PIA Privatization To Be Endorsed by PM Kakar (2023)

During a meeting about PIA issues, the interim prime minister said that we need to speed up the process of privatization of Pakistan International Airlines.

Caretaker Prime Minister Anwaar-ul-Haq Kakar on Thursday gave caretaker Minister for Privatisation Fawad Hasan Fawad the task of overseeing the difficult process of privatization of Pakistan International Airlines and directed him to complete it as quickly as possible.

Fawad was also the former principal secretary to ex-prime minister Nawaz Sharif.

PIA Privatization Amid Financial Woes

Chairing a meeting on issues related to Pakistan International Airlines, the prime minister said the process must be done as quickly as possible.

He directed all the relevant stakeholders to find an immediate solution to matters related to privatization. During this meeting, the prime minister was given a report on the progress of the privatization process of PIA. He also embraced the new caretaker privatization minister to the team.

Sources said Pakistan International Airline’s employees have not received their salaries for the month of August because of financial issues related to the airline.

The Aviation Division has requested the government for the immediate release of Rs23 billion as a bailout package. However, the Ministry of Finance has dismissed reports that the government was going to give its support to PIA to help them get out of this financial issue.

There are also reports that PIA had grounded 14 out of 31 aircraft in its fleet due to insufficient funds, which led to its reputation getting worse.

PM Kakar Urges Fast-Track Privatization

Caretaker Prime Minister Anwaar-ul-Haq Kakar has directed to completion of the privatization process of Pakistan International Airlines on a fast-track basis to provide reliable services to passengers.

Chairing a meeting to review the process of Pakistan International Airlines privatization in Islamabad on Thursday, he urged the stakeholders concerned to expedite the process keeping in view the rising standards of the national flag carrier as per International standards.

Anwaar-ul-Haq Kakar directed all relevant stakeholders to find an immediate solution to the matters related to this privatization.

PIA had a glorious past and a series of achievements. Once, Pakistan International Airlines was one of the best airlines in the world but from the late nineties, it has incurred losses as it could not compete well with the other emerging regional airlines.

Financial Challenges and Sustainability Efforts

PIA’s problems were exacerbated due to the absence of entrepreneurship, rising extraneous influences, internal mismanagement as well and its inability to finance the cost of fleet expansion.

As of December 31, 2022, PIA’s debt and liabilities stood at Rs743 billion which was five times more than the total value of its assets.

PIA’s total losses for the last financial year stood at Rs86.5 billion, out of which Rs11 billion were operational losses.

lf the situation continues as such, PIA’S debt and liabilities would rise to Rs1977 billion and its annual losses would increase to Rs259 billion per annum by 2030.

Two Approaches to PIA’s Sustainability Efforts

Several attempts were made in the last decade or so to make PIA sustainable.

These attempts followed two basic approaches.

  • The first approach mainly focused on turning around PIA by cutting costs, improving internal management, and increasing fleet size with capital investment from the Government of Pakistan.
  • The second approach focused on financial, legal, operational, commercial, and human resource restructuring of PIA to clean its balance sheet with the ultimate aim of attracting private investment through the divestment of Government of Pakistan shares.

ln addition, PIA also carried out a study for formulating a sound business plan to make it profitable by engaging the International Air Transport Association (IATA) which also recommended a similar approach while indicating a capital injection of $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 reports could be implemented for various reasons.

Restructuring and Cash Flow Issues

The Ministry of Aviation apprised that in order to proceed further, it was important to seek the government’s approval of the restructuring plan. The restructuring of Pakistan International Airlines was likely to take around eight months or so.

It was also obvious that at the time of divestment, fair value of shares could only be obtained if Pakistan International Airlines remained operating till the completion of all stages of restructuring.

However, currently, Pakistan International Airlines is facing a serious cash flow problem as a result of which it has been unable to pay its creditors, aircraft lessors, fuel suppliers, insurers, international and domestic airport operators, and even the IATA on time.

As a result, it has been forced to ground five out of its thirteen leased aircraft while four additional aircraft are likely to be grounded during this week.

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