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Wednesday October 30, 2024

Only one bidder left in PIA sale

Privatization Commission prepares for auction, set for Oct. 31, advising PIA officials to remain on standby

By Israr Khan
October 30, 2024
Crew members disembark from a Pakistan International Airways (PIA) flight at Kabul Airport, Afghanistan, September 13, 2021. — AFP
Crew members disembark from a Pakistan International Airways (PIA) flight at Kabul Airport, Afghanistan, September 13, 2021. — AFP

ISLAMABAD: With one day left before the bidding deadline, only one consortium has submitted prequalification documents for the privatization of Pakistan International Airlines (PIA), raising concerns of possible delays in the sale, according to sources familiar with the process.

The Privatization Commission has prepared for the auction, set for Oct. 31, inviting media and key stakeholders and advising PIA officials to remain on standby. Initially, the deadline was extended to Oct. 31 following the InternationalMonetary Fund’s (IMF) request for completion by the end of September. The IMF has made privatizing state-owned enterprises like PIA a priority under its new loan program, which emphasizes economic reforms aimed at fiscal stability.

Of the six pre-qualified groups for the bid, five have withdrawn, leaving only one bidder. The group reportedly deposited the required “earnest money” with the Privatization Commission on Tuesday, confirming its intent to participate. Among the shortlisted were private airline Airblue Ltd., Arif Habib Corporation Ltd., Fly Jinnah by Air Arabia, Y.B. Holdings Pvt., Pak Ethanol Pvt., and the real estate consortium Blue World City.

Earlier this month, the prequalified bidders, who initially agreed to a 60 percent stake, pushed for complete ownership of PIA, citing substantial risks associated with limited control. In response, the government raised the offer to a 76 percent stake, but the bidders expressed further concerns over the airline’s financial burdens, aged fleet, and operational challenges.

The remaining bidders have called for a 100 percent ownership, arguing that significant investment — estimated at $500 million — will be necessary to modernize PIA’s fleet, especially given the impending retirement of 18 wide-body aircraft within two years. The airline’s approximate Rs200 billion debt and requirement for bank financing add to bidder hesitancy, along with complexities in securing insurance.

PIA’s current fleet of leased smaller aircraft would demand considerable investment in fleet renewal and operations if acquired, with halted international routes to Europe and the U.S. further affecting appeal. Prospective buyers have urged the government to restore these routes to improve the airline’s profitability outlook.

Another challenge is Pakistan’s “open skies” policy, which allows foreign carriers to operate freely in the country. Bidders have voiced concerns that without restrictions on foreign competition, PIA’s recovery prospects could remain limited.

Additionally, bidders have raised issues around workforce retention, noting that PIA’s staff is protected under local labor laws. The government’s requirement to retain employees, along with their pension plans, for a minimum of three years has also drawn concerns. Prospective buyers argue the airline is overstaffed, adding a further burden on future operators.