The Turnaround of Srilankan Airlines


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Case Details:

Case Code : BSTR196
Case Length : 17 Pages
Pages Period : 1980-2005
Organization : SriLankan Airlines
Pub Date : 2006
Teaching Note : Available
Countries : Sri Lanka
Themes: Corporate Turnaround
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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A Troubled History Contd...

However, the ethnic conflict that erupted in 1983 between the majority Sinhalese population and the minority Tamils threw the country into a state of turmoil. The cost of sustaining the war with the LTTE separatists and the climate of unrest that prevailed in the country, dealt a blow to the Sri Lankan economy.

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.

Air Lanka was renamed SriLankan Airlines (SLA) in 1998. Its peacock logo was redesigned in orange, red and green to give the airline a contemporary image.

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)...

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7] The Lockheed TriStar jetliners were popular with many airlines during the 1970s because they were smaller than the Boeing 747 (Jumbo jet) and yet capable of flying long haul routes. However, they were eventually replaced with more fuel efficient jetliners like the Boeing 777, Airbus 330 and 340. Source: http://www.emairport.co.uk/ profiles/specsheets/l1011tristar.htm

8] As on September 17, 2003, the Government of Sri Lanka held 51.05% of the issued capital of SLA, while EA held 43.63%. SLA employees held the remaining 5.32%.

 

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