Sri Lankan Airlines at group level lost 17.17 billion rupees in the year to March 2011, wiping out last year's net assets of 6.3 billion rupees, and the capital injection from the Treasury allowed the firm to end the year with 4.1 billion rupees in equity, its annual report showed.

But at stand alone company level, the balance sheet still slipped into negative territory by 1.43 billion rupees, against 3.2 billion rupees of positive equity a year earlier.

At company level, the airline lost 19.6 billion rupees, which was reduced at group level due to profits of its catering unit.

The bond which pays a coupon of 8.0 percent a year is carried in its books at 14.16 billion rupees discounted at the market rate.

Sri Lankan expects to issue shares to the Treasury in return for the bond. At 8.0 percent tax payers will pay 1.2 billion rupees in cash to the airline each year.

Outstanding balances with state entities had risen to 27.5 billion rupees from 5.6 billion rupees a year earlier. SriLankan buys petroleum from Ceylon Petroleum Corporation.

Fuel is the largest single expense in an airline.

The firm's current liabilities exceeded current assets by 36.5 billion rupees, up from 9.7 billion rupees, the annual report said in a going concern disclosure.

But SriLankan is expected to get Treasury financing over four years to strengthen its balance sheet to the tune of 500 million US dollars.

The airline is also focusing on more profitable routes and trying to improve revenues.

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