- Monday, April 29, 2024
Privatisation of carrier will help recovery of stricken economy
By: Eastern Eye
PAKISTAN is putting on the block a stake ranging from 51 per cent to 100 per cent of lossmaking national carrier Pakistan International Airlines (PIA), the privatisation panel said on Tuesday (2), as part of reforms urged by the IMF.
The disposal of the flag carrier represents a departure from a path elected governments have avoided due to its likely unpopularity. However, progress on the privatisation will assist cash-strapped Pakistan in pursuing further funding talks with the IMF.
In a newspaper advertisement, the panel set a deadline of May 3 to receive statements of interest in PIA, which has amassed arrears of hundreds of billions of rupees. EY Consulting has been appointed as the financial adviser for the deal.
“The restructured PIA is being offered to potential investors in its ‘debt-lite’ new structure for a 51 per cent-plus stake,” the Privatisation Commission stated in a website presentation. The panel aims to finalise a share price deal by June 24, following the completion of all transaction steps.
“The restructured PIA presents an opportunity to invest in a fullservice airline.” PIA’s 23 per cent share of Pakistan’s aviation market is the largest, and the airline has the potential to surpass historical levels of 30 per cent, according to the panel.
With a fleet of 34 aircraft, including 17 Airbus A320s, 12 Boeing B777s, and 5 ATRs, the airline loses traffic to Middle Eastern carriers, who hold a 60 per cent market share, due to the absence of direct flights to certain destinations. The carrier has air service agreements with 87 countries and landing slots at key destinations such as London’s Heathrow.
The business reorganisation will segregate aviation-related aspects from non-core components, thereby relieving the operating subsidiary of a significant portion of legacy debt. The restructuring will transfer 603 billion rupees (£1.73bn/$2.2bn) of liabilities, leaving 203 billion rupees (£580m/ $730m) on the balance sheet for the acquired business. The presentation also noted that PIA broke even at the earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) level in 2023.
However, global aviation regulators have raised concerns about PIA’s governance and safety standards for several years. In 2020, following a PIA plane crash in Karachi that claimed nearly 100 lives and a subsequent fake pilot license scandal, the European Union Aviation Safety Agency (EASA) banned the airline from its most lucrative routes in Europe and Britain. The ongoing ban has cost the airline an annual revenue of nearly 40 billion rupees.
“PIA plans to rebuild its network, commencing routes into the United Kingdom, Western Europe, and the United States,” stated the investment presentation. The offer of the stake, which includes management control, comes after Pakistan’s commitment to fiscal discipline plans with the International Monetary Fund (IMF), from which it secured a $3bn (£2.39bn) bailout in June.
Pakistan is now seeking to initiate talks with the lender for a medium-term programme crucial to stabilising an economy afflicted by high inflation, low foreign exchange reserves, and significant external financing needs. The IMF is calling for reforms to StateOwned Enterprises (SOEs) that more clearly define ownership and government roles. (Reuters)
