By The Pulseline News Desk
SriLankan Airlines has reported a pre-tax loss of Rs. 35.6 billion for the first quarter of the 2026/27 financial year, highlighting the deepening financial crisis at the national carrier despite an increase in revenue.
The airline’s financial performance has deteriorated sharply amid soaring aviation fuel prices, flight disruptions caused by the conflict in West Asia and foreign exchange losses, further increasing the burden on public finances.
The latest loss reportedly represents a significant deterioration from the Rs. 12 billion net loss recorded during the corresponding period of the previous financial year.
The airline’s worsening financial position has also pushed its negative equity to Rs. 351.5 billion, with total liabilities reaching Rs. 561.4 billion against assets of just Rs. 209.9 billion.
In its mid-year fiscal assessment, the Finance Ministry has identified persistent operating deficits, high fuel and maintenance expenditure, foreign exchange losses and financing costs as major constraints on the airline’s financial recovery.
“The substantial operating deficit, high fuel and maintenance costs, foreign exchange losses and finance costs continue to constrain the Company’s ability to generate sufficient internal cash flows to meet its operational and financial obligations,” the Ministry has observed.
Revenue growth fails to offset rising costs
Although SriLankan Airlines has increased its revenue to Rs. 82.8 billion during the quarter, compared with Rs. 62.6 billion a year earlier, the improvement was insufficient to offset the sharp increase in operating expenditure.
Total operating costs rose by 40.4% to Rs. 95.2 billion, largely driven by a 93% increase in aircraft fuel expenditure, which reached Rs. 41.2 billion.
The airline has also experienced flight cancellations and network disruptions following airspace closures in West Asia, forcing operational adjustments and rerouting of services.
While some of the diverted international traffic has provided marginal relief through additional passenger movements via Colombo, the overall impact of the disruptions further complicated the airline’s operations.
An operating loss of Rs. 12.5 billion was compounded by foreign exchange losses and financing costs. However, SriLankan Catering has recorded a net profit of Rs. 3.4 billion, reducing the overall group loss to Rs. 32.2 billion.
Another major burden on public finances
The airline’s inability to generate sufficient cash flows has continued to make it dependent on government financial assistance to sustain its operations and meet debt obligations.
The General Treasury has financed bank loan repayments and provided US$30 million in emergency funding to help maintain operations.
In addition, the Government has absorbed US$126.5 million worth of restructured guaranteed bonds directly into public debt in March 2026, effectively transferring another portion of the airline’s financial burden to the Treasury.
The developments highlight the continuing fiscal risks posed by the national carrier, particularly at a time when the Government is attempting to strengthen public finances and reduce the financial exposure arising from loss-making State-Owned Enterprises (SOEs).
Despite repeated efforts to improve its financial position, SriLankan Airlines remains heavily dependent on state guarantees and Treasury assistance to maintain its operations.
Restructuring plans under review
The Finance Ministry has indicated that a comprehensive restructuring process is being pursued to address the airline’s longstanding financial and operational weaknesses.
In June 2026, the Cabinet approved the establishment of a Strategy and Restructuring Committee to undertake a comprehensive review of SriLankan Airlines, with the objective of improving its financial sustainability and commercial viability.
The proposed review is expected to examine the airline’s financial structure and operational model as the Government considers longer-term solutions to its mounting liabilities.
However, the scale of the airline’s negative equity and its continued dependence on public funds underline the difficulties involved in restoring it to financial sustainability.
Governance and competition questions
The airline’s financial difficulties have also brought renewed attention to questions surrounding its governance, management and competitive position in the aviation industry.
In October 2024, the National People’s Power (NPP) Government appointed Sarath Ganegoda, a director of Hayleys PLC, as Chairman of SriLankan Airlines.
The appointment attracted criticism over potential conflicts of interest, given that Hayleys PLC had previously been shortlisted as one of six qualified bidders seeking to acquire a stake in and partner with the national carrier under the previous Government’s airline divestiture process.
Hayleys also has significant commercial interests in the aviation and logistics sectors through its subsidiary, Hayleys Aviation, which acts as the General Sales Agent (GSA) for international airlines, including British Airways and Jetstar Airways.
Both carriers have recently expanded their presence in the Sri Lankan market, introducing additional competition for SriLankan Airlines on routes and services where the national carrier has traditionally enjoyed a strong commercial position.
According to reports, their entry and expansion could put further pressure on SriLankan Airlines’ passenger revenue, fares and ancillary income, particularly as competing carriers seek to attract passengers through alternative pricing and distribution arrangements.
The issue raises broader questions about how the national carrier can protect its market position while competing against international airlines with different cost structures and commercial strategies.
It has also placed greater importance on transparent corporate governance and the management of potential conflicts of interest within an SOE operating in an increasingly competitive aviation market.
With quarterly losses widening, liabilities continuing to exceed assets and the Treasury still providing substantial financial support, SriLankan Airlines faces a difficult path towards recovery.
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