Print Print 2023-09-14

ECC advocates beleaguered PIA’s sell-off

  • Economic Coordination Committee directs that emphasis should be given to PIACL’s privatisation instead of restructuring as the national flag-carrier is on active list of privatisation
Published September 14, 2023

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has directed that emphasis should be given to PIACL’s privatisation instead of restructuring as the national flag-carrier is on active list of privatisation, well-informed sources told Business Recorder.

The Ministry of Aviation briefed the ECC on September 6, 2023 that PIACL, the national flag carrier was owned by the government of Pakistan to the extent of 92 percent shares. PIA had a glorious past and a series of achievements, but from the late nineteen nineties PIA started to incur losses as it could not compete well with the emerging regional airlines.

PIA’s problems were exacerbated due to absence of entrepreneurship, rising extraneous influences, internal mismanagement as well as its inability to finance the cost of fleet expansion. In order to cope with losses, PIA contracted debt which has now reached an unmanageable level.

Govt takes steps for financial relief to PIA

As of December 31, 2022, PIA’S debt and liabilities stood at Rs. 743 billion which was five times more than the total value of its assets. PIA’s total losses for the last financial year stood at Rs. 86.5 billion, out of which Rs. 11 billion were operational losses. lf the situation continues as such, PIA’S debt and liabilities would rise to Rs. 1977 billion and its annual losses would rise to Rs. 259 billion per annum by 2030.

It was pointed out that Rs.383 billion of the current debt liability of PIA was underwritten by the Government of Pakistan and as 92% owner, the responsibility for the remaining payables also ultimately rests with it.

Several attempts were made in the last decade or so to make PIA sustainable. These attempts followed two basic approaches. The first approach mainly focused on turning around PIA by cutting costs, improving internal management and increasing fleet size with capital investment from Government of Pakistan.

The second approach focused on financial, legal, operational, commercial and human resource restructuring of PIA to clean its balance sheet with the ultimate aim of attracting private investment through divestment of Government of Pakistan shares. This approach was identified first in the Dubai Islamic Bank Consortium Report of 2017 who were engaged for this purpose by the Privatization Commission and later in Dr. Ishrat Hussain’s Report on PIA Restructuring Plan in 2020.

ln addition, PIA also carried out a study for formulating a sound business plan to make it profitable by engaging IATA which also recommended a similar approach while indicating a capital injection of USD 3.5 billion over a period of five years to enhance fleet size from 29 aircraft in 2021 to 49 in 2026. However, none of these reports could be implemented for various reasons.

Ministry of Aviation further briefed that in view of continued deterioration of financial condition of PIA, in June 2023, it was decided to restructure PIA broadly on the lines recommended by the Dubai Islamic Bank Consortium Report. In order to steer this process, a committee under the then Finance Minister was constituted to steer and guide the restructuring effort.

Under the auspices of this committee, following milestones were achieved: (i) plan for restructuring of PIA in light of aforesaid report by incorporating a new holding company to retain legacy loans, non-aviation assets and existing PIACL subsidiaries (PIA-IL, Skyrooms Limited, and Saber Travel Network) with PIACL as its wholly owned subsidiary retaining aviation assets and relating liabilities was approved by PIA Board of Directors on July 25, 2023; (ii) as the then existing provisions of PIACL Act, 2015 did not allow transfer of management control and more than 49% shares of PIACL to a private entity and hence were not conducive for attracting private investment, an amendment Act was promulgated on August 12, 2023 and these restrictions have now been removed’; and (iii) PIACL was included in the privatisation list of the Privatization Commission with the approval of Cabinet on August 07, 2023.

Ministry of Aviation apprised that in order to proceed further, it was important to seek Government of Pakistan’s approval of the restructuring plan. The restructuring of PIA was likely to take around eight months or so. It was also obvious that at the time of divestment, fair value of shares can only be obtained if PIA remains operating till the completion of all stages of restructuring.

