SriLankan Airlines Bleeds as State Control Blocks IMF-Backed Reform

Sri Lanka’s national carrier, SriLankan Airlines, has plunged back into heavy losses, reigniting debate over the government’s continued refusal to restructure the debt-laden airline despite International Monetary Fund (IMF) recommendations for reform and divestment.

The airline’s annual report for the year ending 31 March 2025 reveals a Rs. 2.73 billion net loss, a sharp reversal from the Rs. 7.9 billion profit recorded the previous year a 134% year-on-year decline. Total revenue fell by nearly 11% to Rs. 303 billion, weighed down by a 15% drop in passenger income, driven by reduced capacity, lower global yields, and a stronger rupee.

Acting CEO and Group CFO Yasantha Dissanayake acknowledged that unscheduled engine repairs and net finance charges of Rs. 31.6 billion worsened the bottom line. While the cargo division showed a modest 2% growth due to strategic pricing, and ground handling income rose 16%, these gains were insufficient to offset the airline’s heavy financial and operational burdens.

The balance sheet paints an even bleaker picture: shareholders’ funds remain negative at Rs. 379.5 billion, while total assets have fallen to Rs. 189.2 billion. Compounding the crisis, $211.57 million in international bonds guaranteed by the government remain in default, with unpaid interest of $36.57 million.

In June 2025, the bond trustee’s delegate issued a statutory demand requiring full repayment by 2 July 2025, warning of a possible winding-up application if SriLankan failed to comply. The airline sought and secured an injunction from the Commercial High Court, supported by the Attorney General’s Department, which argued that “no cause of action” had arisen to justify liquidation.

Despite the looming financial pressure, the government has opted to maintain full state control over the carrier, deferring a long-delayed IMF-recommended restructuring plan that includes partial privatization and operational reform. In 2025, the Cabinet appointed Lazard Frères SAS as the airline’s international financial adviser and Norton Rose Fulbright LLP as legal counsel to negotiate with bondholders. However, officials indicate the government intends to retain ownership, citing “national interest,” even as debt negotiations stall.

Analysts warn that continued state control could deepen fiscal risks and derail the broader IMF-backed economic recovery. S&P Global Ratings recently noted that while Sri Lanka has made progress in restructuring sovereign debt, unresolved liabilities of state-owned enterprises (SOEs) particularly SriLankan Airlines pose ongoing challenges to macroeconomic stability.

IMF officials have repeatedly urged the government to reduce losses from state enterprises through restructuring or divestment. However, political reluctance and resistance from trade unions have left the airline trapped in a cycle of losses, debt rollovers, and bailout dependence.

With $175 million in outstanding principal still under negotiation and global aviation competition intensifying, SriLankan Airlines’ future hangs in the balance caught between IMF reform imperatives and a government intent on preserving control, even at a mounting public cost.