Aviation

April 10, 2018
 

PIA privatisation under pressure

A government privatisation commission announced on 21 March plans to solicit expressions of interest (EOI) from private sector investors within three months regarding acquisition of a 49% stake in state-controlled Pakistan International Airlines (PIA).

According to government estimates, PIA may be shouldering a debt burden of as much as $4 billion and the carrier continues to lose about $1.3 million daily.

PIA has been losing market share to Gulf-based rivals, such as Etihad and Emirates, and has been hit by management turmoil in recent years as well as a 2016 crash that led to 47 deaths.

The government has pledged to retain a controlling 51% stake in PIA as well as managerial control of the airline.

… PIA privatisation mandated by IMF

In spite of pressure from some political parties, the government gave the go-ahead on 6 March for sale of the minority stake in the Pakistani flag carrier.

Political opponents of the move charge that PIA management has enacted policies that were designed to make the carrier incur huge losses, thereby justifying a sale at a throwaway price.

Specifically, those charges include expensive lease agreements, an open skies policy that disadvantages PIA as well as discontinuation of some profitable international routes.

Privatisation of PIA — along with 67 other state-owned enterprises — was one of the conditions Pakistan accepted as part of a $6.67 billion extended fund facility (EFF) from the International Monetary Fund (IMF) in 2013.

An attempt to push the process forward in late 2015 or early 2016 through sale of a 26% stake met with fierce political as well as workforce resistance.

The standoff culminated in a series of strikes that effectively grounded the airline for several days in February 2016 before the sale was called off.

Both Emirates and Etihad had shown interest in buying PIA before the government backed down from privatisation in 2016.

Current government strategy calls for carving out legacy debt and all non-core assets from loss-making PIA, including hotels, real estate, engineering and catering, to improve privatisation prospects.

According to a 2015 valuation, the Roosevelt Hotel in New York and Hotel Scribe in Paris, both owned by PIA, are estimated to be worth over $600 million.

In mid-March, the Asian Development Bank pledged financial and technical support to the government for the proposed privatisation.

… commission renews advisory contracts

The privatisation commission is in the process of renewing the services of a consortium of advisors to proceed with privatisation of PIA as the previous service contract with expired in early October 2017.

The commission had named Dubai Islamic Bank, IATA Consulting, consultancy Deloitte, Lahore-based law firm Haidermotabnr, UK-based law firm Freshfields Bruckhaus Deringer, Lahore-based Abacus Consulting, corporate communications firm Apco and consultancy Prestige as advisors.

In late March, Pakistan’s Supreme Court called for PIA’s audited financial statements for the last 10 years.