ISLAMABAD: The government has decided to facilitate Pakistan International Airlines Corporation (PIAC) to secure loans amounting to Rs.13 billion from commercial banks to overcome its cash flow issues, besides extending Rs 4 billion as Technical Supplementary Grant (TSG), official sources told Business Recorder.

Ministry of Aviation, sources said has informed the government that a meeting was held in Prime Minister’s office on December 30, 2017 wherein it was decided that mark-up on the debt of PIA would be picked up by GoP for five years (from July, 2018 to June, 2023) and its payment would be made directly to the lenders. Consequently, payments of mark-up on GoP Guarantee Loans of PIA had been made to the lenders from July 2018 till November 2022.

According to Ministry of Aviation, Ministry of Finance had allocated Rs. 15 billion during Financial Year 2022-23 against demand of Rs. 31.5 billion out of which Rs. 14.689 billion was utilised up to November, 2022.

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The mark-up from December 2022 to June 2023, amounting to Rs. 23.255 billion, was sent to Finance Division for release of additional funds of Rs. 22.94 billion; however, the amount was not released.

The Ministry stated that due to non-release of additional funds, mark-up payment support exacerbated the already persistent cash flow problem of PIA.

The Ministry of Aviation argues that PIA was severely constrained in making mark-up payments from its available operational cash flows and had reached a point where it was unable to make any further payment.

The Ministry informed the ECC on June 26, 2023 that the diversion of operational cash flows to mark-up payments had led to the delay in payments due in relation to PIA’S core operational obligations.

It was explained that it included payments in relation to various services without which flight operations were not possible such as payments in relation to lease of aircrafts and airport services. The forum was informed that out of PIA’s fleet of 31 aircrafts, 13 aircrafts had been acquired on lease.

The Ministry also shared recent notices received by PIA as follows: (i) Aercap, one of PIA’s lessor impounded 13 PIA 777 aircraft on 29th May 23 at Kuala Lumpur, Malaysia which was later released under court order after making overdue payment and pledging PIA receipts through IATA Clearing House; (ii) Willis leasing, another lessor, has filed a law suit for non-payment in a US court and in order to avoid any adverse decision, two A-320 aircraft engines leased by them are being removed and forced returned to them; (iii) Allianz insurance broker has issued a termination notice and if overdue payments are not made, insurance cover will not be available resulting in suspension of PIA operations in entirety; (iv) GACA KSA has issued a notice for payment of full outstanding amount of USD 48 million to avoid suspension of operations including Hajj flights’ 56,0O0 Hujjaj have already travelled to KSA and their repatriation operation will not commence until GACA payment are made; and (v) IATA had issued last warning for payment of its outstanding dues of $ 2.8 million immediately.

Failure in compliance with notice could have resulted in suspension of PIA’s IATA membership and thus flight operations. This payment was made on June 23, 2023 with great difficulty.

However, if the existing cash flow problem continues, this situation is likely to re-emerge in the near future.

The Ministry emphasized that it would not be possible for PIA to continue its operations, if mark-up amount of Rs 22.9 billion was not immediately released.

The Ministry; therefore, requested for approval of the EEC that pending claim of PIAC amounting to Rs. 22.944 billion, on account of mark-up up to June, 2023 may be released enabling PIACL to overcome its cash flow issues. The SAPM on Finance stressed the need to have a viable business plan for PIA in order to enable it to function on sustainable basis in future.

After threadbare discussion, the ECC directed Finance Division to: (i) provide an amount of Rs.4 billion to PIAC through Technical supplementary Grant (TSG); and (ii) facilitate PIAC to secure loans amounting to Rs.13 billion from commercial banks to overcome its cash flow issues.

Copyright Business Recorder, 2023