The national flag carrier’s SOS request for a new cash injection to keep it afloat ahead of its scheduled privatisation has been declined, raising the spectre of the state owned enterprise shutting down before it can be privatised.
By Muhammad Ali
ISLAMABAD: Mired in deep financial trouble, the Pakistan International Airlines Corporation (PIAC) has been cut loose by the cash-strapped federal government, raising the spectre of the state owned enterprise shutting down operations before it can be privatised.
But without the help it was denied the other day by the authorities – including an urgent cash injection of approx. PKR 23 billion – officials say the fabulous airline of the yesteryears is ready to ground 4 more of its 13 leased aircraft, 5 of which have already been grounded.
The government has a 92 percent stake in the PIA, the storied national flag career that has run aground chiefly because of mismanagement and exploitation by certain interests, which is basically why the PIAC management believed the government was on the hook to throw them yet another lifeline.
But Wednesday’s meeting of the powerful Economic Coordination Committee (ECC) of the Cabinet, chaired by Caretaker Federal Minister for Finance, Revenue, Economic Affairs and Privatization Dr. Shamshad Akhtar, thought otherwise.
The PIAC had requested (a) a cash injection of PKR 22.9 billion; (b) PKR 2 billion in deferred taxes, and (c) an unspecified amount of debt deferment to last it through its privatisation (which it says can take up to 8 months).
The ECC denied all three requests, seeking a restructuring plan before seeking any financial support. The Committee also decided to constitute a separate committee for assessment of the restructuring plan of PIA.
The PIAC has been a huge drain on the national exchequer for decades now, routinely requiring cash assistance to stay afloat. As of December 31, 2022, PIA’s debt and liabilities stood at PKR 743 billion – or five times the total value of its assets.
The airline’s total losses for the last financial year stood at PKR 86.5 billion – including PKR 11 billion in operational losses. Its debt and liabilities are on track to stack up to PKR 1977 billion by 2030, including PKR PKR 259 billion in average annual loss.
The Ministry of Aviation summary seeking assistance for PIAC said the airline has already been forced to ground 5 of its 13 leased aircraft owing to financial trouble, while 4 more aircraft are likely to be grounded this week.
This raises the spectre of the airline’s operations grinding to a halt well before it concludes the restructuring plan it says it needs 8 more months to complete. What is more, the ECC was aparently unimpressed by the plan, which is why it sought a new restructuring plan before considering any request for assistance.
Pakistan has embarked on several initiatives over the last decade or so to turn around PIA, none of which bore fruit. One of the two approaches was focused at cost cutting, while the other revolved around financial, legal, operational, commercial and human resource restructuring of PIA to clean its balance sheet.
The ultimate aim of the putative restructuring was to attract private investment with a view to divestment of the government of Pakistan shares.
Another shy at turnaround prompted PIA to carry out a study to formulate a sound business plan that makes it profitable by engaging IATA which indicated a capital injection of USD 3.5 billion over a period of five years to enhance fleet size from 29 aircraft in 2021 to 49 in 2026.
However, none of these plans could be implemented to conclusion for one reason or another.
In June 2023, the PIAC kicked off a restructuring plan broadly following a 2017 study conducted by the Dubai Islamic Bank Consortium. Officials say the plan is well underway and three of its milestones have already been achieved. They do not say how many remain.
The Ministry of Aviation says the restructuring of PIA is likely to take around 8 more months. Officials argue that fair value for PIA’s shares can only be realised at the time of divestment if the airline remains on the wing through to the completion of restructuring.
Unfortunately, however, the airline is in the grip of a crippling cash flow crunch, rendered unable to pay its creditors, suppliers, and vendors including aircraft lessors, fuel suppliers, insurer, international and domestic airport operators and even IATA.
This has prompted grounding of its leased aircraft. Another challenge staring PIA in its eyes – stemming from its financial difficulties – is that Boeing and Airbus are likely to discontinue supply of spare parts by mid September.
This was the rationale for the Ministry’s express request for assistance for the PIAC, but the ECC has thought it fit to deny it. The reasons are obvious: The current state of the economy as well as PIA’s track record as a bottomless pit for national resources.
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