Finding a buyer for PIA

Government’s claim that it will protect jobs of PIA employees is also problematic

The government’s latest push to privatise PIA is raising some eyebrows because of its lack of transparency. Where previously the Privatisation Commission made it a point to issue a statement summarising important decisions, no news release followed the Tuesday meeting in which it was agreed to sell at least 51% of the flag carrier. The meeting also decided to divide PIA into two companies to make privatisation easier, with one company designed to take on the airline’s ‘bad’ assets. About 75% of the airline’s Rs800-billion plus liabilities will be taken on by the government in the ‘bad’ company, along with some lucrative non-core assets, such as hotels. The hope is that between the sales of PIA and the hotels, and dividends from a future profitable airline, the ‘bad’ company will eventually pay off its debt with minimum impact on the taxpayer.

Although reports have highlighted local ownership requirements as a hurdle in any potential privatisation, the relative small size of the airline and considerable route overlap vis-a-vis other regional players would suggest that the most likely bidders will either be local, or would otherwise be well-placed to bid as part of a consortium that meets the condition. Some bidders will actually see this as a plus because it will allow them to tap Pakistan’s domestic air transport sector while strengthening their own existing international route network. In some cases, landing rights are more lucrative than actual routes — a Middle Eastern bidder may be more interested in landing its own plane at Heathrow rather than a PIA flight, which still yields less revenue per seat due to fewer business and first-class travelers using PIA.

The government’s claim that it will protect the jobs of PIA employees is also problematic. Righting the ship is impossible without massive layoffs. The government will try to save face by negotiating a timeline for when layoffs can begin, but pushing too hard could derail the whole sale. In fact, if the government really wants to make PIA sellable, it should begin downsizing even before bids come in.

Published in The Express Tribune, January 12^th, 2024.

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