PIA: Government turns down request for bailout

Airline asked to come up with a viable business plan.

ISLAMABAD: The federal government has turned down the Pakistan International Airlines’ (PIA) request for injection of capital to revive the national flag carrier, in the absence of a viable business plan.

The cabinet committee on restructuring of loss-making public sector enterprises instead asked the PIA management to prepare a business plan and get loans from commercial banks, an official of the finance ministry told The Express Tribune after the meeting.

“The era of free lunch” was over due to financial constraints being faced by the federal government, the official said.

PIA Managing Director Aijaz Haroon gave a presentation to the committee, headed by Finance Minister Abdul Hafeez Shaikh.

The finance ministry also ruled out the option of extending sovereign guarantees for PIA loans as it has already crossed the limit of giving guarantees in any financial year. Under the Fiscal Responsibility and Debt Limitation Act, the government cannot extend sovereign guarantees beyond two per cent of the total size of the economy.

Latest debt policy statement shows that in the last financial year the government extended sovereign guarantees worth 2.7 per cent of gross domestic product.

The PIA has sought a comprehensive financial assistance package to overcome the losses that run into billions of rupees. The official said that the PIA management has tabled three options which are injection of more public money, conversion of dollar-denominated loans into rupee loans and conversion of loans into equity. It has time and time again said that without buying new fleet of planes and laying off non-core employees the organisation can never be made profitable.

Prime Minister Yousaf Raza Gilani constituted the restructuring committee in April last year to turn around eight bleeding public sector enterprises. These corporations are incurring annual losses of over Rs250 billion. However, despite convening a number of meetings, the government could not restructure even a single entity.

The restructuring of these entities is also on the Pakistan Muslim League-Nawaz 10-point agenda, presented to the government for economic revival.

“In PIA’s presentation, the most important part - the business plan - was missing,” said the finance ministry official. He said PIA’s equity has turned negative by Rs26 billion and the government did not have finances to pick up loans.

The MD told the committee that the national flag carrier was incurring losses due to increasing fuel prices, depreciation of the rupee against other currencies and more than the required workforce.

Only on account of fuel charges, PIA has taken a hit of Rs4 billion, said the official. PIA has an average 430 employees per plane while the airline industry’s per plane employee average is 225.

The cumulative losses of PIA have increased to above Rs145 billion. The PIA MD recently briefed the Public Accounts Committee that owing to currency depreciation, the corporation suffered losses of Rs6.7 billion.

According to an official handout of the finance ministry, Dr Abdul Hafeez Shaikh asked the PIA management to come up with certain concrete and practical suggestions for revamping and reorganising the airline. He also said that the suggestions may indicate the bottlenecks and constraints in the way of the airline’s development and progress.

Published in The Express Tribune, February 5^th, 2011.