Sri Lanka has decided to abandon plans to sell its debt-ridden national airline, SriLankan Airlines, despite having shortlisted three potential buyers. The decision, announced by the government’s privatisation agency on Friday, follows a call for bids last September as part of an International Monetary Fund (IMF) bailout agreement.

Initially, six firms expressed interest in acquiring a stake in the airline, which reported debts exceeding $2 billion at the close of the 2022/2023 financial year. Among the shortlisted investors was Malaysia’s Air Asia. However, the State Owned Enterprises Restructuring Unit revealed the government had halted the sale process.

“The cabinet of ministers at a meeting on July 9 decided to terminate the current bidding process with regard to the divestiture of SriLankan Airlines,” the agency stated, without providing reasons for the decision. It mentioned that the government would pursue an alternative strategy, which is to be formulated based on a framework approved by the Cabinet of Ministers.

The IMF had previously identified SriLankan Airlines for restructuring as a condition for the $2.9 billion bailout granted last year, following the country’s default on $46 billion of external debt in April 2022 due to a severe foreign exchange crisis.

With approximately 6,000 employees, SriLankan Airlines is the largest and costliest state-owned enterprise, significantly impacting Sri Lanka’s economic stability. Analysts had warned that attracting a viable investor for the airline would be challenging due to its history of political interference and mismanagement.

SriLankan Airlines had a profitable period under a management partnership with Emirates starting in 1998, but this ended in 2008 following a dispute with then-president Mahinda Rajapaksa. Previous attempts to sell a stake in the airline in 2017 also failed, with private equity firm TPG retracting its bid after assessing the operation as unviable.