Govt prepares to pump Rs24b into PIA to keep it in the air

The money will help national flag carrier meet debt obligations

ISLAMABAD:

The government is finalising another bailout package for Pakistan International Airlines in a bid to help the ailing national flag carrier meet its debt obligations and keep it flying for at least four months.

The finance ministry and the Aviation Division are working out modalities of a 24-billion-rupee package for the airline which will be presented to the Economic Coordination Committee (ECC) of the Cabinet in the coming days, officials said on Saturday.

Once approved by the ECC, the fresh bailout will be the second such package for the national airline in the last four months and fifth in the last three and a half years.



According to the officials, the Aviation Division has demanded Rs26 billion to come out of a financial crunch till June this year. The amount is needed to repay some old debts and meet working capital requirements, they said. The final amount is expected to be around Rs24 billion A debt payment by PIA is due this Tuesday to the Export-Import Bank. The finance ministry is arranging funds to avoid a default.

Because of limitations imposed by the International Monetary Fund (IMF), there is no fiscal space in the budget to give the bleeding airline the cash it needs, sources said. As such, most of the Rs24 billion will be arranged from commercial banks to avoid an immediate impact on the budget, they added.

Despite a slump in global oil prices, PIA could not turn its fortunes around in the last two and half years. Due to mismanagement by its own top officers and an ill-conceived aviation policy, it lost its market share to other airlines.

The airline also lost over Rs4 billion in the recent strike by its employees, further exposing its financial vulnerabilities.

As a major shareholder, the federal government has kept PIA afloat by regular bailouts.



In January-September 2015, PIA sustained Rs20.6 billion in additional losses, according to an audited financial statement. The accounts for the last quarter of 2015 are not available, but initial results show the full year losses went up to over Rs27 billion.

The airline’s cumulative losses surged to Rs247.4 billion as of September last year while its total liabilities amounted to Rs320 billion.

The ECC had to approve a Rs9.4 billion bailout for PIA last December, which included Rs4.4 billion cash injection and Rs5 billion in borrowings from banks. The ECC also endorsed an agreement between the finance and aviation divisions, enhancing present federal government sovereign guarantees limit from Rs141 billion to Rs146 billion.

Last November, the federal government refused to service Rs248 billion debt of PIA from the budget. The PIA Board of Directors had demanded Rs3.5 billion per month to avoid default until the airline was privatised.

In 2014-15, the finance ministry issued Rs58.8 billion fresh guarantees to help PIA arrange funds from banks and repay old loans.

PIA is on the active list of privatisation and under the revised agreement with the IMF, the Privatisation Commission is bound to invite expression of interests (EoIs) from prospective bidders by mid-May to sell a minimum 26% stake.

 

Published in The Express Tribune, March 13^th, 2016.