If we consider the withdrawal of such a company in 2007 and the reacquisition of shares by Sri Lanka, it caused several factors. As per the media reports, the main reason for Emirates' exit from Sri Lankan Airlines was the controversial incident in December 2007 where the highest-ranking government official at the time pressured the airline to delay a flight from London. This interference led to the cancellation of the CEO's work permit, which forced Emirates to reconsider its involvement. In 2008, the Sri Lankan government repurchased the shares from Emirates, taking full control of the airline. By the time it was purchased, it recorded a profit of 4.89 billion rupees, inclusive of the airline operation and other subsidiary services like Sri Lankan catering, ground handling, and cargo services.
Despite the initial profits, Sri Lankan Airlines began to experience continuous losses. According to the company's annual reports In 2009 it recorded a loss of 9.996 billion rupees; in 2010: 6.34 billion rupees; in 2011: 20.02 billion rupees; in 2012: 17.208 billion rupees; in 2013: 26.857 billion rupees; in 2014: 31.36 billion rupees; in 2018: 18.58 billion rupees; in 2019: 41.7 billion rupees; in 2020: 44.139 billion rupees; in 2022: 163.583 billion rupees; in 2023: 73.62153 billion rupees.
Due to mismanagement, corruption, and government interferences, Sri Lankan Airlines began to fall. The airline suffered a big blow to its financial health during 2012-2013 when Sri Lankan Airlines signed a controversial deal for buying new aircraft from Airbus. As many as 13 aircraft were to be replaced by 14 new planes from Airbus, comprising six A330s and four A350s. However, an investigation by the UK Serious Fraud Office revealed that a senior official from Sri Lankan Airlines was promised a bribe of $16.84 million, out of which $2 million was paid. This resulted in the arrest of several individuals who were later released on bail. Further investigations highlighted more irregularities in the deal, including the advisory firm that did not follow procedures. In 2015, another $98 million was spent to cancel the Airbus deal, further contributing to the airline's financial woes.
In the face of these relentless losses, there had been a call for privatization of Sri Lankan Airlines. The previous government did try to find a buyer for the airline, but all the attempts at selling the airline were plagued by negative publicity and by individuals who had vested interests in the sale. Even though the airline was incurring operational losses, its ground handling, catering, and cargo services were profitable and well-managed. These profitable arms were considered to be worthy of being sold separately.
Sri Lankan Airlines still had some of the best pilots, engineers, and crew members in the world despite incurring continuous losses. The problem was with the leadership level and the policies implemented by politicians. The repeated losses sustained by the airline have contributed considerably to the dwindling fortunes of the Sri Lanka Petroleum Corporation, which remains the oil supplier for the airline. These losses remain a burden on the people since the deficits are covered by the Treasury. From a national airline that once brought pride to the country, it has now become a cautionary tale of how poor governance and corrupt practices can bring down a once-thriving company.
By looking at the downfall of Sri Lankan Airlines and the actions of its government, we can compare it with the success of Emirates Airlines. Understanding what went wrong with Sri Lankan Airlines and what steps the Emirates government has taken to help the airline succeed, Sri Lanka can learn important lessons to improve its own aviation industry.
The Emirates story starts in the late 1960s in Dubai. It was a very different place from the global hub it is today. Then Dubai was just a small fishing village relying mainly on pearl trading. Everything changed when the region discovered oil. The United Arab Emirates (UAE) was established in 1971 as a federation of seven emirates, including Abu Dhabi, Dubai, and Sharjah. While Abu Dhabi held the lion’s share of oil reserves, Dubai’s oil wealth was relatively modest. Dubai’s ruler, Sheikh Rashid bin Saeed Al Maktoum, recognized this limitation and sought to diversify the emirate's economy to ensure its long-term prosperity. He employed experts to advise him on developing a development plan, and that expert team included a few Sri Lankans as well. One of the main recommendations from experts was to establish an airline using Dubai's strategic location. Dubai is within an eight-hour flight of 5 billion people, which represents 60% of the world's population, and is a crossroads for major trade routes.
The ruler of Dubai decided to start an airline and imposed two strict conditions: the airline must maintain the highest global standards, and it would receive only US$10 million in initial government funding with no further subsidies.
Labor costs are among the highest expenses for airlines. Emirates did not purchase its first aircraft from the beginning. Instead, the airline utilized a financially efficient model called wet leasing. In this model, Emirates leased aircraft, including crew, maintenance, and insurance, from Pakistan International Airlines. The advantages of wet leasing are The airlines began functioning within five months. It could try routes and see demand without having to buy aircraft. The huge capital expenditure on the acquisition of aircraft was avoided by Emirates. Since leased aircraft are well-maintained, it meant high standards of service from day one. It allowed Emirates to identify which routes were profitable before investing in its fleet.
The Emirates has managed this cost remarkably well. Several factors contribute to Emirates' low labor costs. The UAE does not recognize trade unions, eliminating the risk of strikes, and Emirates employs staff from over 116 nationalities, reducing the likelihood of collective grievances. Employees are bound by contracts that discourage strikes while offering competitive tax-free salaries and benefits. By doing so, labor is strategically managed to ensure there will be no interruption in operations, and passenger trust is earned. For an airline, fuel cost management is one of the important factors. Fuel expenses account for 30–40% of an airline’s revenue. Emirates employs several strategies to mitigate this cost. Emirates locks in fuel prices through contracts, insulating itself from price volatility. This allows for stable budgeting and prevents sudden financial shocks. Emirates has a young fleet, meaning lesser maintenance costs and higher fuel efficiency. Putting all these together, Emirates has saved billions of dollars and has remained profitable during turbulent times.
The story of Emirates carries several key lessons for Sri Lanka. Sri Lanka is also located in a strategic location. Availing itself of the geographical advantage of Dubai enabled Emirates to hold a commanding lead in a competitive market. Even though the Dubai government has enough money, their government only spent 10 million dollars to start an airline. Through wet leasing, the initial investments were minimized to lay a very strong foundation for Emirates before its expansion. The effective management of labor and fuel has kept costs lower and profits higher. Finally The leadership of Dubai decided not to be dependent on oil but to create a sustainable business model.
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