PIA’s financial crisis worsens after plane crash

Needs support to pay Rs24.9b in loan installments, mark-up from Jan-Jun this year


Zafar Bhutta January 26, 2017
The FBR chairman argued that PIA was not depositing taxes in FBR’s accounts despite the fact that federal excise duty was being collected on the sale of air tickets. PHOTO: FILE

ISLAMABAD: The Aviation Division has revealed that the financial condition of Pakistan International Airlines (PIA) has worsened following a recent plane crash and a heavy burden of loans may push the air carrier to the brink of default.

“The financial crisis is so worse that PIA has eaten up duties and taxes collected on ticket sales and deducted from salaries of its employees,” it said during a meeting of the Economic Coordination Committee (ECC) of the cabinet held on January 18.

The sorry state of affairs of the national flag carrier annoyed Finance Minister Ishaq Dar, an official said.

ECC backs topping PIA’s guarantee limit by Rs10.5b



The Aviation Division emphasised that PIA needed support to pay loan installments and mark-up from January to June 2017, which amounted to Rs24.94 billion.

The situation was getting worse as PIA had not been able to repay the lenders, which could lead to the grounding of aircraft or default on payments, it said, adding liquidity crisis had been continuing for the past several years.

Though the addition of aircraft improved flight regularity and operational efficiency, its revenue could not be augmented due to low yield and excess capacity.

Despite these limitations, it said, PIA pulled along in 2016 with support of the government.

The ECC was told that the recent crash of PIA flight PK-661 had drastically impacted the airline both in financial and operational terms and the situation was getting worse as the airline had not been able to repay its lenders.

Similarly, PIA’s payables to oil supplier Pakistan State Oil had ballooned and fuel supplies had been refused.

Saudi Arabia’s Civil Aviation Authority has also threatened to stop PIA’s operations in case of further delay in payments. An amount of Rs6.74 billion was required to meet PIA’s liabilities, the Aviation Division said.

PIA raises $130m in fresh financing

It asked the ECC to increase government’s guarantees for PIA from Rs151 billion to Rs161.5 billion. It also suggested that the Ministry of Finance should assist PIA in arranging bank loans on the terms and conditions to be finalised by the ministry.

Minister of Planning, Development and Reform Ahsan Iqbal proposed that a committee should be constituted for developing a business plan for the national air carrier.

The Economic Affairs Division secretary suggested that PIA’s governance structure should also be examined. After comprehensive discussions, it was decided to form a committee for developing the operational and business plan.

The Federal Board of Revenue (FBR) chairman argued that PIA was not depositing taxes in FBR’s accounts despite the fact that federal excise duty was being collected on the sale of air tickets.

In addition to that, PIA was also not depositing the taxes being deducted from the salaries of its employees.

In response, the ECC directed the PIA chief financial officer to immediately carry out the reconciliation of outstanding taxes and other dues with the FBR.

It also approved enhancement in government guarantees and directed PIA to utilise it strictly in accordance with the proposal contained in a summary.

Published in The Express Tribune, January 26th, 2017.

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COMMENTS (7)

Shiva | 7 years ago | Reply cautious: What was the need to drag India into this discussion? For your information Air India just posted an operating profit this fiscal. Google it. And there is no comparison between PIA and AI. PIA is on the verge of collapse while AI is on the up swing. Sure there are problems but the outlook is far better for India.
NKAli | 7 years ago | Reply @Sodomite: @Haji Atiya: I agree with you two gentlemen. A bitter pill to swallow will be to lay off all surplus staff and sell off excess stocks of spare parts. Indeed there will be trikes and 'go-slows' by the staff and political parties will lose votes, but is losing votes more important than the country's reputation? Salams
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