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Aviation: Loss-making Pakistan International Airlines up for sale

Aviation: Loss-making Pakistan International Airlines up for sale

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Virendra Pandit

 

New Delhi: As Islamabad braces for the General Elections to the National Assembly next week, its caretaker government has fast-tracked a plan to sell loss-making state-owned Pakistan International Airlines (PIA), the media reported on Friday.

In the past, the South Asian nation’s elected governments shied away from undertaking unpopular reforms, including the sale of this flag carrier. But Pakistan, currently in a deep economic crisis, agreed in June 2023 to overhaul loss-making state-owned enterprises under a deal with the International Monetary Fund (IMF) for a USD 3 billion bailout. It also decided to privatize PIA just weeks after signing the IMF agreement.

The caretaker administration, which took office in August 2023 to oversee the February 8 election, was empowered by the outgoing parliament to take any steps needed to meet the budgetary targets agreed with the IMF.

The plan, drawn up by transaction adviser Ernst & Young, will soon be presented to the next cabinet for approval, which will also decide on whether to sell the stake by tender or through a government-to-government deal.  Ernst & Young submitted a 1,100-page report to the government on December 27, 2023.

As of June 2023, the PIA had liabilities of Pakistani Rupees (PKR) 785 billion (USD 2.81 billion) and accumulated losses of PKR 713 billion.

According to reports, a 51 percent stake with full management control would be offered to buyers after parking the airline’s debts in a separate entity.

The Pakistan Muslim League-Nawaz party of former Prime Minister Nawaz Sharif is expected to win the upcoming election with support from the all-powerful Pakistan Army, Its main political rival party, Pakistan Tehreek-e-Insaf (PTI), has been decimated by the arrest of its leader Imran Khan in multiple cases and a crackdown on its members.

Under the privatization plan, government-guaranteed legacy debt and payables- – held by a consortium of seven domestic banks — will be parked in a holding company. The government and the consortium had an agreement for the settlement of the legacy debt, including negative equity of PKR 825 billion in loans, creditors’ money, and losses.

Besides its losses and debt, PIA’s governance and safety standards have been questioned by global aviation authorities for some years.

In early 2020, the Czech and Hungarian Air Force jets were scrambled to intercept a PIA flight with 300 people on board as it went astray due to an “avoidable human error” by its pilot. The crash of a PIA plane in Karachi killed nearly 100 people and a fake pilot license scandal erupted later in 2020.

The scandal led to the European Union Aviation Safety Agency (EASA) banning the PIA from flying to its most lucrative routes in Europe and the UK. The 2020 ban cost the airline nearly PKR 40 billion in revenue annually.

Pakistan’s unprecedented financial crisis also led to the seizure of PIA aircraft by creditors in recent months. One aircraft was seized at Kuala Lumpur airport in Malaysia for non-payment of lease fees, and another in Toronto, Canada, for non-payment of ground handling, PIA said.

While the airline awaits the government’s decision on a sale, it urgently needs financial support. It requires PKR 23.7 billion to keep itself afloat for another five to six months before control is given to a new buyer.

 PIA’s assets include key slots at the world’s busiest airports and air routes to top European destinations, the Middle East, and North America.

It has air service agreements with over 150 countries and generates about PKR 280 billion annually in revenues despite the EU ban. It has 10 slots at Heathrow, which are currently worth PKR 70 billion annually, and also nine slots at Manchester and four at Birmingham.

Turkish and Kuwaiti airlines have been operating 70 percent of the slots under a business arrangement with PIA that also allows the airline to retain them, the media reported.

PIA’s physical assets, including aircraft, hotels in Paris and New York, and other properties, are worth PKR 105.6 billion (USD 375 million), But the airline’s officials claimed the market value of the assets could be above USD 1 billion.

In any case, the hotels and other properties would not be up for sale, they said.

 

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