• Why Sri Lanka wants one when not even the US has one

While Sri Lanka might think owning a national carrier that incurs heavy losses, guzzles taxpayers’ money, and is poorly maintained is something that brings pride to the nation, many countries are getting rid of even their profit-making national carriers due to various reasons. 

As of 2023, there is a very long list of countries without a flag carrier and the world’s greatest economic superpower (as it claims) is one of them. Some other countries without a national carrier include Brazil, Ecuador, Peru, Zambia, Costa Rica, Armenia, and Monaco. 

Flag carriers are considered a source of national pride around the world, but most often their operations incur losses as they absorb colossal amounts in State funds. 

British Airways

British Air Transport, the company behind British Airways (BA), was formed in April 1974 as a fusion of British Overseas Airways Corporation, British European Airways, and their associated companies. The company was state-owned from its inception. In early 1987, the British Government sold off British Airways to the public by means of a huge stock offering. 

The initial share offering was 11 times over-subscribed. Shares in the airline were bought by 94% of BA employees. This was the result of a huge turnaround in both financial performance and public perception.

The principal British Airways privatisation motives were reducing company borrowing, stimulating efficiency, and achieving popular capitalism. These received priority at different times given the long privatisation process.

Pan Am

The US used to have a flag carrier in the ’90s named Pan Am. During the post-World War II era, Pan Am had an impressive set of international routes while facing stiff competition from airlines such as Trans World Airlines (TWA) and Braniff. Pan Am was the pioneer of the Boeing 747. 

In 1973, driven by the oil crisis and increased competition on its international routes, Pan Am began to experience financial difficulties for the first time. Further exacerbating the issues, US President Jimmy Carter signed the Airline Deregulation Act in 1978, which phased out the Civil Aeronautics Board (CAB), deregulated the airline industry, and ended the de facto flag carrier Pan Am. 

Although it may not be for the same reasons as Pan Am, SriLankan Airlines, the National Carrier of Sri Lanka and in fact, the country’s only carrier, has been struggling financially for over a decade without a clear vision from the Government. 

Air Namibia

The Government of Namibia closed the southern African country’s state-owned airline Air Namibia in 2021, saying it could no longer afford financial losses.

All Air Namibia flights were cancelled, 10 aircraft were grounded, the reservation system was shut down, and 644 employees lost their jobs. The Government spent more than the equivalent of $ 550 million to maintain the airline.

Namibia’s national airline had had financial problems for years, but in 2021 the situation worsened. A significant issue in 1998 was the controversial lease of a 351-passenger plane – a Boeing 767-300 – from a private company, Challenge Air.

Air India

Last year, India’s Tata Group took control of state carrier Air India and regained ownership of the airline. The auto-to-steel conglomerate won a $ 2.4 billion equity and debt takeover bid for Air India, ending years of struggles to privatise the financially troubled airline, which has been kept afloat with taxpayer funds.

Air India’s strategic disinvestment transaction was completed with the Government receiving about $ 360 million in equity and Tata taking over $ 2 billion of Air India’s debt.

SriLankan Airlines

According to the Presidential Commission of Inquiry (PCoI), the previous management of SriLankan Airlines directed its Chief Financial Officer (CFO) S.A. Chandrasekar to develop two business plans in 2008 and 2010, but neither of them were executed.

Chandrasekar’s first plan in 2010 proposed to sell SriLankan shares rather than borrow funds from the Treasury. The plan, valued at $ 300 million, included subsidiaries in ground handling, catering, and engineering through enabler contracts and the sale of shares. The SriLankan Airlines management paid Rs. 50.7 million to Via Capital Company in 2010 to assess Chandrasekar’s plan, which cost Rs. 750,000. Via Capital Company reviewed the proposals and developed its own five-year plan in May 2011.

In February 2015, then Ports, Shipping, and Aviation Minister Arjuna Ranatunga established a four-member committee headed by Attorney-at-Law J.C. Weliamuna to investigate allegations of corruption at SriLankan Airlines during the Rajapaksa regime. The committee’s report, known as the J.C. Weliamuna Report, was presented to then Prime Minister Ranil Wickremesinghe on 1 April 2015. The report revealed numerous instances of corruption, including security breaches and the hiring of unqualified staff, and recommended initiating criminal prosecutions.

In October 2017, then President Maithripala Sirisena created a Cabinet Committee and a Committee of Civil Servants to decide the future of the airline, ranging from finding an equity partner to closing it down.

In November 2017, the Government engaged UK-based consulting company Nyras to provide advice on launching a restructuring programme and finding an investor for the National Carrier, which was incurring losses. In December 2017, Nyras presented its preliminary report outlining a broad restructuring framework. The consultants recommended restructuring in five key areas: right-sizing and managing the aircraft fleet, debt restructuring, tax relief, network rationalisation, and fuel prices, with the goal of improving the company’s financial position.

In February 2018, President Sirisena established a five-member PCoI to investigate allegations of fraud and corruption at SriLankan Airlines, SriLankan Catering (Pvt) Ltd., and Mihin Lanka. The commission examined irregularities that occurred between 1 January 2006 and 1 January 2018 and uncovered several irregularities that had taken place during that time period.

After appointing numerous committees over the years to restructure SriLankan Airlines, the Government appears to have launched privatisation plans in earnest this time, with the State-Owned Enterprise Restructuring Unit planning the whole process. In August last year, the Government said that it would sell a 49% stake in the airline’s catering and ground handling business units, but visible progress is yet to be seen. 

According to the Ministry of Finance, the airline lost Rs. 112.8 billion in the first half of the 2022/’23 financial year. 

Changing the approach

While flag carriers may have been a viable option in the past, the modern world’s evolution has rendered them unnecessary for governments. However, some airlines still remain nationalised due to economic policies of certain countries. An example of this is Air China, which operates with the backing of companies owned by the Chinese Government.

In contrast, some countries have more than one flag carrier, such as the UAE, with Etihad Airways and Emirates operating from Abu Dhabi and Dubai. These airlines not only generate revenue from ticket sales but also promote tourism, trade, and public relations in their respective countries through their extensive business models.

The US serves as an example of how countries can rely on the free market to achieve their objectives without needing an official flag carrier. Airlines use their business acumen to further the country’s motives, and although there are still reports of airline collapses and buyouts, the emergence of new carriers has provided passengers with a broader range of options.

Given the rapid changes in commercial aviation, more countries may consider eliminating their flag carriers.