ISLAMABAD: The federal government may soon approve another bailout package, worth more than Rs10 billion, for the ailing Pakistan International Airlines (PIA) and enhance sovereign guarantees limit to Rs172 billion as authorities have failed to turn the national flag carrier around.
After its failure to cut ballooning losses, the PIA has sought approval of the government to borrow over Rs10 billion on the back of sovereign guarantees to pay off the liabilities, according to sources.
The Ministry of Finance has received a summary from the Aviation Division for enhancing the borrowing limit of the PIA due to its worsening fiscal position, the sources added.
Currently, the PIA’s borrowing limit, backed by the sovereign guarantees, is Rs161.5 billion. To keep the airlines afloat, the government has been providing guarantees to enable the PIA to raise funds from local and foreign commercial banks.
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The approval of a fresh bailout package will be sought from the Economic Coordination Committee (ECC) of the Cabinet, which will be chaired by Prime Minister Shahid Khaqan Abbasi. The Ministry of Finance was in the process of meeting procedural requirements.
If approved by the ECC, it will be the fourth time in the last one year that the government will increase the limit of guarantees to enable the loss-making entity to meet its expenses. Earlier, in January, the ECC had increased the limit from Rs151 billion to Rs161.5 billion.
The sources said about Rs7 billion worth of fresh loans would be obtained to pay the interest on borrowings that had been obtained on the back of sovereign guarantees.
Through a letter in September 2008, the federal government, being the majority shareholder, had assured keeping the PIA as a ‘going concern’ and has been injecting money, directly or indirectly.
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While approving the last bailout package in January this year, the ECC had also set up a committee to finalise a strategic business plan for improving the financial and operational performance of the PIA.
The committee held a few meetings, chaired by Ahsan Iqbal, then the federal planning minister, but its findings were never shared with the public.
The PIA was on the active list of privatisation that the federal government had shared with the International Monetary Fund (IMF) under the last three-year $6.2 billion bailout package.
But the government missed all the deadlines that it had agreed with the IMF for the PIA’s privatisation, and the IMF also showed leniency.
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In April last year, parliament also amended the PIA Act of 1956, which stopped transfer of management control to the private strategic investors.
Given the huge administrative issues, it is unlikely that any private-sector investor would invest without getting the control of the airlines. The amended law also binds the government to retain the majority stakes in the airlines.
In violations of various regulatory requirements, the PIA has also failed to finalise its audited financial accounts for the year 2016.
“Every public sector company shall – within one month of the close of first, second and third quarter of its year of account – prepare a profit and loss account for, and balance-sheet as at the end of, that quarter, whether audited or otherwise, for the board’s approval,” says the Public Sector Companies Corporate Governance Rules of the Securities and Exchange Commission of Pakistan (SECP).
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In May this year, PIA Chairman Irfan Elahi, who is also federal secretary of Aviation Division, informed the shareholders that the annual accounts could not be finalised mainly due to conversion of PIAC into PIA Company Limited. However, parliament had approved the new law in April 2016.
The financial accounts for 2016 could not be finalised due to PIAC’s conversion into a limited company and reconstitution of the board of directors, said PIA spokesman Mashood Tajwar on Tuesday. The board of directors is expected to hold a meeting this Friday.
According to the PIA’s financial statement for up to September 2016, the airlines’ total liabilities have mounted to Rs349 billion as against only Rs113.8 billion assets. The losses of the national flag carrier are rising with each passing day.
In its last available financial statement, the management and the board had blamed the competition from the Gulf-based airlines for the heavy losses despite decline in fuel expenditures and borrowing cost.
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A new federal audit report on accounts of the PIA revealed that during the years 2014 and 2015, the airlines sustained Rs1.3 billion losses on Karachi-Lahore and Lahore-Karachi sector due to poor planning.
The Auditor General of Pakistan report said the management deployed low seating capacity aircraft despite huge passenger demand.