No, says govt to PIA’s demand of Rs248b bailout

Board members, management wanted Rs3.5 billion per month to pay off debt


Shahbaz Rana December 04, 2015
Under a condition of the $6.2-billion IMF programme, the government is bound to invite Expression of Interest from prospective investors by December 31 and sell the airline by June next year. PHOTO: FILE

ISLAMABAD:


The federal government has refused to service Rs248 billion debt of Pakistan International Airlines (PIA) from the budget, rejecting a demand of the national flag carrier that sought Rs3.5 billion per month to avoid default until the airline was privatised.


The Board of Directors at PIA and Special Assistant to Prime Minister on Aviation Shujat Azeem took up the issue of budgetary support to settle legacy loans of the loss-making national flag carrier with Finance Minister Ishaq Dar during a meeting held early this week in Lahore, said the ministry officials.

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The federal government was also reluctant to sell two of PIA’s hotels - the Roosevelt Hotel New York and Scribe Hotel Paris - to pay off the national flag carrier’s ballooning debt that stood at Rs248 billion at the end of March this year, officials added.

They said the fate of these hotels would be decided afterwards.

Due to a delay in completion of the valuation study of both hotels and on-going restructuring of the financial statement, the PIA Board has not yet approved the financial statements of April-June and July-September quarters.

The board will meet on December 8 to approve the pending financial statements.

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Under its proposed restructuring plan that could not get the FM’s nod, Board members and the management wanted the federal government to give Rs3.5 billion per month to pay off the debt and the mark-up on it, said the officials.

However, the minister refused to open the federal purse but promised that he could help in arranging loans from commercial banks on the balance sheet of the national flag carrier

Dar is said to be not too happy with the board and management for finding an easy path to restructuring that puts the entire burden on the federal government.

The majority shareholder’s focus was on whether the PIA could default on its debt obligations, as it might carry adverse implications for the on-going privatisation programme, said a Board member on condition of anonymity.

The federal government has already extended sovereign guarantees to help the PIA roll over Rs6.8 billion Sukuk borrowings that were not retired on time.

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Under a condition of $6.2 billion International Monetary Fund (IMF) programme, the government is bound to invite Expression of Interest from the prospective investors by December 31 and sell the airline by June next year. To remove legal hindrance in the PIA privatisation, the government is also in the process of issuing a Presidential Ordinance to repeal the 1956 Act of the PIA.

The officials said the board demanded the government to pick up the cost of debt and servicing, as it was a drain on PIA’s profit.

In the first quarter of the current calendar year, PIA paid Rs3.37 billion to service the debt that it owed to various domestic and international investors, according to the company’s balance sheet.

By the end of March, PIA owed Rs65 billion in long-term financing facility and Rs54.5 billion in short-term debt. In addition to this, the PIA owed over Rs104 billion in trade and other payables, Rs19.6 billion in term finance certificates and Sukuk and Rs5 billion in running finance facility.

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In December, Rs3.6 billion short term debt is maturing that the national flag carrier owes to Habib Bank Limited.

The National Bank of Pakistan (NBP) has taken maximum exposure and given Rs58.7 billion loan to PIA till March this year including Rs44 billion short term to keep the national flag carrier flying, according to the consolidated financial statement.

JP Morgan Chase has given Rs13.8 billion long-term loan, Citi Bank Rs10.4 billion, Standard Chartered Bank Rs9.3 billion and Faysal Bank Rs5.8 billion till March this year.

The officials said that besides seeking money for debt servicing, the Aviation Division also sought federal government help for acquiring aircraft to introduce premium services on long-haul flights. In the first quarter of this calendar, the PIA earned 23% of its revenue from United Kingdom routes and 10% from the Americas.

Published in The Express Tribune, December 5th, 2015.

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COMMENTS (2)

Shahzada Sohail Malik | 8 years ago | Reply If Authorities and Government religiously and honestly pursue single line agenda " ADOPT ZERO TOLLERANCE ON CORRUPTION AND NEPOTISM", this airline can easily come out of its doom days.
Parvez | 8 years ago | Reply Has the time come for the government to transfer PIA into the hands of the ' brothers ' from Canada ?
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