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EDITORIAL: Finally, the government, though an interim one, has set the ball rolling insofar as the planned sell-off of national airline, PIA, is concerned. Needless to say, PIA once was the pride of the nation.

The activity in relation to outsourcing of airports has also begun. In the case of PIA, the method is to free the assets from the staggering liabilities in the shape of debt and other payables, which will be assumed by the government of Pakistan while the assets will be put up for sale.

Given the poor record of businesses being run by the government of Pakistan, there is no debate over whether the organisation needs to be privatised. It is better to privatise while a company is still operating instead of closing the shop and then trying to sell it. Pakistan has already learnt this lesson from the bitter experience of Pakistan Steel Mills.

The debate whether the airline should be restructured and continue to operate as a state-managed entity and should only be sold when the market improves is over as the fiscal space is so constrained that it is no longer possible for the government to run the airline on borrowed funds from the banks backed by sovereign guarantees. The stark reality is that to keep the airline operations afloat it has to be sold.

Within the scope of PIA privatisation, there are two aspects that require careful deliberation. The first is the valuation of the entity, which is being sold. Since the government is assuming a major chunk of the liabilities — debt, payables and others — it should get decent enough money from selling the free of liability assets.

The airline has core assets in the form of routes, landing rights, core engineering services and air services agreements. There could be other elements (aircraft, etc.), which could be of material worth to fetch a good price. Not to mention the brand itself, which even after all the battering, still has some valuable value, so to speak. The government should be well compensated on these assets.

The second issue is the selection of the operator investor who should ideally help revive the airline. It should not be given to an ill-experienced or ill-managed operator. Ideally, PIA’s buyer should be an international operator and should come with a local partner. If PIA is being sold to a domestic private player, then the airline could have limited success on international routes.

Deregulation of airline business in the United States during the Ronald Reagan era has led to deregulation of this business worldwide. Budget air carriers have sprouted around the globe with some of them commanding a major share of the business in the developed world.

Non-budget or traditional airlines have to hedge on fuel to ensure continuity of profitable operations. Hedging is a risky business and cannot be a good option for the public sector, particularly in a country with Forex controls.

Aviation is a specialized business, and it should be run by a specialized entity. It is not a cement plant or a power project that can be run by any group blessed with deep pockets. Airline is not an easy business to run, and the right international experience has value to add.

There is one good example of having local and international airline partner in Pakistan where one big local group is running an airline in partnership with an international operator, and that airline is a preferred choice of many on domestic routes — though the company is small and has fewer number of aircraft as compared to other domestic carriers. The whole idea is to provide better quality service.

Thus, the privatisation process of PIA should continue without let or hindrance, and the idea is to not shut the operation but to revive it fully by bringing in the right partner. The government is almost done with the difficult part of separating the liabilities of the organisation, now the focus should be on identifying and engaging the right private players to run it. Last but not least, the downfall of the national carrier was highly expected in view of a variety of reasons but it is highly disappointing nevertheless.

