something in between a legacy carrier and a budget airline while focusing on regional markets because we have to compete with Emirates and Qatar Airlines,” , he said.

“I was involved with the privatisation of SriLankan Airlines in 1998. At that time we issued requests for proposals and three bids; from Emirates, French Airlines and Korean Air. It was decided by PERC to go ahead with Emirates which made the highest offer, and thus a 44% stake of SriLankan Airlines was divested for USD 73 million on a 10-year management contract where the chairman of SriLankan Airlines would be appointed by the government and there would be certain checks and balances imposed under the management contract. Board control remained with the government particularly in order to retain the national-airline- status.”

During his presentation, he showed a slide to the audience containing SriLankan Airlines’ performance during its Emirates partnership and after the government acquired all the shares of the airline from Emirates in 2008, implying the fact that ‘a national carrier matters, but profitability matters more.”

Thilan Wijesinghe, one-time chairman of the BOI, co-founded Asia Capital PLC in the early 1990s which became Sri Lanka’s largest investment bank and stockbroker during this time, executing several landmark acquisition and IPO deals. He was also a founder director of PSIDC , a government owned company funded by the World Bank and ADB that was set up to provide long term loans for PPP infrastructure projects.