Govt approves Rs44b bailout for PIA

Fails to bring improvement in financial condition of national flag carrier

Shahbaz Rana September 16, 2021
The airline has experienced a significant dip in revenues and cash flows due to pandemic and unprecedented travel bans/lockdowns. Photo: File


The government on Wednesday approved a Rs44 billion bailout package for Pakistan International Airlines (PIA) in the shape of cash and sovereign guarantees after its failure to bring any improvement to the financial condition of the national flag carrier in three years.

The Economic Coordination Committee (ECC) of the cabinet approved the bailout package - the fourth by the Pakistan Tehreek-e-Insaf (PTI) government - without a viable business plan.

The ECC also approved Rs28 billion in additional budget for the defence ministry to strengthen security around China-Pakistan Economic Corridor (CPEC) projects and fence the Pak-Iran border.

“The ECC considered and approved a summary for GOP cash support as required by PIAC,” said the Ministry of Finance press statement.

The airline has experienced a significant dip in revenues and cash flows due to the pandemic and unprecedented travel bans/lockdowns imposed by various countries, it added.

“The ECC also approved the enhancement of existing approved guarantee, enabling PIAC to overcome its financial challenges,” stated the finance ministry.

The Ministry of Finance’s statement lacked transparency, as it neither officially disclosed the sum of PIA bailout package nor it informed the public about the additional budget approved for the defence ministry.

The ECC approved $130.3 million (roughly Rs22 billion) in cash support and another Rs22 billion in the shape of bank borrowing, backed by sovereign guarantees, according to an official of the Ministry of Finance.

The amount of Rs44 billion has been provided amid mounting losses of PIA that reached Rs542 billion by June this year, the company’s first half-year (January-June) report of 2021 revealed.

In order to facilitate the borrowing, the ECC extended the guarantee limit from Rs226 billion to Rs247.6 billion, said the official of the Ministry of Finance. The money will be borrowed from commercial banks on the back of sovereign guarantees of the finance ministry.

The PIA management informed the ECC that its daily revenue had come down to Rs50 million to Rs70 million from the Rs400 million before the airline was struck by Covid-related restrictions and a ban imposed by the European Union.

The restructuring plan of PIA was presently stuck due to delay in finalisation of a business plan by IATA Consulting, it added.

Due to reckless statements by the aviation minister about fake licences of PIA pilots, the airline was banned from flying to many international cities, which aggravated its financial problems.

The PIA management had sought $100 million for operational requirements and $30.3 million for Roosevelt Hotel, New York, taking total cash support to $130.3 million or Rs22 billion.

Out of the $100 million, $40 million will be used to pay lease cost of 10 aircraft, $17 million for induction of six narrow-body aircraft and $23 million for clearing dues of lessors.

The PTI government is following in the footsteps of previous Pakistan Muslim League-Nawaz (PML-N) government that had kept PIA afloat for five years by providing such bailouts. The PTI government has already removed PIA from the privatisation list without first preparing its revival plan.

Through a letter, the federal government, being the majority shareholder, had assured the nation that it would keep PIA as a “going concern” and had been injecting money, directly or indirectly.

Former finance minister Dr Abdul Hafeez Shaikh had been against giving big bailout packages to PIA in the absence of a viable business plan.

The ECC approved a Rs10 billion supplementary budget for the Ministry of Defence for fencing the Pak-Iran border. The money will be given in four quarterly tranches over and above the annual regular defence budget, according to finance ministry officials.

The total cost of fencing the Iran border is estimated at Rs30 billion and Rs7.7 billion has already been provided.

The defence ministry informed the ECC that non-availability of funds was adversely affecting the project and the remaining funds of about Rs22.3 billion had to be released within the current fiscal year. But the finance ministry has agreed to give only Rs10 billion.

The ECC also approved Rs12 billion for meeting the recurring cost of Special Security Division (SSD)-South. The Ministry of Defence had requested Rs19.5 billion during the first quarter of current fiscal year but the finance ministry agreed to give Rs12 billion in the year in four tranches.

In the last fiscal year, about Rs16.6 billion had been given for the same purpose. The SSD has been established to protect CPEC.

The ECC approved Rs6 billion for meeting needs of the SSD-North zone. The funds were needed to beef up security around China-funded projects, particularly after attacks on Chinese citizens.

Published in The Express Tribune, September 16th, 2021.

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