PIA sale hits turbulence as lone bidder offers less than govt minimum

ISLAMABAD: Pakistan’s latest attempt to privatise its struggling national airline collapsed Thursday after the sole bidder, Blue World City, declined to meet the government’s minimum asking price of Rs85 billion ($304 million).

Offering Rs10 billion ($35.8 million) for a 60 percent stake in Pakistan International Airlines (PIA), the sole bidder flatly refused further negotiations. The bidder declined to raise its bid, remarking, “We cannot offer more than that; the government should run this airline itself.” There was a talk around during this privatisation exercise that the bidder was unprepared to pay any price for the airline.

This bid failure marks Pakistan’s second attempt in a decade to divest the national flag carrier, with a similar effort ending prematurely in 2015. The government pushed ahead despite the shaky start to the latest process and millions of dollars spent on financial advisory services over the past year. “The interest was thin from the outset due to significant conditionalities,” a top official of the Privatisation Commission noted, adding: “But we proceeded, hoping for a favourable outcome.”

During Thursday’s auction, Blue World City initially offered Rs10 billion, far below the government’s disclosed reference price of Rs85.03 billion. The Privatisation Commission allowed the bidder a brief recess to reconsider, only for them to return with the same offer, saying, “We cannot offer more than that, and now the government should run this airline.”

When asked by The News about the next steps, a top official of the Privatisation Commission said that the findings would be presented before the commission’s Board before referring the matter to the Cabinet Committee on Privatisation (CCoP), chaired by Deputy Prime Minister Ishaq Dar,for further discussion. A final decision would then be made by the federal cabinet. Given the vast difference between the bidder’s offer and the government’s asking price, officials predict the cabinet would reject the offer and consider whether to restart the privatisation process from scratch.

The collapse of PIA’s privatisation comes as Pakistan faces mounting pressure from the International Monetary Fund (IMF) to reform its fiscal policies. Under an IMF loan programme, Pakistan committed to divesting state-owned enterprises like PIA to help stabilise its economy. Despite IMF expectations for PIA’s sale to be finalised by September, the government delayed the auction deadline multiple times—from August 14 to October 1, then to October 31—reflecting low investor interest.

Initially, six groups expressed interest in acquiring the PIA, but five pulled out before the final round. These five include Airblue Ltd, Fly Jinnah by Air Arabia, Arif Habib Corporation Ltd, Y B Holdings and Pak Ethanol Pvt, which baulked at the airline’s debt burden, which exceeds Rs200 billion, and the significant upfront capital required to modernise the fleet.

Prospective investors voiced several concerns, particularly PIA’s ageing fleet and the cost of replacing wide-body aircraft within the next two years, a requirement expected to cost an estimated $500 million. PIA’s loss of access to international routes, notably to the US and Europe, further dented investor enthusiasm. These routes, suspended by the European Union Aviation Safety Agency over safety concerns, are widely considered crucial to restoring the airline’s profitability.

Complicating matters is Pakistan’s open skies policy, which allows foreign airlines unrestricted access to domestic routes, adding competitive pressure on the PIA. Moreover, the government’s condition that PIA staff be retained for three years—with subsequent pension obligations—was a deterrent to investors, who view the airline as overstaffed.

As the federal cabinet prepares to review the outcome, officials say that restarting the privatisation afresh is likely if the government is serious about selling the airline. For now, the PIA remains firmly under state control, its financial struggles underscoring Pakistan’s larger economic challenges in achieving fiscal reform.

News Desk adds: Officials from three groups that chose not to bid told a British wire service on condition of anonymity that there were concerns about the government’s ability to stand by agreements made for the flag carrier in the long term.

One executive voiced concern about policy continuity once a new government came in. The government of Prime Minister Shehbaz Sharif has relied on a coalition of disparate political parties. The disposal of PIA is a step former governments have steered away from as it has been highly unpopular given the number of layoffs that would likely result from it.

Underpinning these concerns over policy continuity and honouring contracts was the government’s termination of power purchase contracts with five private companies earlier this month, as well as the process of re-negotiating other sovereign guaranteed pacts.

Changes in Pakistan’s decade-old agreements with private IPP projects, largely financed by foreign lenders, to address chronic power shortages, “raises the risk of investing as well as doing business in Pakistan, even in the presence of sovereign contracts as well as guarantees,” said Sakib Sherani, an economist who heads private firm Macro Economic Insights. Other concerns raised by potential bidders included inconsistent government communication, unattractive terms and taxes on the sector, in addition to PIA’s legacy issues and reputation.