PIA seeks moratorium on debt

Airline identifies need of Rs13b per month to make debt repayments on time

ISLAMABAD:

The Pakistan International Airlines (PIA) has requested a moratorium on its domestic debt repayments to bridge an annual deficit of Rs153 billion between its sales and essential expenditures, as the government struggles to find a way out to save the airline without any new bailout.

Sources told The Express Tribune that the PIA management and the Ministry of Finance were in discussions for about Rs260 billion domestic debt restructuring that the highly mismanaged airline owed to nine commercial banks. Separately, the newly appointed Privatisation Minister Fawad Hasan Fawad has started taking meetings to decide the PIA’s fate after he was assigned the responsibility by withdrawing from interim Finance Minister Shamshad Akhtar.

The government has decided to privatise PIA but the management is seeking six to eight months for its administrative and corporate restructuring, said the sources.

Read Govt to go for expeditious PIA sell-off

Without debt restructuring, PIA has identified a need of Rs13 billion per month to make the debt repayments on time and meet other expenses.

The PIA management has estimated its monthly sales at a little over Rs22 billion as against nearly Rs35 billion expenditures, according to the government sources. PIA has projected a monthly shortfall of about Rs13 billion, of which Rs10.5 billion is related to debt servicing, they added.

PIA did not deny that it had sought debt restructuring.

When contacted, PIA spokesperson, Abdullah Hafeez Khan, said that “PIA is now on the active privatisation commission list. Many options have been sent to them for their deliberations. The way forward will be decided by them”.

A finance ministry official said that the ministry was no more interested in providing PIA with a bailout. He said that the commercial banks were not forthcoming to the proposal of debt restructuring but the discussions have taken place.

The sources said that the PIA management was of the view that the airline cannot be financially viable without debt restructuring. It was seeking a moratorium both on the principal as well as the interest payments. But the Ministry of Finance did not agree with the proposal to freeze the interest payments.

The issue of PIA’s debt restructuring was also briefly discussed on Monday during a meeting held in the Ministry of Privatisation. Fawad Hassan has been tasked with privatising the airline but the process may not be concluded soon due to various issues that require resolution and the hiring of a financial advisor.

PIA owes around Rs260 billion to nine domestic commercial banks. Another $370 million or Rs113 billion is owed to two consortiums—the National Bank of Pakistan-Habib Bank Limited consortium and the Standard Chartered Bank consortium.

Bank of Punjab has the maximum exposure of over Rs56 billion in PIA, followed by Rs43 billion by Askari Bank Limited, Rs34 billion by JS Bank, Rs33 billion by NBP, Rs32 billion by Faysal Bank, Rs29 billion by Habib Bank Limited and Rs22 billion by Bank Islami. The Albaraka Bank has given a Rs9 billion loan and Soneri Bank’s exposure in PIA is Rs5 billion, according to the sources.

PIA needs Rs3.1 billion per month to service the external Rs109 billion debt and Rs7.5 billion to the domestic debt.

However, it appears that the plan to come out of the current situation is solely relying on either the Ministry of Finance cash injection or by blocking the tax payments to the Federal Board of Revenue (FBR) and various fees and charges to the Civil Aviation Authority, said the sources.

design: Ibrahim Yahya

“After multiple rounds of meetings with PIA during the past few days, our assessment is that the PIA management is only interested in avoiding the situation on the back of taxpayers’ money,” said a senior government functionary. He added that the PIA has not shared anything that could show improvement in the situation without any financial assistance and with its own efforts.

Many now advocate closing the airline instead of giving it more handouts by imposing heavy taxes on people already crumbling under rampant inflation.

Last week, PIA got a Rs17 billion loan from two commercial banks.

PIA’s accumulated debt increased to Rs743 billion, which according to the Aviation Ministry was five times more than the total value of its assets. The Aviation Ministry informed the Economic Coordination Committee of the cabinet that if the situation continued like this, PIA’s debt and liabilities would jump to Rs1.977 trillion and its annual losses would rise to Rs259 billion per annum by 2030.

PIA has proposed dividing the entity into two and parking its legacy debt and the subsidiaries in a new company – the bad PIA. However, even this carving out process will take a minimum of six months to one year and till that time no one has an idea from where to provide funds to the bleeding entity to keep it in the air, according to the government officials.

The IMF has barred Pakistan from issuing supplementary grants and PIA has already fully exhausted its Rs263 billion sovereign guarantees’ limit. The finance ministry official said that there was a view to let the company die its natural death but this view is not popular among many circles.

PIA has estimated its cost of fuel at over Rs8 billion per month, which is expected to increase further. Similarly, its monthly salary bill is Rs1.1 billion in addition to a Rs350 million monthly pension bill.

The airline needs Rs1.8 billion a month to pay to the CAA and another Rs1.3 billion to the FBR every month on account of taxes. Sources said that the finance ministry has already refused to provide any financial assistance to the PIA out of the budget. They said that the PIA management was now going to various quarters to seek support for a bailout.

Published in The Express Tribune, September 19^th, 2023.

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