EDITORIAL: Will privatisation of other entities take off after PIA sale?

EDITORIAL: A financially very strong group, Arif Habib consortium, has won the bid for 75 percent shares of Pakistan International Airlines (PIA), paving the way for greater interest, domestically and internationally, in bidding for other state owned entities on the list of privatisation.

The process was transparent in marked contrast to the attempt to privatise PIA last year with only one bidder, a real estate magnate, taking part in the process who had asked whether land could be given in lieu of payment.

The bid price was 135 billion rupees, a little less than half a billion dollars at the current rupee-dollar exchange rate, which was 35 percent higher than the government’s reference price of 100 billion rupees, with the pledge of the Group to invest an additional 80 billion rupees over the next five years.

The group will have the option of first refusal to purchase the remaining 25 percent shares within the next 90 days though the Group Chairman stated on various channels that Fauji Fertilizer and/or Middle Eastern airlines will be invited to join.

This indicates a sincere desire on the part of the successful bidder, with no previous experience in the airline industry, to benefit from the experience of others and hence must be fully supported.

The successful completion of the process indicates that a pledge made by the Government to the International Monetary Fund (IMF) noted in the December 2025 second review of the Extended Fund Facility documents (staff-level agreement was reached on 15 October 2025) has been met.

It was: “we expect completion of PIA privatisation by end-December 2025. We have opted for a joint venture structure with multiple exit options for the privatisation of the Roosevelt Hotel and are now finalising the hiring of a replacement Financial Advisor for the transaction.”

Arif Habib Group also shared its intent to initially purchase 38 aircrafts and another 27 later, depending on demand. Price of commercial aircrafts vary with narrow bodied Boeing 737 MAX costing around 100 million dollars, Airbus A320 (around 110 million dollars) and Airbus 350 at around 300 to 400 million dollars though reports suggest that net prices maybe far lower due to discounts of around 50 percent and leasing options.

It is unclear whether the Group intends to remit the foreign exchange from within the country or outside — an element that would have an impact on the country’s reserves. Be that as it may, PIA, one of the three white elephants — the other two being Pakistan Steel and Pakistan Railways — requiring hundreds of billions of rupees of annual budgetary injections, at the taxpayers’ expense, to keep it afloat.

Details of monetary or fiscal incentives extended to PIA’s new owners, if any, have not been shared with the general public though one would not be remiss in assuming that they will be shared with the IMF, given that the Fund’s documents relating to the ongoing programme highlight the need to share total investment inflows as well as any incentives extended through decisions taken by the Special Investment Facilitation Council (SIFC).

In this context, it is relevant to note that the PIA management had been accused of charging sales tax but failing to credit to the Treasury, a lapse that is punishable by law, however clearly the new owners are not liable for this lapse.

The intent of the Arif Habib Group to procure or lease not only airplanes but perhaps other items as well to bring the services provided by the national airline at par with other international carriers may require the payment of indirect taxes and one would hope for greater clarity in this regard.

These ambitious investments on the part of the Group Chairman must be appreciated; however, these would be contingent on demand expected to be significant for domestic routes.

However, additional services would need to be provided by the airline to attract foreign passengers which would, in turn, fuel foreign exchange earnings.

Last but not the least, it is a widely known fact that the process of disinvestment or sell-off is often long-drawn and complicated in developing countries in particular but, having said that, it is quite likely that privatisation of other entities on the government list will take off after the PIA sale.

Copyright Business Recorder, 2025