PIA to take $300m loan without govt guarantee

Consortium of international banks namely Credit Suisse, Mashreq Bank, Noor Bank to extend loan

KARACHI: Pakistan International Airlines (PIA) has managed to earn the trust of international banks; hence it is going to take a loan up to $300 million without government’s sovereign guarantee.

“Our credit rating has improved and purely based on our revenue improvements, we are going to get this loan,” said the PIA spokesperson Abdullah Hafeez Khan. An international consortium of banks; Credit Suisse, Mashreq Bank and Noor Bank, is going to extend the loan to the national airline.

Like any other airline, PIA needs to borrow dollars to procure new airplanes, their engines, spare parts, etc, which can only be bought from international market in dollar terms. “Whenever we needed money, the banks either wanted us to get them sovereign guarantee or to pledge our assets against the loan,” the spokesman added.

Taking the sovereign guarantee from the government was a cumbersome process and could not be achieved before three to four months, he said. First request would go to the finance ministry, and through planning commission it will reach the State Bank of Pakistan

The banks are willing to give credit lines or loans without government guarantee purely based on the confidence of PIA’s revenue growth and operational performance, cost savings drive, product improvement and positive perception.

“Because of our performance, and numbers of sales, revenue and profits, which the banks have seen, the money lenders have agreed to extend the loans without government sovereign guarantee.”  We are purely taking this loan for engines and new aircraft, said the spokesperson.

Over half a dozen planes need new engines this year, he said. The airline is also adding new planes in its fleet. Technically this is an investment in the country, he added. When organisations have assets more than their liabilities they can get loans, however, PIA’s liabilities are three times higher than its assets so it was difficult for the national flag carrier to get a loan based on its performance thus it had to resort to government guarantees to secure loans to run its day to day business.

In a recent annual general meeting (AGM), PIA CEO Arshad Malik said the airline has achieved seat factor of 84% and its losses are on a steep downward trajectory. The company had not gone through the annual audit for three years. The CEO was informed in the meeting that work on 2018 AGM’s accounts is in process and soon the team will initiate compiling the financial results of 2019.

Earlier, PIA had reported that it has come out of losses at the operational level after quite a long time as its revenues slightly exceeded the operating cost in the quarter ended March 31, 2019.

“PIA has achieved breakeven at the operational level,” Adviser to PIA CEO Air Vice Marshal Noor Abbas told The Express Tribune. “It, however, may take three to four years to report a net profit.”

The state-owned airline’s revenue surged to an average of Rs8-8.5 billion a month in the January-March 2019 quarter compared to around Rs7 billion a month in the same period of last year. “The operating cost was slightly lower than the monthly revenue or was almost equal,” he said. The adviser said a notable improvement in financial management came after the seat occupancy rate per flight increased to around 90% in the period under review compared to less than 70% in the corresponding period of previous year. 

Published in The Express Tribune, December 24^th, 2019.

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