PIA seeks equity injection

The cash-starved national flag carrier Pakistan International Airlines (PIA), struggling for keeping its wheels moving, on Thursday asked the government for equity injection to bring the airline back in the black. According to suggestions submitted by the management to the Senate Standing Committee on Defence and Defence Production on its demand are: equity injection, forex denominated fleet loans conversion into Pak rupee loans and also conversion into equity the non-fleet loans.
To save PIA, its management has sought conversion of non-fleet loans worth Rs 45 billion and foreign exchange loans worth $250 millions, besides fixing markup rates as high as 3-month Kibor for rupee denominated loans and 3-month Libor plus 3.75% for US dollar dominated loans and 5.28% for fixed US dollar loans.
The PIA's financial managers are optimistic that if the package is approved, it would increase market capitalisation and give better financial flexibility to the national flag carrier. Due to low margins in airline industry, PIA operations on its own cannot support the huge burden of financial cost especially on account of non-fleet loans, it said, adding that to make the organisation profitable, support of the government is badly needed to do away with loans accumulated over a long period of time.
It will not only help the PIA cleaning its balance sheet but is necessary for replacement of its ageing fleet, the report maintained. The current assets of the airlines as of December 31, 2009 stand at Rs 18,676,488 and current liabilities amounts to Rs 75,602,186, accumulated losses stand at negative Rs 18,428,142 and negative equity at Rs 52, 837,796. No fresh equity injection has been made despite deficit of Rs 74 billion during the same period.
The PIA was of the view that losses accumulated on account of currency depreciation against forex denominated fleet loans ie Rs 18.1 billion in 2008, Rs 5.5 billion in 2009 and Rs 5.4 billion projected for 2010. It has suggested that the government may take over the fleet loans liability from PIA at fixed conversion rate and the flag carrier be allowed to repay government in Pak rupee on redemption.
On the issue of adding new planes to the fleet, it is suggested that new fuel-efficient planes be inducted into the fleet to make it competitive at international level. Despite all odds, PIA has managed to carry on with its fleet modernisation plan, it added.
The Boeing 777 and ATR42 aircraft are compensating the much-needed repair against fuel and modernisation costs. To further improve fuel efficiency, reliability and overall product offering, the airline has to replace its remaining old aircraft including Boeing 737s and Airbus A310s. The committee was informed that the PIA management would be able to finalise its business plan within next five weeks after proposed restructuring plan of Public Sector Enterprises (PSEs) including PIA is to be sorted out.