EDITORIAL: Finally, the government, though an interim one, has set the ball rolling insofar as the planned sell-off of national airline, PIA, is concerned. Needless to say, PIA once was the pride of the nation.
The activity in relation to outsourcing of airports has also begun. In the case of PIA, the method is to free the assets from the staggering liabilities in the shape of debt and other payables, which will be assumed by the government of Pakistan while the assets will be put up for sale.
Given the poor record of businesses being run by the government of Pakistan, there is no debate over whether the organisation needs to be privatised. It is better to privatise while a company is still operating instead of closing the shop and then trying to sell it. Pakistan has already learnt this lesson from the bitter experience of Pakistan Steel Mills.
The debate whether the airline should be restructured and continue to operate as a state-managed entity and should only be sold when the market improves is over as the fiscal space is so constrained that it is no longer possible for the government to run the airline on borrowed funds from the banks backed by sovereign guarantees. The stark reality is that to keep the airline operations afloat it has to be sold.
Within the scope of PIA privatisation, there are two aspects that require careful deliberation. The first is the valuation of the entity, which is being sold. Since the government is assuming a major chunk of the liabilities — debt, payables and others — it should get decent enough money from selling the free of liability assets.
The airline has core assets in the form of routes, landing rights, core engineering services and air services agreements. There could be other elements (aircraft, etc.), which could be of material worth to fetch a good price. Not to mention the brand itself, which even after all the battering, still has some valuable value, so to speak. The government should be well compensated on these assets.
The second issue is the selection of the operator investor who should ideally help revive the airline. It should not be given to an ill-experienced or ill-managed operator. Ideally, PIA’s buyer should be an international operator and should come with a local partner. If PIA is being sold to a domestic private player, then the airline could have limited success on international routes.
Deregulation of airline business in the United States during the Ronald Reagan era has led to deregulation of this business worldwide. Budget air carriers have sprouted around the globe with some of them commanding a major share of the business in the developed world.
Non-budget or traditional airlines have to hedge on fuel to ensure continuity of profitable operations. Hedging is a risky business and cannot be a good option for the public sector, particularly in a country with Forex controls.
Aviation is a specialized business, and it should be run by a specialized entity. It is not a cement plant or a power project that can be run by any group blessed with deep pockets. Airline is not an easy business to run, and the right international experience has value to add.
There is one good example of having local and international airline partner in Pakistan where one big local group is running an airline in partnership with an international operator, and that airline is a preferred choice of many on domestic routes — though the company is small and has fewer number of aircraft as compared to other domestic carriers. The whole idea is to provide better quality service.
Thus, the privatisation process of PIA should continue without let or hindrance, and the idea is to not shut the operation but to revive it fully by bringing in the right partner. The government is almost done with the difficult part of separating the liabilities of the organisation, now the focus should be on identifying and engaging the right private players to run it. Last but not least, the downfall of the national carrier was highly expected in view of a variety of reasons but it is highly disappointing nevertheless.
Copyright Business Recorder, 2024
Comments
Comments are closed.