The government on Monday approved a Rs4 billion bailout package to pay the interest cost on the legacy loan of Pakistan International Airlines (PIA) — a sum that still falls short of the money needed to settle the entity’s liabilities and avoid international embarrassment.
According to the Finance Ministry, the Economic Coordination Committee (ECC) of the Cabinet approved a Rs4 billion supplementary grant for PIA against a fresh demand of nearly Rs23 billion for interest payments on loans. Finance Minister Ishaq Dar chaired the meeting.
Overall, the ECC has approved a total of Rs22 billion in supplementary grants, largely due to the finance ministry’s incorrect budgeting in June last year.
This marks the second bailout package approved by the ECC in the past two months. In April, the government granted Rs15.6 billion to the struggling airline. However, PIA’s losses have continued to increase, reaching Rs633 billion in September 2022.
In December 2017, the previous government took responsibility for PIA’s interest cost for a five-year period with the condition that the airline would become financially viable. Despite injecting over Rs100 billion from taxpayers, PIA is still far from recovering its financial position.
In the past, the PIA management requested extending the interest-payment facility until the financial restructuring is complete – a goal that may never be achieved given its poor performance.
For the current fiscal year, the government allocated Rs15 billion in the budget for interest payments, but PIA has requested an additional Rs23 billion. The ECC approved Rs4 billion and instructed the airline to arrange the remaining Rs19 billion from commercial banks.
PIA management has highlighted that due to rising interest rates, the total debt servicing cost for this fiscal year would jump to Rs38 billion.
Insufficient provisions by the federal government to cover interest costs have led to operational funds being diverted to service the debt, resulting in a shortage of funds. Last month, one of PIA’s lessors, AerCap, compounded an aircraft in Malaysia.
Out of the 31 aircraft operated by PIA, 13 are on lease. Recently, Air India placed orders for 470 aircraft from Boeing and Airbus. Despite lacking commercial airline experience, retired and serving officers of the Pakistan Air Force continue to manage PIA.
Willis leasing has filed a lawsuit against PIA in the United States, and the airline had to return two A-320 engines to the company to prevent further embarrassment. Allianz Insurance has also issued a termination notice due to non-payment.
In April, the ECC approved an increase in the sovereign guarantees limit to Rs263.2 billion for PIA. However, the airline continues to struggle to meet its day-to-day expenses.
Successive governments and PIA managements have failed to revive the entity, leaving selling it as the only viable option.
Meanwhile, Finance Minister Ishaq Dar also chaired a meeting of the Steering Committee overseeing the outsourcing of three airports’ operations. The meeting ended inconclusively, as the government initially aimed to outsource Islamabad International Airport but the International Finance Corporation (IFC), the consultant, proposed outsourcing all three main airports.
During the meeting, the IFC presented a proposal outlining the future roadmap for outsourcing the first airport to improve service delivery and align with international best practices, as per the Finance Ministry.
The ECC also approved Rs6 billion to cover the cost of the 7th Population & Housing Census. The total estimated cost of the controversial census was Rs34 billion, and after the fresh approval, Rs6 billion still remains outstanding.
A sum of Rs63.6 million was approved for the Ministry of Parliamentary Affairs to meet its liabilities, mainly payments to parliamentary secretaries. The Aviation Division received a supplementary grant of Rs222 million for salary payments. Rs60 million was approved for the President’s Secretariat to cover employee-related expenses.
The Frontier Corps was also granted a supplementary grant of Rs1.4 billion to settle pending liabilities for ration bills. The Ministry of Interior received an additional budget of Rs8 billion for the payment of civil armed forces’ salaries. The Ministry of National Health Services & Coordination was granted Rs1.3 billion to address its liabilities.
Published in The Express Tribune, June 27th, 2023.
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