PIA okays restructuring, investment

Operational profits, European flight resumption mark pivot towards privatisation

KARACHI:

Pakistan International Airlines’ (PIA) shareholders have given approval for the airline’s restructuring, likely to occur by July-August 2024. This move anticipates encountering no political resistance to the sell-off of core operations, potentially to foreign investors due to the need for foreign exchange, as recommended by the International Monetary Fund (IMF).

During an Extraordinary General Meeting (EOGM) held on Saturday, the national flag carrier’s management reported achieving an ‘operating profit’ for the first time in 13 years. The management projected the resumption of flights on two major European routes, including Paris, and to a UK city by June, aiming to increase earnings from these profitable routes.

A PIA spokesperson informed The Express Tribune that the airline conducted a poll to seek consent from shareholders to transform PIA Corporation Limited into PIA Holding Limited by bifurcating it into two segments: Corporate Undertaking and Non-Core Undertaking. “The shareholders overwhelmingly voted in favour of (creating) PIA Holding Company.”

In their address to shareholders, the PIA chairman and CEO underscored the government’s implementation of tough measures for the airline’s improvement. The high-level participation of government officials in the meeting demonstrates the government’s seriousness and commitment to rectifying the loss-making entity.

Prominent participants at the meeting included the federal secretary of the Privatisation Commission, secretary aviation, legal experts from the financial advisor, and PIA’s board of directors.

They highlighted the national carrier’s outperformance during the calendar year 2023, leading to reporting ‘operating profit’ after 13 years. The airlines’ share price has significantly increased, “raising its value by 700-fold.” PIA plans to commence operations in Europe and the United Kingdom from June 2024 after clearing the European Union Aviation Safety Agency (EASA) audit.

JS Global, Head of Research, Amreen Soorani stated in a post-PIA EOGM commentary that the management briefed shareholders that the restructuring process is on track for completion by July-August 2024, barring unforeseen circumstances.

The company is confident that political resistance won’t impede progress; “relevant authorities are equipped to handle such situations,” she added.

PIA privatisation is a core recommendation from the IMF, as the government negotiates to secure a new loan package from the leading global creditor. Pakistan has approached the IMF to initially secure a $6 billion Extended Fund Facility (EFF) for three years. Soorani mentioned that the resumption of flights on the two European routes is expected to recover significant revenue losses (around Rs70 billion annually). The addition of two new destinations (Paris and a UK city) will offer approximately 20-25 flights per week cumulatively. Separating PIA’s debt has freed up operating cash for crucial investments in improving aviation infrastructure and services, said the analyst.

The Finance Division has approved PIA debt re-profiling with commercial banks at an estimated interest rate of 12%. The board informed that potential improvements in PIA Core’s performance and dividends are expected to aid Holdco’s debt repayment. Remaining modalities will be announced in due course. The government aims to sell a majority stake (51% or more) from its existing holding of 96% in the restructured PIA to a private investor. The company’s response to the recent Expression of Interest (EoI) will be a key factor affecting the final timeline.

Earlier, the aviation ministry was quoted as reporting that seven international investors have expressed interest in acquiring Pakistan’s national flag carrier and airports, which the country has put up for sale. Germany, France, the Netherlands, Qatar, the United Arab Emirates, Malaysia, and Turkiye, along with a local group, are among those expressing interest in purchasing the national assets.

However, a foreign media outlet recently reported that Pakistan’s Privatisation Commission has formally invited EOI to sell 51-100% of the share capital and management control of Pakistan International Airlines. “The government agency issued the invitation on April 2.”

The EOI is open to companies, firms, body corporates, and other legal entities. However, it is not open to individuals or any entities owned or controlled by the Pakistani federal or provincial governments. Interested parties have until May 3, 2024, to submit their electronic EOI, along with a non-refundable processing fee of $5,000.

The outlet added that a previous report suggests Qatar, Saudi Arabia, and the United Arab Emirates are discussing with the government of Pakistan to buy stakes in PIA. Entities from other countries have also expressed some interest.

Published in The Express Tribune, April 21^st, 2024.

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