KARACHI: Pakistan is putting on the block a stake ranging from 51% to 100% of loss-making national carrier Pakistan International Airlines, the privatisation panel said on Tuesday, as part of reforms urged by the International Monetary Fund (IMF).
The disposal of the flag carrier is a step past elected governments have steered away from as likely to be highly unpopular, but progress on the privatisation will help cash-strapped Pakistan pursue further funding talks with the IMF.
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In a newspaper advertisement, the panel set a deadline of May 3 to receive statements of interest in PIA, which has piled up arrears of hundreds of billions of rupees, and it appointed EY Consulting 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%-plus stake,” the Privatisation Commission said in a website presentation.
The panel aimed to sign a share price deal by June 24, after completing all steps in the transaction, it added.
“The restructured PIA provides an opportunity to invest in a full-service airline.”
PIA’s 23% share of Pakistan’s aviation market is the biggest, and the airline could grow further to exceed historic levels of 30%, the panel said.
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With a fleet of 34 aircraft comprising 17 Airbus A320s, 12 Boeing B777s and 5 ATRs, the airline loses traffic to Middle Eastern carriers, who have a market share of 60%, because of an absence of direct flights to destinations.
The carrier has air service pacts with 87 countries, and landing slots at key destinations such as London Heathrow.
Restructuring
The re-organisation of the business will separate the aviation-related aspects from non-core components, so freeing the operating subsidiary of a large portion of legacy debt.
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The restructuring will move out 603 billion rupees ($2.2 billion) of liabilities, leaving 203 billion ($730 million) on the balance sheet for the acquired business.
The presentation added that PIA broke even at earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) level in 2023, which the panel projected to continue in 2024.
Besides the losses and debt, however, global aviation regulators have questioned PIA’s governance and safety standards for some years.
In 2020, after a PIA plane crash in Karachi killed nearly 100, followed by a fake pilot license scandal, the European Union Aviation Safety Agency (EASA) banned the airline from its most lucrative routes in Europe and Britain.
The ban continues, costing the airline annual revenue of nearly 40 billion rupees, the government has told parliament.
“PIA plans to restore its network, starting routes into the United Kingdom, Western Europe and the United States,” read the investment presentation.
Privatisation and the IMF
The offer of the stake, which carries management control, follows Pakistan’s agreement to fiscal discipline plans with the IMF, from which it secured a $3-billion bailout in June.
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Pakistan is now looking to start talks with the lender for a medium-term programme key to shoring up an economy struggling due to high inflation, low reserves of foreign exchange and high external financing needs.
The IMF wants reforms to State-Owned Enterprises (SOEs) that more clearly define ownership and government roles. Shares of the airline dropped 7.5% in intra-day trade to hit the lower limit, after soaring more than 403% in the last six months.
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