The cabinet also approved a request by the Civil Aviation Ministry to authorize the treasury to issue a sovereign guarantee of $270 million immediately to obtain financing from local and foreign banks.
With the sovereign guarantee SriLankan, the national carrier which was earlier managed by Dubai’s Emirates airline, can borrow $250 million while the island nation’s budget airline Mihin Lanka can borrow $20 million.
SriLankan requires urgent capitalization to pursue a post-war expansion and modernization program and ensure commercial viability, while Mihin Lanka needs money to repay creditors and for working capital, a Civil Aviation Ministry cabinet paper says.
Sri Lankan posted an operating loss of 6 billion rupees ($55.1 million) in 2010, a 49 percent decline in the losses from a year earlier. It currently operates about 175 flights a week out of Colombo to destinations in Europe, the Middle East, and Asia with 17 aircraft.
Mihin Lanka posted an operating profit of 416 million rupees last year, compared to a 666 million rupee loss in 2009.
The $50 billion economy bought back the 43.6 percent stake held by Emirates in SriLankan for $55 million last year and started increasing the fleet to accommodate a tourist surge.
President Mahinda Rajapaksa has embarked on an ambitious development drive mainly funded by Chinese loans to revitalize infrastructure neglected during a 25-year war, which ended in May 2009.
