The federal government on Wednesday approved an additional budget of Rs40 billion for armed forces but did not make any decision on a proposed restructuring plan for Pakistan International Airlines (PIA) whose liabilities were projected to swell to nearly Rs2 trillion in seven years.
The Economic Coordination Committee (ECC) of the cabinet approved Rs40 billion for various projects of Pakistan’s armed forces, including Rs20.6 billion for the two special security divisions established for the protection of Chinese nationals and their investments in Pakistan.
With the fresh approval, the total defence budget will jump to Rs1.85 trillion for the current fiscal year.
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The ECC also approved an increase in profit margins of oil marketing companies (OMCs) and oil dealers, which would slightly increase prices of petrol and diesel.
However, the cabinet committee could not make a clear decision on a restructuring plan for turning around PIA whose cumulative losses jumped to Rs743 billion by December last year.
The plan revolves around taking over liabilities of the entity by the government without any meaningful reforms. PIA management on Wednesday sought a relief of Rs39 billion in interest cost of legacy loans and through deferring tax payments to the Federal Board of Revenue (FBR) and service charges to the Civil Aviation Authority (CAA).
PIA requested Rs23 billion in debt relief for the full current fiscal year and deferral of Rs16 billion in financial obligations for eight months. A cabinet minister said after the ECC meeting that no final decision was made for providing a bailout as there was nothing significant in the plan that could stop bleeding despite fresh injections.
The ECC was informed that PIA’s problems were exacerbated by the absence of entrepreneurship, rising extraneous influences, internal mismanagement as well as its inability to finance the cost of fleet expansion.
PIA also sought support of the State Bank of Pakistan (SBP) and the Ministry of Finance for the deferral of loans until restructuring.
However, some committee members were not impressed by the restructuring plan, which talked about dividing PIA between good and bad. The bad PIA would carry all legacy loans along with some non-aviation assets. The ECC decided to constitute a committee to look into the plan.
Figures shared with the ECC revealed that if no action was taken, PIA’s total debt and liabilities would jump to “Rs1.98 trillion and its annual losses will rise to Rs259 billion by 2030”. The airline’s existing debt and liabilities of Rs743 billion are already five times more than the total value of its assets, according to the management.
PIA’s total losses for the last financial year stood at Rs86.5 billion, out of which Rs11 billion comprised operational losses. The federal government has already taken direct responsibility of Rs383 billion worth of PIA’s debt.
A foreign consultant has recommended a whopping $3.5 billion injection into the air carrier over a period of five years to enhance its fleet from 29 aircraft in 2021 to 49 in 2026. However, its financial condition is so bad that out of the 13 leased aircraft, around nine will be grounded very soon due to the lack of financial muscle.
The ECC did not endorse the plan to incorporate a new holding company to retain legacy loans, non-aviation assets and existing PIACL subsidiaries – PIA-Investment Limited, Skyrooms Limited and Saber Travel Network. PIACL will keep aviation assets and related liabilities.
PIA management has sought eight-month time for restructuring provided it is given huge financial support. In a separate meeting, the Cabinet Committee on Privatisation also discussed privatisation of PIA along with some other entities.
The airline is facing a serious cash flow problem as a result of which it has been unable to pay to its creditors, aircraft lessors, fuel suppliers, insurer, international and domestic airport operators and even IATA.
The management claimed in ECC meeting that Boeing and Airbus were likely to discontinue supply of spare parts by mid-September.
Published in The Express Tribune, September 7th, 2023.
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