The Sundaytimes Sri Lanka

SriLankan awaits $176m loan; Mihin seen easing out of debt by 2013


SriLankan Airlines awaited a US$ 175 million loan from Mashreq Bank next week while its budget carrier Mihin Lanka was in discussion with the Treasury to find ways of pulling out the loss-making airline from the red  next year – by clearing all debts.

“We’re getting US$ 175 million from Mashreq Bank next week which we’ll use to settle the US$ 100 million outstanding we have with Ceylon Petroleum Corporation (CPC) and then on a priority basis we’ll pay off the other debtors,” Nishantha Wickremasinghe, Chairman SriLankan Airlines and also Mihin Air told the Business Times. He added that Mihin is burdened with debt and this low cost carrier’s earning capacity is limited as it has only two aircraft.

“We’re discussing with the Treasury now on how to clean Mihin’s balance sheet,” he said, explaining that amongst the options discussed is converting Mihin’s debt to equity. “There are many more such options that are being discussed – all of which we are exploring,” he added. He said that the Mihin debt using one of these options will be done this year and that by 2013 Mihin will be debt free.

Escalating fuel prices, Mr. Wickremasinghe said have a major impact on SriLankan’s profitability as fuel consists of two thirds of its direct operating cost. “When fuel prices escalate, all carriers don’t react in the same manner. Some large network carriers use it as an opportunity to gain market share by keeping their prices low and even operating at a loss. Increasing competition from such very large network carriers places us in a position where it is difficult to maintain our fares, which in turn results in lower revenue and consequently impacts our profitability,” he explained. He added that by paying their oil bill, SriLankan hopes to extend credit facilities from CPC.

He said that SriLankan’s medium term strategic business plan include re-fleeting and fleet expansion, cabin upgrades, careful choice of new destinations, selective expansion to existing destinations, increasing cargo volumes, etc. “Post war demand for air travel in Sri Lanka has been growing and the airline is ahead of its business plan in terms of the fleet expansion. According to our business plan, at the end of 2013 we were to have 22 aircraft, and were expected to have 23 from 2014 – today we already have 21. If the positive trends continue we will induct more aircraft and grow the fleet even beyond what was envisaged in the business plan,” Mr. Wickremasinghe added.

Sri Lankan operates an all Airbus fleet comprising six A 340-300 aircrafts, seven A330-200/243 and eight A320-200 aircraft.
Mr. Wickremasinghe noted that SriLankan posseses an extended home market consisting of the Maldives and South India where it commands a strong presence and brand. He said that pulling out of certain routes was also done in line with the business plan and that these routes will be returned to during heavy traffic seasons – such as during the holidays. Zurich in Switzerland is such a route, he said. “We can’t develop the market with only two flights a week (such as Zurich) – at least we need four flights a week,” he said, adding that SriLankan Airlines will make an alternate arrangement for its Zurich passengers with another airline on a pro-rated payment to a nearby destination.

He reiterated that this is a temporary arrangement. “We’ll return to Zurich in winter as there’s a good tourist potential,” he said, adding that this month SriLankan will fly to Beijing and Shanghai on a daily basis. He also noted that they haven’t decided to cancel Rome and Milan (Italy) flights. “Any decision to cancel or reduce flights to/from a particular destination is taken primarily based on commercial considerations, but   quite often there are other factors which may have to be considered – such as the importance of a particular destination from a bilateral perspective and the need to support the key tourism markets,” he explained.

He added that a number of destinations are under consideration including second tier airports in South India. “For the present we will be concentrating on increasing frequencies to our existing destinations. Destinations in other SAARC countries (such as Kathmandu and Lahore) are also under consideration” he added, saying that operations to Seoul will start in December this year. The airline has increased frequencies to its existing destinations in Japan.

Mr. Wickremasinghe said that up to now SriLankan hasn’t worked out a ‘truly promotional’ package with Sri Lanka Tourism (SLT), but a proposal was given by the airline to SLT to promote China. “A similar thing will be done for the Middle East,” he added. He said that SriLankan plans to start operations from Mattala which includes a catering facility worth Rs 150 million. “Also we plan to join with Germany’s national carrier Lufthansa’s technical arm, Lufthansa Teknik to set up a MRO – a Maintenance, Repair and Overhaul shop,” he said, adding that this too will be set up at Mattala. He said a Lufthansa team just completed a feasibility study on this project. “Gradually, we will develop Mattala as a second hub.”

On average SriLankan carries 9500 passengers daily. For the year ended 31st March 2012, SriLankan carried 3.5 million passengers.

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