Emirates weighs sale of Sri Lankan holding

The Sri Lankan government has approached Emirates Airline to purchase the carrier's 43.6 per cent stake in Sri Lankan Airways.

The Sri Lankan government has approached Emirates Airline to purchase the carrier's 43.6 per cent stake in Sri Lankan Airways. A sale could end a two-year wait for Emirates, which had been eager to sell its stake since it ended its management of the Colombo-based airline in 2008. "The government has decided to purchase," Nishanta Wickremasinghe, the chairman of Sri Lankan, said yesterday. "They are negotiating."

The Sri Lankan government owns 51 per cent of the airline, which operates 12 aircraft and targets India and the Gulf as its major markets. It has run the airline since Emirates opted not to renew its management contract. Emirates officials acknowledged that the Sri Lankan government was interested, but said no substantive discussions had taken place. "The Sri Lankan government has put the feelers out, but we're not negotiating anything at the moment," said Tim Clark, the president of Emirates.

Emirates purchased the stake in Sri Lankan in 1998 for US$70 million (Dh257.1m) in a partnership with the government that at times was contentious. "It was a very difficult relationship for Emirates," said Keith McMullan, the managing director of Aviation Economics, a consultancy based in London. He said many appointees to the airline were influenced by the Sri Lankan government. The foray was a departure from the strategy Emirates has pursued over its 25-year history of growing organically out of Dubai International Airport.

Two years ago, Emirates said it believed its Sri Lankan holdings were worth $150m. Since then, airlines have been hit hard by the global recession, suffering billions of dollars of losses, and analysts said Emirates would be hard pressed to get that price today. "For an airline with no record of profitability, that is probably on the optimistic side," Mr McMullan said. "While it is impossible to generalise, of course valuations of all aviation assets have fallen sharply over the last two years due to the global recession and the credit crunch. Emirates would be fortunate to get that asking price."

Sri Lankan slumped to a loss of 10 billion rupees (Dh321.3m) in the year ended last March, hurt by dwindling tourist arrivals and the global recession. However, tourist arrivals in Sri Lanka increased beginning in June, a month after the government ended its war with rebels. This helped the carrier trim losses and consider expanding, said Manoj Gunawardena, its chief executive. * with agencies igale@thenational.ae