Pakistan puts PIA on the retail shelf

Islamabad has pulled the emergency brake on state-owned Pakistan International Airlines. The government is willing to sell the company completely or at least 51% of its shares. This is in response to urgent advice from the International Monetary Fund (IMF) to dispose of loss-making state holdings. Otherwise, the fund may freeze its payments for the country.

It seems unlikely that President Asif Ali Zardari and his cabinet will change their minds about selling PIA at the last minute, because the highly indebted country needs cash. And new money will only flow if Pakistan is willing to divest itself of permanently subsidized assets by selling them to private investors.

A hot candidate standing high on Islamabad’s list is state-owned Pakistan International Airlines, which has only remained afloat for years thanks to the inflow of state subsidies.

PIA jetliner on way to privatization? – photo: courtesy AP

“Debt-lite” new structure
Recently, the government has set up a Privatization Panel. In an advertisement published in different newspapers, it named 03MAY24 as the application deadline for statements of interest in PIA. The airline has piled up arrears of payments in the region of several hundreds of billions of rupees. At the same time, Lahore-based Etihad Consulting was appointed as the financial adviser for the intended sales proceedings. “The restructured PIA is being offered to potential investors in its ‘debt-lite’ new structure for a 51% stake,” the Privatization Commission states in its website presentation. It added that it intends to sign a share price deal by 24JUN24, after all provisions in the forthcoming transaction are completed.

Mixed fleet
Once restructured, “PIA provides an opportunity for investors to acquire a full-service airline,” reads the Commission’s statement. Currently, the airline holds a share of 23% in Pakistan’s aviation market, ahead of Emirates, Etihad, flydubai or any other foreign carrier. It operates a mixed fleet of 34 aircraft, including 17 Airbus A320s, 12 Boeing B777s and 5 ATRs. In recent times, it was forced to cut flights to the Middle East due to stiff competition from its Gulf-based peers.

These figures may sound attractive to potential investors at first glance, but the airline has a battered reputation caused by endless scandals in recent years – scandals that were tolerated and enabled by political patronage. For a long time, staff appointments were based on close family ties to influential political or administrative circles or to senior managers at the airline, with the applicant’s qualifications only playing a minor role.

Standing on EASA’s blacklist
This led to considerable safety deficiencies, objected to by global aviation regulators for years, who have repeatedly called into question PIA’s governance and safety standards. In 2020, the European Union Aviation Safety Agency (EASA) banned the carrier from its most lucrative routes in Europe and the UK, following a crash near Karachi which killed 97 passengers and crew members. An investigation report published on 24JUN20 by the Pakistani Aircraft Accident Investigation Board (AAIB), held both pilots responsible for the crash. During the approach at Karachi Airport, they had been extremely distracted by an intense conversation about the Covid-19 pandemic, so they ignored multiple visual and acoustic warning signals from air traffic control.

Shortly after, the airline cancelled the licenses of 15 pilots which were based on falsified documents. A further 14 cockpit crew were declared unfit to operate any aircraft.

The ban imposed by EASA cost PIA an annual revenue of roughly 40 billion PAK rupees, which translates into 133 million euros.

Every investor will therefore have to consider how to eliminate these serious deficits in order to regain trust and improve the airline’s tarnished reputation. Presumably many heads will roll, not only those of the top management, but also those responsible for technology, safety, and personnel issues.

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