PIA seeks Rs45b bailout package

Also sought extension of 5-year government facility, ending on June 30, to pay interest costs

ISLAMABAD:

Pakistan International Airlines (PIA) has sought another Rs45 billion bailout package from the government to pay for interest costs and finance its operations – a demand that provides more reasons to sell the entity.

The Ministry of Aviation has also sought continuation of the five-year government facility to pick the interest cost, ending on June 30, until the airline’s balance sheet is restructured, according to sources in the ministries of finance and aviation.

The demands were placed before Finance Minister Ishaq Dar on Thursday who did not immediately commit to any additional financial support, said the sources. Dar instead asked the management to make a viable business plan, sources added.

The PIA has asked for a Rs22 billion federal injection to pay off interest on its loans, Rs15.6 billion in the shape of additional sovereign guarantees to take more loans, and another Rs7 billion to buy an aircraft, according to the sources.

A finance ministry handout stated that Dar chaired a meeting on matters of Railways and Aviation that was also attended by the Federal Minister for Railways and Aviation Khawaja Saad Rafique.

“The meeting also discussed the restructuring of PIACL in order to enhance its performance and make it compatible with international standards,” according to the ministry. The finance minister promised to support the timely execution of the Civil Aviation, PIA, and Pakistan Railways projects, it added.

The 2013-18 Pakistan Muslim League-Nawaz (PML-N) government had made the mistake of amending the PIA law to stop the sale of majority shares that would transfer management control – a political decision that has so far cost taxpayers Rs100 billion alone between 2018-23. PIA’s losses have multiplied during this period and had reached Rs633 billion in September 2022.

In April 2021, the Pakistan Tehreek-i-Insaaf (PTI) government also approved splitting PIA into two companies; good PIA with only Rs137 billion in liabilities along with core assets, and bad PIA which has liabilities worth Rs457 billion and will retain the ownership of its non-core assets. But this plan was never implemented.

Since 2017, at least three PIA restructuring exercises have been carried out – but in absence of a viable business plan – and yet the national flag carrier has been incurring heavy losses.

The sources said that in December 2017 the then government had picked PIA’s interest cost for five years on the condition that the airline would become financially viable. The PIA management, however, on Thursday requested the finance minister to extend the interest-payment facility until the financial restructuring is complete – a goal that may never be achieved given it poor performance in the past.

For the current fiscal year, the government allocated Rs15 billion in the budget for interest payments. PIA, however, has demanded Rs22 billion more. It claimed, in the meeting, that the finance ministry had allocated Rs15 billion in the budget against the annual requirement of nearly Rs32 billion. The airline added that due to an increase in interest rates, the total debt servicing cost for this fiscal year would jump to Rs37 billion.

PIA is also short on its payments to the Pakistan State Oil company, K-Electric, and the Federal Board of Revenue, fleet insurance, aircraft and engine lessors.

The airline has also demanded an increase in the limit of the sovereign guarantee by Rs15.6 billion to over Rs263 billion aimed at taking more loans to remain afloat. PIA’s current guarantees limit was Rs248 billion, which has already been exhausted. In case, PIA fails to service its debt, the banks have the option of cashing these sovereign guarantees.

PIA also sought tax and duties exemptions on the import of aircraft parts and related equipment.

The airline has been managed by people who do not have relevant experience, causing huge bleeding at a time when the government is already facing the very real danger of defaulting on its foreign payments. Sources said that there was strong resistance to the suggestion of privatising PIA.

Published in The Express Tribune, April 7^th, 2023.

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