Setting aside the proposal to procure ATR 42-500, the government has directed Pakistan International Airlines Corporation (PIAC) to purchase aircraft after studying their economic and technical viability with the guidance of Finance Ministry, sources told Business Recorder.
"PIA board will decide which of the two aircraft, indicated in the summary, should be purchased. If both aircraft are equally good, then the cheaper one, on the basis of all-in-cost, may be purchased for which advice of Finance Ministry has been made mandatory," sources added.
The controversy on the proposal to purchase seven new aircraft for PIA emerged in the meeting of Economic Co-ordination Committee (ECC) of the Cabinet on August 2, when some members expressed concern over the price difference of ATR and Bombardier aircraft, they said.
A few months back, Defence Division had sought government guarantee for replacement of the F-27 fleet with Bombardier Dash-8-300 and the ECC had not only turned down the proposal but had directed PIAC to submit revised financial plan based on external credit facility.
The criteria for selection of the aircraft also came under criticism, but it was clarified that selection of aircraft would be finalised after thorough stringent process.
The PIA, however claimed that the selected aircraft, ATR 42-500 was cheaper in cost and its operational expenses were also less.
"The items like higher exposure fee and escalation cost could be negotiated with the supplier, once the decision is made for purchase of a particular aircraft," sources quoted PIA management as telling the meeting.
One ECC member pointed out big difference in the financing package and the summary submitted by the Defence Division, and said that the financing package contained higher costs than indicated in the summary.
"Finance Ministry should look into the total cost of the two categories of aircraft (ie ATR 42-500 and Bombardier) and also check the cash flow projections of the airline to ensure timely re-payment of the new liabilities as well as that of Boeing 777 aircraft purchased earlier," sources quoted Prime Minister Shaukat Aziz as directing the Ministry.
The ECC also criticised PIA for not adopting modern approach for market strategy, especially in the Gulf, but the issue was addressed by elaborating the recent reforms being carried out by the management.
"The airline is being geared to work in a competitive atmosphere and may not even seek the subsidy of Rs 550 million demanded earlier for serving the socio-economic routes at break-even level," the ECC meeting was informed.
After detailed discussion on the summary of Defence Division, the ECC decided that Finance Ministry should also check the cash flows of the airline, before extending guarantee, to ensure timely payment of this liability as well as that of Boeing 777 aircraft purchased earlier.
Sources added that ECC directed that the 'standard disclosure' clause would be added in the purchase agreement to the effect that all payments by the supplier to the agents, advisors, consultants etc both in Pakistan and abroad would be disclosed, and the disclosure clause would be drafted in consultation with the Chairman of Securities and Exchanges Commission of Pakistan (SECP).
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