The jinx is broken. PIA is privatized. It’s a success for the country. Regardless of PIA’s history, it was a decaying asset in the government’s hands that has now got a new lease of life. The airline may survive; it won’t face a demise like Pakistan Steel Mills.
After an intense and lengthy second round of bidding—which was broadly telecast—Arif Habib Consortium bought 75 percent of PIA’s shares for Rs135 billion (Rs20 billion higher than its initial bid and Rs35 billion higher than the reserve price). The government will receive Rs10 billion in cash, while the rest will be invested in the company in a staged manner.
The overall valuation of PIA is Rs180 billion, and the government will receive another Rs45 billion if the successful bidder opts to buy the remaining 25 percent shares.
The entity sold includes PIA’s operating assets only—all other real estate assets (including vacant plots) have been carved out. There is no real estate play involved. PIA’s operational performance has been on a downward trajectory. The current management is nowhere close to delivering on the latest business plan. While PIA has 38 aircraft on paper, only 18 are operational, and these are ageing and require significant maintenance.
The bleeding asset has the potential to turn around. There is limited upside in the domestic market. The real opportunity lies in select international routes, where PIA can offer direct flight options to expatriates. In April, direct flights to London may resume; Paris could be next. PIA can also increase flights to certain North American and European hubs and tap into the largest market in the Middle East—especially Saudi Arabia.
This, however, cannot happen with a small fleet of ageing aircraft. The buyer will have to expand the fleet and induct better aircraft. PIA’s HR structure also needs a complete overhaul. Arif Habib Group has twelve months to assess the performance of existing employees (as they cannot fire anyone during this period) and retain the better ones. Meanwhile, they can inject new talent with international expertise. The first step should be assembling a strong team to run the airline.
Arif Habib Group is committing serious capital to the company, which should be sufficient to initiate the turnaround story. They have the financial muscle, but this is a tricky business, and adequate guardrails will be required to revive the decaying asset.
Yesterday, Arif Habib Group bid aggressively and appeared determined to acquire the asset at any cost. Lucky Group withdrew, as the consortium believed returns diminished beyond a Rs120 billion price tag. The winning group likely has other plans in mind.
This is a major success for the government and the privatization commission team. They achieved a breakthrough through a relatively smoother transaction. The real challenge now lies ahead—tackling SOEs in the energy sector, where deep structural reforms are required.
Good luck to the buyer and the privatization commission.
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