Copyright Business Recorder, 2024

Comments

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Naveed Mahmood Jan 12, 2024 10:09am
It is unfortunate that Pakistans pride and indentity is being privatised. An airline which helped in establishing 4 to 5 current top airlines is now in doldrums this shows our own inefficinecy and lack of professionalism. Sad moment for country.
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KU Jan 12, 2024 12:26pm
The pride of nation has been at the mercy of corruption and mismanagement for many decades, and if a true figure of bailouts and money siphoned off by the corrupt was to be listed in this article, it would shame the nation. And its not limited to mismanagement, the personnel of various departments appointed at airports for security or service are famous for bribes, threats for gratifications to common travellers. Yet, none have ever been inquired upon, dismissed or seen jail time.
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Fatima Jan 12, 2024 12:56pm
Value of the brand ? Is that not negative?
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Power Master Jan 12, 2024 01:13pm
Pia is bankrupt. It should be shut n parts auctioned dirt cheap. This is fate of such failed business Or some Pakistani Mafia can try run it
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Love Your Country Jan 12, 2024 03:25pm
Proud moment for the city, the province and the country.
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Imran Jan 12, 2024 04:47pm
As a Pakistani, I consider matters of state, a comedy show.
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wanker Jan 12, 2024 07:29pm
"It is better to privatise while a company is still operating instead of closing the shop and then trying to sell it. Pakistan has already learnt this lesson from the bitter experience of Pakistan Steel Mills. " It was a for profit entity i.e. the SSGC that forced the closure of PSM by cutting off gas supply. The govt. would have kept it running if it could. The same will happen to PIA where PSO will be the one that puts a stop to it.
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Naim Khan Jan 12, 2024 08:26pm
Corrupt politicians and corrupt Establishment both are after assets of PIA it’s just an excuse that PIA not worth running. Assets worth billions of Dollars politicians and Generals are after the cake how to cut it. Just think 5 million Pakistanis who live abroad and visit the country almost every year. Like Imran Khan said these people who running the country are not educated but they are thieves. What you expect from them? They will sell their mothers for Dollars.
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bonce Jan 13, 2024 02:16am
Our army and politicians ruined PIA. A lot of peoples are working in this organization where hundreds of employees can easily run, but politics involved this should be happened.
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Javed Iqbal Jan 13, 2024 06:20am
A bankrupt country surviving on begging, borrowing and praying, should not have any state-owned perpetually loosing monoliths.
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Aam Aadmi Jan 13, 2024 07:53am
'...Given the poor record of businesses being run by the government of Pakistan,...' I thought you were going to praise rather than point to the poor record of the government. What about corporate farming, housing schemes like DHA, and similar others???
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Mansoor ul haq Jan 13, 2024 10:21am
They know the fault but not willing to address anything because they have just learnt to embezzle. corrupt establishment further manipulates things to get their share from a dying entity rather bringing any better change. Here oil is sufficient for luxury of corrupt establishment but not available for pia operations...these are preferences of serious nations. This whole state establishment is required to be sold before privatisation of any state owned business...
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M.R. Kayani Jan 13, 2024 10:57am
Once a source of national pride, PIA currently faces financial challenges. This is largely due to prioritizing factors beyond commercial viability, such as national prestige. To secure its future, a shift towards operating on sound business principles is crucial. This means focusing on profitability, efficiency, and sustainable practices, just like any other company. While national pride remains important, it shouldn't overshadow fundamental business considerations. Ultimately, the goal should be to revitalize PIA based on merit and market realities, not solely on sentimental labels. Privatization, if pursued, should similarly prioritize these principles for long-term success.
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SAMIR SARDANA Jan 13, 2024 01:58pm
WHAT IS THE TURNAROUND PLAN ? WILL THE BUYER SACK STAFF AND DO A VRS ? HOW MANY BILLIONS WILL THAT SAVE ? WILL THE ROUTES WHICH DO NOT COVER CASH COSTS AND VARIABLE COSTS BE AXED ? PIA HAS SOVERIGN BACKING OF SBP, WITH PRIVATE BUYER, BASIS POINTS OF NTEREST WILL RISE AND FREE CREDIT WILL STOP ! HUGE CASH WILL BE NEEDED FOR WORKING CAPITAL AND MARGIN REQUIREMENTS WILL THE AIRLINE SLASH OPERATIONS AND SELL EXCESS PLANES ? WILL THE REAL ESTATE, HAVE JV WITH MARRIOTT,TO START PIA CHAIN OF PERMIUM HOTELS ? WHAT IS THE PLAN TO CUT O& M COSTS AND FUEL COSTS ? IS THE BIG PICTURE THAT PAKISTANI LACK OF USD AND GAS,HAS LED TO DESTRUCTION OF TEXTILES AND OTHER SECTORS - & SO,HAS PIA SUFFERED DUE TO DEFAULTS IN PAYMENTS & SHUT DOWN OF OPERATONS - WHICH HAS CAUSED LOWER CAPACITIES & HIGHER COSTS - & THUS,LOSSES AND THUS,INTEREST ON LOSSES ? THE ABOVE PROBLEM IS EASILY SOLVABLE ! GIVE ME A DIPLOMATIC PASSPORT & STATION IN GENEVA !I WILL TURN AROUND PIA & DESTROY INDIA ! SAMIR SARDANA
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Parvez Jan 13, 2024 04:36pm
This should have been privatised decades ago......throwing good money ( people's money ) after bad just to keep a few in kushy jobs and make very few very rich WAS AND IS a bad, bad idea. No government should ever bee in the business of running a business.
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SAMIR SARDANA Jan 13, 2024 07:21pm
@Naveed Mahmood, THE USA HAS NO NATIONALCARRIER ! PAN AMERICAN AIRWAYS WAS SHUT DOWN IN 1991! THE QUESTION IS THAT IF FIJI AND NAURU AND BHUTAN HAVE A NATIONAL CARRIER WHICH IS VIABLE - WHY NOT PAKISTAN ? PAKISTAN HAS ONLY 5 MILLION AIR PASSENGERS ! PIA IS TOO LARGE,FOR 5 MILLION PASSENGERS ! THAILAND HAS 25 MILLION TOURISTS PER ANNUM AND THAI ARWAYS WENT BUST ! SO PIA IS NOT TOO BAD ! IT HAS TO BE RATIONALISED,DOWNSIZED AND RESTRUCTURED !
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SAMIR SARDANA Jan 13, 2024 07:28pm
@KU, NEXT STEP IS TO LEASE THE AIRPORT TO A GLOBAL COMPANY ! FOR 5 MILLION AIR TRAVELLERS - THE SAID CONPANY WLL PAY MILLIONS OF USD,TO THE GOVTT OF PAKISTAN PER ANNUM,AND THE GOVTT CAN SHARE THE AIRPORT REVENUES, WITH THE OPERATOR AND EVERY CENT,WILL BE RECOVERED ! AND ALL COSTS OF THE AIRPORT,ARE OUTSOURCED ! SECURITY AND ATC, IS WITH THE STATE ! AN AIRPORT IS LIKE A TOLL ROAD + PREMIUM MALL + PREMIUM RESTAURANT + GAS STATION + REAL ESTATE AND LOGISTICS HUB. IT IS EASIER TO PRIVATISE AND RAISE CAPITAL !
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bashir Jan 14, 2024 11:42am
In some instances, as my own experience of dealing with a major overseas regional office in Gulf, the staff incentivized private ticketing agents for their meager pie from them despite already getting the good return by posting abroad in form of fringe benefits.
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ispr(k) Jan 14, 2024 01:11pm
@SAMIR SARDANA, how's chicago treating you?
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Muhammad Ahmad Jan 14, 2024 03:50pm
I have been reading analysis on PIA for last 2 decades. Its just a waste.
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Muhammad Ahmad Jan 14, 2024 03:51pm
@KU, govt. dont do business.
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Fatima Jan 14, 2024 07:37pm
@ispr(k), clearly affected the balance of his mind
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ispr(k) Jan 14, 2024 08:26pm
@Fatima, he's our humint asset over there
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Tariq Qurashi Jan 15, 2024 04:02pm
Sell 30% of PIA shares to Emirates or Qatar or someone like them, and hand over management of the airline; that is after rescheduling or writing off the debt. Keep it simple or the "Babus" will make it so complicated that you will never be able to privatize.
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