Another proposal to split up PIA under study

ISLAMABAD: While seeking applications for hiring a financial adviser to restructure the loss-making Pakistan International Airlines (PIA), the national flag carrier is facing an acute financial crunch, leaving no other option but to bifurcate its core business and physical assets for parking all outstanding liabilities.

The government is considering establishing two entities, one for undertaking core operations and the other for looking after physical assets whereby all outstanding liabilities will be parked through establishing a holding company. The PIA’s accumulated losses crossed the Rs743 billion mark whereby many insiders say the tax liability of Rs50 billion owed to the FBR was not fully made part of it. So the upcoming consultant for restructuring will need a clearer picture before suggesting a structure to overhaul the loss-making entity to make it financially viable, which alone will pave the way for its privatization.

Top official sources confirmed to The News on Wednesday that the government had taken a decision to undertake the restructuring and privatization process simultaneously and PIAC had already sought applications for hiring a consultant or financial adviser to restructure it. It will be bifurcated into two parts, the first will be run as its core operation where PIA planes fly on routes and it will be privatized after its restructuring.

Then the holding company will be established to place its physical assets and all outstanding liabilities. The sources said the government’s limit of providing guarantees to PIA had been envisaged at Rs263 billion and recently the government gave guarantees for generating Rs17-18 billion from domestic banks. However, the guarantee limit was breached and it stood within the envisaged range of Rs263 billion in line with the IMF’s agreed targets on issuance of guarantees.

The Privatization Commission will seek applications for the appointment of a financial adviser who is expected to be hired next month. The Pakistan International Airlines Corporation operates a network in over 20 countries and over 25 cities in the country. The PIA’s lingering crisis has aggravated in the aftermath of a pilot credentials fiasco committed by the PTI government after which it faced billions of rupees in loss due to a ban slapped by the UK and other countries.

According to Dr Khaqan Najeeb, former advisor to the Ministry of Finance, the PIA incurred a loss of Rs88 billion in FY22 along with an operational loss of Rs11 billion. PIA’s debt and liabilities amounted to Rs743 billion, which is five times more than the total value of its assets. It is of serious concern that Rs383 billion of the current PIA debt liability is underwritten by the Government of Pakistan and the responsibility for all payables rests with it, being 92pc owner. He explained PIA incurred a 48% higher half-yearly loss of Rs61 billion in 2023 compared to the previous year. The PIA liquidity crunch seems to have been worsened by rising interest rates and fuel costs. Liquidity injection whether by debt or government support would be needed to keep the PIA flying and meet its liabilities of lease payments of aircraft, markup, principal payments, FBR and aviation dues locally and globally. He said the Privatization Commission had more say in PIA affairs and its future as PIA was on the active list of privatization. PIA’s legal hurdle for privatization has also been cleared through an amendment act promulgated on Aug 12, 2023, which allows management control and the sale of more than 49 per cent shares to a private enterprise. Dr Najeeb clarified that the PC must focus on restructuring PIA’s financial, operational, commercial and human resources to clean its balance sheet. A new holding company can take over legacy loans, non-aviation assets and PIACL subsidiaries including PIA-IL, Skyrooms Limited and Saber Travel Network. In this manner, PIACL as its wholly-owned subsidiary would be vested with aviation assets and related liabilities. This could pave the way for attracting private sector investment through divesting government shares in PIACL, he concluded.