Revenues fell 7.2 percent to 74.2 billion rupees.

"To compound matters, increased competition was experienced from subsidised airlines which dropped prices to fight for market share," chairman Nishantha Wickremasinghe told shareholders.

In the second quarter the airline had lost 4.3 billion rupees, and in the third quarter it lost 1.1 billion rupees, amid tight cost control and route trimming.

In the fourth quarter losses had risen to 2.6 billion rupees as a global slowdown began to bite.

Sri Lankan has kept flying by running down cash reserves acquired by re-financing aircraft in the previous year. Cash deposits of 6.8 billion rupees had been used up during the year.

Chief executive Manoj Gunawardena said an upturn in domestic tourism would give a lift to the airline in the current year though weak economic conditions in many developed nations were a dampener.

At stand alone company level, the firm has 9.3 billion rupees and its current liabilities were higher than current assets by 8.1 billion rupees. Net assets had fallen to 6.2 billion rupees from 15.5 billion rupees a year ago.

"These factors raise doubts that the Company will be able to continue as a going concern," the annual report said.

But revenue enhancement, new code-share partnerships, pricing, route re-structuring and cost management have made directors "confident of the Company’s ability to continue in operation for the foreseeable future," the report said.

Correction: Revenues fell 7.2 percent to 74.2 billion rupees.