Aircraft, parts shortage hinder aviation industry’s growth plans: SriLankan CEO

The aviation industry in this part of the world and elsewhere is facing challenges getting fleet back in the air and getting people back on aircraft. Everybody wants to travel much faster than everybody expected, propelled by trends like revenge tourism. For airlines everything has been constrained. Costs have been high but yields have also been very high, which actually helped people sort of restructure and get themselves back on their feet after Covid-19.

If you look around the world, traffic now is, in most places if not everywhere, very close to where it was pre-Covid. But there are some challenges. Fuel price remains high, not quite high as last year but still high and going up. If you want to buy a new aircraft now you’re on the waiting list for five years. Everybody’s got problems with getting spare parts and with the supply chain. Everybody put everything on the ground during Covid and because everybody’s trying to restore everything at the same time. Because those engines have not been as reliable as expected. It means they need to have twice as many visits to the shops. The shops haven’t expanded during Covid. People have left the industry, nobody is training.

Everybody’s having major problems catching up. The capacity constraint is going to remain for a little while longer. Obviously, it’s gradually lessening. There are some markets where they’re staying high, but in other markets now they’re beginning to sort of soften. We’ve had the wave of revenge tourism, and people are gradually getting their fleet back.

At SriLankan, it pretty much mirrors the global situation. We are trying to get back to the fleet of 27 aircraft that we had pre-Covid. It’s challenging getting the aircraft. But we’re making slow progress and we’re getting that. And after that we’re going through our restructuring process with the government. We should be having a fleet of 35 to 40 aircraft within three to five years. That’s what the market really demands. At the moment, we are flying 23.

We’ve got approval from the government to source up to 27, which we think will take until the middle of next year. And as we get through that, we’ll start asking for more. It’s really interesting times in this part of the world. We carry 40,000 passengers a month from India pre-Covid. Now we’re back to maybe 60 per cent of that. We should be double that number. We should get 100,000 a month from India.

We broke even and made a turnover of about $1 billion in 2022-23. We forecast to make profits this year. We are delivering profits so far. The biggest challenge we have is more cash flow, where we’re still playing catch-up from the debts. We are gradually restructuring that. We are looking at a growth of about 10 per cent. It all depends on the number of new aircraft that we can get. If they arrive sooner, our capacity goes up and our revenue goes up. Middle of 2024, we might be 24-25 aircraft.

We have a lot of tourists coming from India. But we do much beyond that. We carry 40,000 tourists from India. Historically we connect Europe to the Middle-East. We want to develop it in places like Australia, China, Japan, and Singapore — going East.

We carry about 3.5 million passengers this year. We used to carry 5 million a year pre-pandemic. In terms of tourism, we used to carry about 2.5 million passengers a year. This year we will do 60 per cent of that, about 800,000 so far this year.

The privatisation is being run by the government by the State’s enterprise restructuring unit set up by the Finance Ministry. The idea was to prioritise or restructure, privatise seven State-owned companies; and the Cabinet has also approved them to use the International Finance Corporation (IFC) to manage the transactions of three of those privatisations, including SriLankan. IFC is currently sort of doing due diligence. We have got a data room and they are accessing it. They’ll go out to the market and look for expressions of interest. That’s our understanding. 

We are also in the process of restructuring our debt. Because last year our finance charges were 10 per cent of revenues. which in an airline business is not sustainable. So the idea is they (IMF) help us restructure the debt, and then, after that, there’s no more guarantees (from the government). There is no money coming in from the government. They try and privatise us.

But obviously, they need to write down the debt so that we’re sustainable, so that somebody might put money in, and even if they don’t. (The airlines has a debt of about $1 billion) We have a Cabinet decision to help us restructure, and remove the debt (about $300 million) that we owe to CPC, the petroleum company. That will reduce it by 30 per cent. We will be less burdened by not having to pay interest on the $300 million.

We are presently operating 99 flights a week from nine cities. (Mumbai, Delhi, Chennai, Hyderabad, Bengaluru, Kochi, Tiruchi, Madurai and Thiruvananthapuram). We were the first airline to fly a hundred times a week to India. When we get our 320s back to our fleet, we hope to double the number of flights a week. We would like to add 2-3 more destinations, including Ahmedabad.  It all depends how quickly we get the new aircraft.

Earlier airlines used to predict easily. But post Covid, predicting has become increasingly difficult. Even now the markets that are growing, we’re not sure how much of it is, we say, revenge tourism, and will it keep going up or drop and plateau a little bit. So we have a big picture in mind but then, you know, we make tactical decisions as and when we get there. And we literally look at the contribution of every route per hour, every month.  We reduce capacity if we are not making money. The decision-making is now dynamic. You have to balance. If you pull out of a market it will be difficult going back. If you pull out twice, it will be impossible to go back.