The Cabinet has agreed to offer a Government guarantee to the fledgling Sri Lankan Airlines to obtain a staggering US dollars 175 million-more than Rs 21.8 billion-from the Mashreq Bank in the United Arab Emirates (UAE) to pay its creditors.
This is in addition to a decision on February 13 this year by the Cabinet to invest in a five year Treasury Bond to the value of US dollars 125 million-Rs 14.2 billion- to SriLankan Airlines as equity funding. “The Bond will help strengthen the balance sheet of the airline and resolve the negative equity position which helps it to go for additional borrowings,” Civil Aviation Minister Priyankara Jayaratne told the Cabinet.
However, Mr.Jayaratne has not said in his Cabinet Memorandum how the Mashreq Bank was chosen for the loan under Islamic Shariah Compliant Facility except to point out that “The Bank of Ceylon has introduced Mashreq Bank as a potential lender.”
Thus, the process adopted for the selection and whether more favourable terms from other sources could have been obtained are not clear. “A four year term loan of US $ 175 million has been negotiated with the Mashreq Bank on the strength of the anticipated Government Guarantee,” he has added.
According to the Civil Aviation Minister, the loan will be utilized to pay creditors, mainly the Ceylon Petroleum Corporation (CPC). The SriLankan Airlines, as at February 29, owed CPC more than Rs 15 billion. He has said that the airline requires “urgent cash infusion to meet its payment obligations.”
In July last year, the Cabinet turned down a request by the Civil Aviation Minister for a Government Guarantee of US $ 250 million dollars on behalf of Sri Lankan Airlines “to obtain bridging finance from local or foreign institutions.” Then, the Treasury said that the limit on “the quantum of government guarantees was reached for 2011.”
Minister Jayaratne has said that SriLankan Airlines had begun to implement its 2011 Business Plan with a re-fleeting and modernisation programme. An overall performance report of Sri Lankan Airlines, which Mr. Jayaratne tabled, lists the revenue, direct operating costs, number of aircraft, passenger numbers and the number of flights.
In accordance with the projected revenue, the report does not refer to the anticipated losses. It is listed as “Group Surplus/(Deficit).” Here are the projections: Year 2011/12 US $ 170 Million, 2012/2013 US $ 77 Million, 2013/2014 US $ 71 Million AND 2015/2016 US $ 115 Million.
Minister Jayaratne has said that repayment of the loan will be funded by ticket sales collected through IATA, UAE, Kuwait, Bahrain, France and Britain to be channelled through Mashreq Bank.