However, currently PIA was facing a serious cash flow problem as a result of which it had been unable to pay to its creditors, aircraft lessors, fuel suppliers, insurer, international and domestic airport operators and even IATA. Resultantly it has been forced to ground five out of its thirteen leased aircraft while four additional aircraft are likely to be grounded during this week.

More worrying factor was that Boeing and Airbus were likely to discontinue supply of spare parts by mid-September. Hence it was important that PIA may be provided following support immediately: (i) Finance Division may release of Rs. 22.9 billion of the left over mark payment support allowed to PIA in 2022-23 which could not be released during last financial year; (ii) PIA pays Rs. 1.3 billion per month to FBR against FED and Rs. 0.7 billion per month to CAA against embarkation charges, this payment may be deferred till its restructuring; and (iii) Finance Division and State Bank of Pakistan may support PIA for deferment of loans and markup to be paid by PIA till its restructuring.

During the ensuing discussion, the Additional Secretary, Cabinet Division pointed out that Ministry of Aviation’s proposal involves substantial financial implications wherein views of Finance Division are essential in light of Rules of Business, 1973 which should be sought during the meeting as the same were not attached with the summary.

The forum observed that the PIACL had accumulated huge outstanding liabilities over the years and despite several bailout packages desired results have not been achieved as the PIACL remained a loss making entity. The ECC mentioned that there was a dire need to evolve a viable plan to cope with the huge liabilities of PIACL and the Privatization Division should be actively involved in making any such plan since PIACL was on active list of Privatization.

The ECC also observed that there should be a viable plan to settle huge liabilities of PIACL and for this purpose the value of assets of PIACL should also be assessed.

At the same time the ECC also observed that since PIACL is heavily indebted to banks therefore it should also coordinate with them in consultation with SBP and the Finance Division so that a viable way forward may be chalked out without causing fiscal inconvenience. It was further suggested that any future plan should be accompanied with actions and strict timeliness.

After detailed discussion, the ECC observed that PIACL is on active list of privatisation, therefore more emphasis should be given to its privatisation rather restructuring.

ln this regard, ECC directed Ministry of Aviation to actively consult the Privatisation Commission and to provide needed information to expedite privatization process of PIACL in consultation with all stakeholders. Privatization Commission shall evolve a viable plan for the purpose along with list of actions and timelines and the same shall be submitted to CCoP.

The ECC further directed Aviation Division to constitute a technical committee to propose a concrete plan of action regarding outstanding liabilities of PIACL.

Copyright Business Recorder, 2023


Comments are closed.

Ash Chak Sep 14, 2023 07:11am
So the plan is to separate the non aviation from the aviation assets and liabilities and hope that someone buys the aviation portion of the business. And to what end?To keep PIA flying planes? Bad idea. It’s a badly run company and needs to declare bankruptcy and sell its assets. Emirates and Qatar will only be to glad to fly their routes. And the country will be rid of this white elephant.
thumb_up Recommended (0)
Facts Sep 14, 2023 07:12am
Shut it down already!
thumb_up Recommended (0)
Tulukan Mairandi Sep 14, 2023 07:27am
Will not happen because Establishment has not yet sucked it dry . The dying PIA horse has some blood left in it that they wanna suck
thumb_up Recommended (0)
Azeem Hakro Sep 14, 2023 11:03am
The pros and cons of privatization and restructuring for PIACL: Privatization Pros: Increased efficiency, profitability, investment, and competition. Cons: Job losses, loss of control, and increased fares. Restructuring Pros: Job losses may be avoided, the government can maintain control, and fares may not be raised. Cons: Restructuring may not be successful, and the government may need to provide financial support.
thumb_up Recommended (0)
KU Sep 14, 2023 11:06am
The government and investors in government are faced with a dilemma best described as follows, ''How many bureaucrats does it take to change a light bulb? Two. One to assure you that everything possible is being done while the other screws the bulb into the water faucet.''
thumb_up Recommended (0)
Usman Sep 14, 2023 12:39pm
It's better to liquidate this entity the sell all it's assets.
thumb_up Recommended (0)
HIK Sep 14, 2023 05:22pm
Crooks are ready to pocket more money!
thumb_up Recommended (0)