ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has approved financial support of Rs8 billion to the PIACL for the settlement of outstanding dues to Asia Aviation Capital Limited (AACL) of two aircrafts.
The ECC meeting presided over by Caretaker Federal Minister for Finance, Revenue, Dr Shamshad Akhtar, on Friday was submitted a summary by the Aviation Ministry for financial support to the PIACL for settlement of outstanding dues to Asia Aviation Capital Limited (AACL) with transfer of title of two A320 Aircraft on lease for six years from AACL in 2015.
The meeting was informed that as per industry practice, the lease agreement required that the aircraft will be redelivered after necessary maintenance at a certified maintenance and repair facility (MRO).
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Accordingly, on the expiry of lease, the PIACL positioned the aircraft at FL Technic MRO, Jakarta in September and October 2021. Since April 2022, the PIACL tried extensively to reach out to AACL through visits by senior officials to their headquarters at Kuala Lumpur, but they remained largely unresponsive.
On 11th September, the PIACL received a court notice through AACL’s UK-based counsels for immediate payment of US$ 31.3 million against outstanding rent, re-delivery rent, maintenance reserve, and interest charges for the two aircrafts.
The PIACL’s counsels have categorically opined that the PIACL’s position in this matter is quite weak. They have recommended that the PIACL may find an out of court resolution with AACL not only with respect to the claimed amounts but also future liabilities with regard to rental payments and re-delivery of the aircraft.
Moreover, the lease of two aircraft will not end and the rent and other re-delivery related liabilities of the aircraft will continue and subsequent claims would continue to incur. On submission of this recommendation, the prime minister was pleased to allow the negotiation team to proceed to Kuala Lumpur on 9th October 2023.
After having live rounds of negotiation with chief executive officer Air Asia Aviation Group and his team on 9th, 10th,and 11th October, the negotiation succeeded to convince them to settle the matter at a consolidated amount of US$ 26 million which included transfer of title of two aircraft in two instalments.
The negotiation team brought the upshot of negotiations to the notice of the prime minister through a video conference held on 11th October 2023, which was attended by the Minister for Privatisation, advisors to prime minister on aviation and establishment, additional secretary PM Office, and senior officers from Ministry of Aviation and PIACL.
The prime minister was apprised of the outcome of the negotiations leading to the final settlement at US$ 26 million. This amount includes the cost of two aircraft which have lately been assessed at US$ 20.75 million by IBA valuations, a renowned international aircraft evaluator.
It was explained that given this assessed value of the aircraft, and that AACL is waiving of rent (partly), rent penalty, maintenance reserve and late payment interest, settlement at US$ 26 million is in the best interest of PIACL.
Further, given previous history, the AACL, insisted that at least 50 per cent of this amount shall be paid by 30th October 2023 while the remaining shall be paid by 30th November 2023.
Possible consequences of missing this opportunity were also shared which included that: (a) in view of PIACL’s counsels’ advise referred to above, a court judgement can result in binding compulsion on PIACL to pay $31.3 million in full and given that PIACL does not have means to pay this amount, it will require government support; (b) if such government support is not given, the court order is likely to be enforced by either impounding PIACL’s other aircraft or by attaching PIACL assets including its hotels;(c) moreover, lease of the two aircrafts will not end and PIACL will continue to accrue around US$ one million per month which the lessor can subsequently claim through courts. This rent will continue till the aircraft are redelivered to the lessor which will require time and additional payments of around US$ 15 million as maintenance buyout settlement.
After a detailed discussion, the prime minister approved in principle to conclude the negotiation with the AACL on the terms explained above and placing the case before a competent forum for the provision of grant of Rs7.3 billion to PIACL.
The ECC meeting was further informed that views and comments of the Finance and Privatization Divisions were invited on 13 October 2023.
Both the Divisions have supported financial support of Rs7.3 billion to PIACL but Finance Division has informed that supplementary grant cannot be granted during the period of SBA with the IMF and advised to arrange financial facility from the market against the balance the GoP guarantee ceiling of Rs7.5 billion.
The ECC was requested that the PIACL may be allowed to sign settlement agreement with AACL in accordance with the letter of intent and Finance Division may be directed to arrange grant Rs7.3 billion through technical supplementary grant (TSG) urgently enabling PIACL to clear outstanding dues of M/s AACL with transfer of title of two A-320 aircraft presently grounded at Jakarta, Indonesia before the agreed dates.
The caretaker prime minister being the minister in-charge for Aviation has seen and authorised submission of the summary to the ECC of the Cabinet.
The Aviation Division submitted a proposal for the provision of financial support to PIACL through the CAA for certain emergent needs of the airline.
After detailed discussion and deliberation, the ECC decided to approve the proposal of the Aviation Division for bridge financing through the CAA’s resources amounting to Rs8 billion for PIA to meet emergent requirements related to overdue payments.
Copyright Business Recorder, 2023
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