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SriLankan ‘technically’ insolvent

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Sri Lanka’s state-owned flagship carrier, SriLankan Airlines (SLA) is presently technically insolvent (though not legally) as it is in a negative working capital position, the report by the Board of Inquiry (BoI) has outlined. According to the report, the total liabilities of the airline as at 31st January 2015 amount to Rs. 160 billion approximately, of which current liabilities stand at Rs.109.5 billion while Current Assets are a mere Rs.57 billion.

“It is important to realize that the company is technically (not legally) insolvent with a gross negative situation in net current assets and total debts far exceeding its equity resulting in a negative working capital position,” the report released by the four member investigation panel headed by J.C. Weliamuna has stated.
The report notes that the Company’s total liabilities at 31st March 2014 had however stood at US$ 124 billion of which the current liabilities amounted to Rs. 71, 346 million while current assets stood at Rs.54, 905 million.

“It is also important to realize that the serious loss of capital of the company. It is noted that the SLA could not meet the covenants of the bridging finance facility taken for Mashreq and this has compelled the company to substitute the loan using Treasury bonds,” the report said indicating the struggle the airline had underwent to meet its previous debt obligation.

The report further alleged that the airline’s management in 2011 had made a seriously wrong decision to pursue a re-fleeting exercise at a time when its Financial Position was critical with financial position score at a negative 1.85.

“Re-Fleeting and Financing of new Aircraft acquisitions for Sri Lankan Airways was entered into during the period 2010 - 2013, when the Airline had substantial accumulated losses and there appeared to be no real hope of breaking - even and moving to profitability in the very short term. A colossal capital commitment of approximately USD 2.3 billion or approximately LKR 290 billion on the Re-Fleeting and Financing of new Aircraft acquisitions for Sri Lankan Airways was entered into during the period 2010 - 2013, when the Airline had substantial accumulated losses and there appeared to be no real hope of breaking-even and moving to profitability in the very short term”.

“Currently Rs.105 billion of Accumulated losses & Rs.65 billion of Negative Net Assets only show a further slide downwards in the Airlines profitability and financial status from then. At these levels of operation, the big question now is how the Airline would meet all  Lease payment when they fall due in the future. It is important to realize that in addition to the white body aircrafts, SLA is committed to purchase narrow body plans and this led the SLA to a grave situation,” the panel observed.

Consequently, the investigators have concluded that there is prima facie evidence to initiate a high level criminal investigation into the entire re-fleeting exercise although there is no material for the BoI to point to specific individuals.



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