ISLAMABAD:
The caretaker government was making “binding plans” for the incoming government after the February 8 elections to privatise the loss-making Pakistan International Airlines (PIA), Privatisation Minister Fawad Hasan Fawad said on Friday.
In the past, elected governments have shied away from undertaking unpopular reforms, including the sale of the national-flag carrier. However, in June, the then coalition government agreed to overhaul loss-making state-owned enterprises under a deal with the International Monetary Fund (IMF).
The government, then led by Shehbaz Sharif, decided to privatise PIA just weeks after signing the IMF agreement. The caretaker government, which took office in August, was empowered by the outgoing parliament to take any steps needed to meet the budgetary targets agreed with the IMF.
“Our job is 98% done,” Fawad told Reuters when asked about the plan to sell the airline. “The remaining 2% is just to bring it on an excel sheet after the cabinet approves it,” he said, adding that the cabinet would also decide whether to sell the stake by tender or through a government-to-government deal.
Fawad said the plan, drawn up by transaction adviser Ernst & Young, would be presented to the cabinet for approval before the tenure of the administration ends following the election. “What we have done in just four months is what past governments have been trying to do for over a decade,” Fawad said.
“There is no looking back,” Fawad added. He did not give specific details of the size of the stake to be sold, but two sources said that a 51% stake with full management control would be offered to buyers after parking the airline’s debts in a separate entity, under the 1100-page report from Ernst & Young.
PIA had liabilities of Rs785 billion and accumulated losses of Rs713 billion as of June last year. Its chief executive officer (CEO) had said that the losses in 2023 were likely to be Rs112 billion. Fawad confirmed the PIA privatisation plan involved its debts being spun off into a separate entity.
Progress on the privatisation will be a key issue if the incoming government goes back to the IMF once the current bailout programme expires in March. Caretaker Finance Minister Shamshad Akhtar told reporters last year that Pakistan would have to remain in IMF programmes after its expiry.
Besides operational and technical measures for PIA’s divestment, the caretaker government has also amended a 2016 law that had blocked selling off its majority shares, according to a draft posted on the Pakistan parliament’s website.
Ishaq Dar, who was the finance minister when Shehbaz was the prime minister and has been named by the Pakistan Muslim League-Nawaz (PML-N) to retain the portfolio if it forms the next government, told Reuters that the sale of PIA will be fast-tracked. “It will, God willing, move ahead with fast speed.”
In a report in mid-January, the IMF expressed satisfaction over the measures initiated by the caretaker government to accelerate reforms of state-owned enterprises, specifically mentioning the amendment of the PIA privatisation law.
Under the privatisation plan submitted by Ernst & Young to the government on December 27, government-guaranteed legacy debt and payables – which are held by a consortium of seven domestic banks – would be parked in a holding company, Fawad and two sources involved in the process said.
Fawad said the government and the consortium had an agreement in place regarding the settlement of the legacy debt, which includes negative equity of Rs825 billions in loans, creditors’ money and the losses. He provided no further details.
The sources had earlier said the banks wanted a five-year bond issued against the debt with a 16.5% coupon on the paper, while the finance ministry was offering only 10%. The banks have not commented on the deal.
Read: Plan for PIA sell-off submitted
Besides its losses, PIA’s safety standards have been questioned by global aviation authorities for some years. In early 2020, 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.
In May that year, the crash of a PIA plane in Karachi killed nearly 100 people and a fake pilot licence scandal erupted later in 2020. The scandal led to the European Union Aviation Safety Agency (EASA) banning the airline from flying to its most lucrative routes in Europe and the UK.
The 2020 ban is still in place and has cost the airline nearly Rs40 billion in revenue annually, according to government records presented in parliament. Pakistan’s financial crisis has also led to seizure of PIA aircraft by creditors in recent months, according to the airline.
While the airline awaits the government’s decision on a sale, it continues to need financial support: 23.7 billion rupees are required to keep it afloat for another five to six months before control is given to a new buyer, three government and PIA sources said.
However, not everyone agrees with pressing ahead speedily with the sale. Three senior airline officials, who spoke to Reuters on condition of anonymity, said a fast sale could devalue the airline’s worth, and that it would not be a transparent transaction without due diligence.
But Singapore-based aviation analyst Brendan Sobie said PIA is in dire straits: the plan submitted to the government was “essentially the only option to save” the airline. “The privatisation will be challenging and a sale is likely not possible unless it first undergoes a deep restructuring and the debts are cleared.”
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. PIA has air service agreements with more than 150 countries and generates about Rs280 billion annually in revenues despite the EU ban, airline records show.
It has 10 slots at Heathrow, which, according to two PIA officials, are currently worth Rs70 billion annually. It has a further nine slots at Manchester and four at Birmingham. Turkish and Kuwaiti airlines have been operating 70% of the slots under a business arrangement with PIA, the PIA officials said.
Separately, PIA’s physical assets, which include aircraft, hotels in Paris and New York and other properties, are worth Rs105.6 billion as per book value, according to the airline’s annual report for 2023. PIA officials, however, said the market value of the assets could be above $1 billion. In any case, the hotels and other properties would not be up for sale, they said. Reuters
