The Turnaround of Srilankan Airlines

In April 1998, the Government of Sri Lanka took the first step toward privatization of the airline and sold 40% of its stake to the Dubai-based Emirates Airlines (EA) for US$70 million. Though the Government still retained a majority stake, it ceded full management control to EA through a ten-year management agreement. This step was taken to infuse much needed investment and management expertise in the airline. EA also received exclusive rights (till 2008) for all ground handling and airline catering operations at Colombo's Bandaranaike International Airport, Sri Lanka's only international airport at that time. However, the privatization was not a smooth affair as the unions and some politicians were opposed to it.

The composition of the fleet was also revamped with its ageing TriStar planes being replaced by an all Airbus fleet.⁷ Subsequently EA increased its stake in SLA to 43.6%. The Government also awarded a certain percentage of shares to SLA's employees in proportion to their years of service.⁸ Even after privatization, the financial results were not upto expectations. Though there was a 25% increase in revenues, the airline's losses increased from Rs 750 million (as on March 31, 2000) to Rs 6.5 billion (as on March 31, 2001). Many industry analysts watched these developments closely as this was a unique case where a profitable and growing airline (EA) was trying to turn around a loss-making government-owned airline (SLA)...