Pakistan fasttracks airline privatisation
• Sale is part of reforms under IMF bailout package
Islamabad — Ahead of elections next week, Pakistan’s caretaker administration is making binding plans for a new government to sell loss-making Pakistan International Airlines (PIA), according to the minister in charge of the process.
In the past, elected governments have shied away from undertaking unpopular reforms, including the sale of the flag carrier. But Pakistan, in deep economic crisis, agreed in June to overhaul loss-making stateowned enterprises under a deal with the IMF for a $3bn bailout.
The government decided to privatise PIA just weeks after signing the IMF agreement.
The caretaker administration, which took office in August to oversee the February 8 election, was empowered by the outgoing parliament to take any step needed to meet the budgetary targets agreed with the IMF.
“Our job is 98% done,” privatisation minister Fawad Hasan Fawad told Reuters. “The remaining 2% is just to bring it on an Excel sheet after the cabinet approves it.”
Fawad said the plan, drawn up by transaction adviser EY, will be presented to the cabinet for approval before the tenure of the administration ends after the election. The cabinet will also decide whether to sell the stake by tender or a government-to-government deal, Fawad said.
“What we have done in just four months is what past governments have been trying to do for over a decade,” Fawad said. “There is no looking back.”
Details of the privatisation process have not been previously reported. PIA had liabilities of 785-billion Pakistani rupees ($2.81bn) and accumulated losses of 713-billion rupees up to June last year. Its CEO has said losses in 2023 are likely to be 112-billion rupees.
Progress on the privatisation will be a key issue if the incoming government goes back to the IMF once the current bailout programme expires in March. Caretaker finance minister Shamshad Akhtar told reporters last year that Pakistan would have to remain in IMF programmes after the expiry.
Two sources close to the process said that a 51% stake with full management control would be offered to buyers after parking the airline’s debts in a separate entity, under the 1,100 page report from EY.
Reuters could not independently confirm the contents of the report. EY did not respond to requests for comment.
PIA spokesperson Abdullah Hafeez Khan said the airline is assisting in the privatisation process, and is extending “full cooperation” to the transaction adviser.
Besides operational and technical measures for PIA’s divestment, the caretaker government has amended a 2016 law that had blocked selling off its majority shares, according to a draft posted on the Pakistan parliament’s website.
The Pakistan Muslim League-Nawaz party of former prime minister Nawaz Sharif is tipped by analysts to win the election with support from the powerful military.
Its main political rival has been decimated by the arrest and sentencing to a long jail term of its leader Imran Khan and a crackdown on its members.
Sharif’s close aide Ishaq Dar, who has been his finance minister previously and has been named by the party to retain the portfolio if it forms the next government, said that the sale of PIA will be fast-tracked.
In a report in mid-January, the IMF expressed satisfaction over the measures initiated by the caretaker government to accelerate reforms of stateowned enterprises, specifically mentioning the amendment of the PIA privatisation law.
Under the privatisation plan submitted by EY to the government on December 27, government-guaranteed legacy debt and payables — which are held by a consortium of seven domestic banks — will be parked in a holding company, Fawad and two sources involved in the process said.
Fawad said the government and the consortium have an agreement in place regarding the settlement of the legacy debt, which includes negative equity of 825-billions rupees in loans, creditors’ money and the losses. He provided no further details.
Pakistan’s financial crisis has also led to the seizure of PIA aircraft by creditors in recent months, according to the airline.
While the airline awaits the government’s decision on a sale, it continues to need financial support: 23.7-billion rupees are required to keep it afloat for another five to six months before control is given to a new buyer, three government and PIA sources said.
Not everyone agrees with pressing ahead speedily with the sale.
Three senior airline officials who spoke on condition of anonymity said a quick sale could devalue the airline’s worth, and would not be transparent without due diligence.
“We are not against its privatisation, and all we want is that you don’t just throw it away,” one of the officials said.
But Singapore-based aviation analyst Brendan Sobie said PIA is in dire straits: the plan that has been submitted to the government is “essentially the only option to save the airline”.
“The privatisation will be challenging and a sale is likely [to be] not possible unless the airline first undergoes a deep restructuring and the debts are cleared,” Sobie said.
PIA’s assets include key slots at the world’s busiest airports and air routes to top European destinations, the Middle East and North America.
It has air service agreements with more than 150 countries and generates about 280-billion rupees annually in revenues despite an EU ban, airline records show.
It has 10 slots at Heathrow, which, according to two PIA officials, are worth 70-billion rupees annually. It has a further nine slots at Manchester and four at Birmingham.
Turkish and Kuwaiti airlines have been operating 70% of the slots under a business arrangement with PIA that also allows the airline to retain them, airline officials said.
Separately, PIA’s physical assets, which include aircraft, hotels in Paris and New York and other properties, are worth 105.6-billion rupees as per book value, according to the airline’s annual report for 2023.
PIA officials, however, said the market value of the assets could be above $1bn.
In any case, the hotels and other properties would not be up for sale, they said.