Govt approves Rs457b PIA restructuring plan

ISLAMABAD:

The federal government on Wednesday approved Rs457 billion worth restructuring plan for Pakistan International Airlines to make the national flag carrier financially viable but without having a business plan in place.

The government has decided to lay off about 25% of the existing workforce or 3,500 employees of the national flag carrier, shut its non-profitable routes and share the international routes with other airlines.

What is described as the “last lifeline” of Rs457 billion to the bleeding airline, the Economic Coordination Committee sent the PIA restructuring plan to the federal cabinet for its final endorsement.

Finance Minister Hammad Azhar chaired the ECC meeting. However, the plan may not achieve the intended objectives, as it has been approved without a business plan, which would not be ready in the next six months. 

The IATA Consulting firm has also started working on PIA business plan, which is expected to be finalized by September this year, the ECC was informed.

The ECC approved to split the PIA into two companies – the Good PIA that will have only Rs137 billion liabilities along with core assets, and the Bad PIA that will pick Rs457 billion liabilities and will retain the ownership of its non-core assets.

“After detailed consultation, the ECC recommended the restructuring plan of PIACL for onward submission before the Cabinet, after reconciliation of tax liability figures, with a direction to place a cap on future debt which PIACL could take against its improved balance sheet, once restructuring plan is implemented”, stated the Ministry of Finance.

In March last year, the government had directed Dr Ishrat Hussain to prepare the PIA’s restructuring plan.

“With a negative equity of Rs460 billion comprising bank loans of Rs326 billion and other payables of Rs118 billion at its balance sheet, the company neither remained a self-sustained entity commercially nor operationally efficient and sustainable,” the ECC was informed.

The company has over 14,000 employees and is operating on non- profitable routes. The options before the government were to close down PIA, privatize or restructure it.

There will be two PIA companies – the government-owned bad company that takes away the financial liabilities off the balance sheet of PIA along with some non-core assets and a new company carrying out the core business with rightsizing, rationalizing profitable routes and on remaining routes code-sharing with other airlines, capitalizing on ethnic diaspora and religious tourism and modernizing of the fleet.

Bad PIA

The documents showed that out of Rs457 billion debt, the federal government would immediately pick Rs203 billion.

According to the plan, Rs201.8 billion commercial loans secured against the sovereign guarantees will be paid by the federal government from 2021 through 2027. Meanwhile, Rs45.3 billion will be paid in this fiscal year, Rs41 billion in the next fiscal year, Rs42 billion in the 2022-23, Rs48.4 billion in 2023-24, Rs16 billion in 2025, Rs7 billion in 2026 and Rs4 billion in 2027.

The government will immediately write off its Rs55.6 billion loans that it extended to the bleeding airline. Another Rs53 billion loans taken on the PIA balance sheet will also be paid by the federal government along with Rs16 billion interest cost.

The restructuring plan envisages clearing Rs118 billion liabilities of the PIA by the federal government, preferably by writing off these liabilities by the Civil Aviation Authority (Rs86.7 billion), Pakistan State Oil (Rs16.4 billion) and Federal Board of Revenue (Rs14.7 billion).

The government will also bear the cost of Rs12.9 billion for laying off around 3,500 employees, which it has already approved.

As per the plan, if there are legal obstacles in setting up the company, the government would directly assume the liabilities and convert into equity.

Good PIA

The PIA with necessary approvals in place will submit a comprehensive plan with revised balance sheet of the Good PIA keeping in view the core business, desired workforce as per international best practices, rationalized routes and key elements of open-air policy suitable to PIA.

The Good PIA will have only Rs137 billion worth of liabilities, mainly Rs58.5 billion trade debt and Rs60.7 billion employees and aircraft lease-related liabilities.

The successive PIA managements for the last 13 years have been making promises to financially turn around the company, provided the federal government picks its legacy debt.

The ECC was informed that after three years implementation of the plan, the success indicator will be that the PIA would not seek further bailout packages.

The PIA would use its restructured balance sheet, cut its present financial liabilities to raise its capital by obtaining a credit rating from the international three credit rating agencies.

The ECC was informed that the PIA may come to a standstill in its operations as it has exhausted its commercial borrowing capacity and the decision to restructure its finances has been delayed inordinately.

The ECC took up the summary for one-time grant of Rs14.5 billion to GENCOs for onward payment to DISCOs regarding the actuarial value of pension and pension benefits of surplus employees and also taking over the liability for payment of pension to existing pensioners of power plants which are decided to be closed immediately by the Cabinet Committee on Energy (CCOE).

After seeking detailed input from relevant stakeholders, the committee directed the Power Division to deliberate further and present options for cost optimization regarding pension liabilities.

The government had closed 1,800 megawatts capacity power plants, which led to surplus staff of 1,753. The Power Division had demanded Rs14.5 billion to pay off their dues along with picking pension cost of the retired around 2,368 employees of these power plants.

The ECC approved Rs330 million for the Ministry of Defence to maintain the aircraft. It also approved Rs2.4 billion for the Ministry of Federal Education and Professional Training for the Prime Minister’s Special Package to implement “Skill for All” strategy for TVET sector.

The body also okayed Rs1 billion for the Finance Division to refund the balance amount of funds of Insaf Imdad Ehsaas Programme.

The Rs280 million for the Ministry of Information Technology and Telecommunications was approved for consultancy and implementation of internet voting.