Govt to split flag carrier into 'good and bad PIA'

Segregation of airline’s core and non-core functions under consideration

ISLAMABAD:

Real estate, all hotels and precision engineering could be carved out of Pakistan International Airlines (PIA) before offering the air carrier for privatisation to prospective bidders, said a top government official on Tuesday.

In a briefing to the National Assembly Standing Committee on Finance and Privatisation, Privatisation Commission Secretary Ahmad Nawaz Sukhera said the shape of future PIA was gradually emerging as financial advisers had given initial recommendations.



However, he emphasised, “No formal transaction structure has yet been presented to the Privatisation Commission board and the Cabinet Committee on Privatisation (CCOP) for consideration and approval.”



Sukhera said segregation of PIA’s core and non-core functions was under consideration. It has not yet been finalised whether the government will offer 26% shares or more than that to the prospective bidders.

According to the government’s scheme of PIA privatisation, it wants to split the airline into two, which is informally called good PIA and bad PIA, according to public statements of some federal ministers.

The good PIA will consist of all those assets, which will be offered for privatisation while the bad PIA will comprise non-core functions and liabilities estimated at Rs320 billion.

The government recently got two major reliefs on the PIA front. First, it won an extension of about six months from the International Monetary Fund for privatisation of the airline. After that, it also managed to bring the striking employees back to work without accepting their demands.

The Joint Action Committee of the employees would again meet the chief minister of Punjab to seek his support for a delay in privatisation.



Sukhera told the committee that the financial advisers had identified PIA Investment Limited that owned Roosevelt Hotel in New York and Scribe Hotel in Paris as a non-core function that should be carved out of PIA before privatisation.

He said Skyrooms hotel in Karachi and Minhal hotel in Sharjah were also identified as non-core assets. The other non-core asset that the advisers had identified was the Precision Engineering Complex that operated under the direct supervision of the Ministry of Defence, he added.

Sukhera said the core functions that would be offered to the strategic investors were domestic and international flight operations, cargo, charter services and mail services. These also include landing and handling of passengers, technical handling, cargo and catering and flight operations handling.

The secretary said the third proposed core function was flight kitchens in Karachi and Islamabad. Fourthly, PIA training and education centres in Karachi, Lahore, Rawalpindi, Swat and Peshawar could also be part of the list of functions to be offered for privatisation.

Fifthly, PIA engineering including maintenance and overhauling services and PIA healthcare centres are also under consideration for inclusion in the list of privatisation.



Sukhera said PIA’s various functions were not structured to operate independently and had high interdependence on each other. “It will be value addition for the government to offer the entire combination of functions to a strategic partner,” he suggested.

In February last year, the advisers presented an initial report recommending the conversion of PIAC into a statutory corporation functioning under the PIAC Act of 1956 as a public limited company.

Sukhera said the advisers’ recommendation was that PIA could not be privatised without amending the law and this had been conveyed to the finance minister in March last year.

The National Assembly passed the PIA amendment bill last month and the ball is now in the court of opposition-dominated Senate.

PIA privatisation transaction manager Asad Rasool said the airline incurred Rs27.83 billion losses in the year ended December 31, 2015 despite savings of Rs21 billion in fuel cost and increasing the fleet from 18 to 38 aircraft.

Before 2008, PIA’s cumulative losses were only Rs34 billion and the airline had been destroyed in the last seven years, said Asad Umar of the PTI.

Published in The Express Tribune, February 17^th,  2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.