Before the elections in 2024, Pakistan nails down to privatize the National Airline (PIA).

Before the elections of 2024, Pakistan’s interim government is now formulating new strategies to privatize Pakistan International Airlines, which has caused significant financial losses. As stated by the responsible minister and other authorities, this initiative is being undertaken in anticipation of the next elections.

Historically, elected governments

have avoided controversial changes, such as privatizing the national airline. However, Pakistan, now facing a severe economic crisis, approved in June to fix nonprofitable state-owned firms as part of an agreement with the International Monetary Fund (IMF) in exchange for a $3 billion financial rescue package.

The government agreed to privatize PIA shortly after confirming the agreement with the IMF.

The interim government, which came to power in August to supervise the February 8th election, was authorized by the departing parliament to take all necessary measures to achieve the budget objectives agreed upon with the IMF.

“98% of our job is done,” said Privatisation Minister Fawad Hasan Fawad in response to inquiries on the airline’s sale plan. “The remaining 2% is just to transfer the information onto an Excel sheet once it has been approved by the cabinet.”

Fawad said that the proposal, formulated by transaction advisor Ernst & Young, would be submitted to the cabinet for approval before the conclusion of the administration’s term after the election.

As of June last year

PIA had liabilities amounting to 785 billion Pakistani rupees and cumulative losses of 713 billion rupees. Suppose the new administration reverts to the IMF once the present bailout program ends in March. In that case, the progress of privatization will be a crucial matter.

The potential bidders would be given a 51% ownership position in the airline and complete control over its administration. This offer will be made when the company’s debts are transferred to a separate organization.

In a report released in mid-January, the IMF expressed satisfaction with the caretaker government’s actions to expedite the restructuring of state-owned firms, particularly highlighting the modification of the PIA privatization measures.

According to Ernst & Young’s privatization proposal

which was presented to the government on December 27th, a consortium of seven local banks would transfer government-guaranteed legacy debt and payables to a holding company called Fawad, as confirmed by two persons familiar with the process.

Fawad said that the government and the consortium had reached an agreement over the resolution of the legacy debt, including negative equity of 825 billion rupees in loans, creditors’ funds, and losses. He did not provide any other information.

Looking at the previous reports

The banks desired a five-year bond to cover the debt. They proposed a 16.5% coupon rate for the bond, but the finance ministry only provided 10%.

In addition to its financial losses and debt, international aviation authorities have long scrutinized PIA’s governance and safety standards.

A private report by a PIA investigation board reveals that in early 2020, Czech and Hungarian Air Force fighters were urgently sent to intercept a PIA flight carrying 300 passengers. The airplane had deviated from its intended path owing to a pilot mistake that should have been avoided.

In May 2020, a PIA aircraft disaster in Karachi resulted in the deaths of approximately 100 individuals. Subsequently, a counterfeit pilot license controversy emerged in 2020.

As a consequence of the incident, the European Union Aviation Safety Agency (EASA) banned the airline from operating flights on its most profitable routes in Europe and the UK.

According to government documents in parliament, the airline has incurred an annual revenue loss of roughly 40 billion rupees due to the ongoing enforcement of the 2020 prohibition.

The financial crisis in Pakistan has resulted in the confiscation of PIA aircraft by creditors in recent months, as reported by the airline. PIA said that one aircraft was seized at Kuala Lumpur airport due to non-payment of leasing costs. In contrast, another plane was held in Toronto for non-payment of ground handling services.

As the airline awaits the government’s decision on a sale, it still needs financial assistance. According to three government and PIA sources, a sum of 23.7 billion rupees is required to sustain it for five to six months until it is handed over to a new buyer.

National Airline sale challenges:

There needs to be more disagreement among people on the urgency of proceeding with the sale.

According to three senior airline executives who requested anonymity, a quick sale might diminish the company’s value, and a deal without more investigation would lack transparency.

According to Brendan Sobie, a Singaporean aviation expert, PIA is currently in a critical situation. The proposal presented to the government is virtually the only solution to save the airline.

“The privatization process will be difficult, and it is unlikely that a sale can occur without first implementing a comprehensive restructuring and resolving the outstanding debts,” he said.

PIA has valuable resources such as prime slots at the world’s busiest airports and air routes connecting prominent European destinations, the Middle East, and North America.

According to airline data, PIA has air service agreements with over 150 countries and produces over 280 billion rupees in yearly earnings, notwithstanding the embargo imposed by the European Union.

There are now 10 slots available at Heathrow Airport, which, as stated by two PIA executives, have an annual value of 70 billion rupees. Nine spots are available in Manchester and f, and four are in Birmingham.

According to PIA authorities, Turkish and Kuwaiti airlines now operate 70% of the slots and are allowed to keep them under a contractual deal with PIA.

According to PIA’s annual report 2023, the airline’s tangible assets, like airplanes, hotels in Paris and New York, and other properties, have a book value of 105.6 billion rupees ($375 million).

PIA authorities, said that the assets’ market worth may exceed $1 billion. Regardless, they said the hotels and other assets would not be available for purchase.