PIA set to go under hammer on Oct 1

Govt shares final conditions with shortlisted bidders, will sell 60% stake

ISLAMABAD:

The government has shared final conditions for the privatisation of Pakistan International Airlines (PIA) with the shortlisted bidders and proposed to sell 60% of shares but refused to give any further tax breaks to the buyers.

The bidding is set to take place on Tuesday and the auction will begin from the minimum price of Rs45 billion, which is the current negative equity of the airline and will be the responsibility of the new buyer.

The terms were handed over to the buyers last week and the government expected to receive the nod today (Wednesday), said Privatisation Commission Secretary Usman Bajwa.

He was briefing the National Assembly Standing Committee on Privatisation hours after having a meeting with Deputy Prime Minister Ishaq Dar to finalise those terms.

MQM-Pakistan's Farooq Sattar heads the standing committee.

In case the bidders accept the final conditions, they would deposit the earnest money this Friday and the bidding would take place on the coming Tuesday, said Bajwa in a statement that reflects that the majority shares of Pakistan's fourth largest loss-making entity are finally going to be sold along with management control.

The government had offered 51% to 100% stake in the airline. It has now been decided to sell 60% shares, said Bajwa while briefing the committee. "We are in the final leg of PIA privatisation."

If PIA takes off again, it would have an adverse impact on the businesses of Etihad Airways, Qatar Airways and the Emirates, said the privatisation secretary.

He said that these airlines were now trying to secure more frequencies and routes from Pakistan to offset any negative impact on their businesses.

The government has not accepted the bidders' demand for reduction in duties and taxes and give a 10-year waiver from any new tax, said the secretary.

He said that the buyer would also have to pay sales tax on the new and leased aircraft, indicating that the government had also rejected the demand of the bidders.

PPP's MNA Sehar Kamran raised the issues about the bidder's earlier refusal to accept the performance-related targets, give guarantees to make $500 million minimum investment and their reluctance to retain the existing employees.

"The final terms that have been shared with the buyers include commitments to increase the size of the aircraft fleet from the existing 18 planes to 40 to 45 in three to five years," said Bajwa.

He said according to another condition, the new buyers would have to reduce the average age of the existing fleet from 17 years to 10 years in the next five years. This would require the induction of new aircraft, said the secretary.

To a question, he explained that the addition of new aircraft would require significant investment.

The government had proposed that the buyer would be required to implement the investment plan by pumping $500 million to $700 million into PIA. This investment will not dilute the government's remaining shareholding.

The government has shortlisted Fly Jinnah, Airblue, Arif Habib Corporation, Blue World City, Pak Ethanol (Pvt) Consortium and YB Holdings Consortium for the privatisation of PIA. The government had initially planned to privatise the airline by June-July 2024 but later extended the deadline to October 1.

Responding to another question, the secretary privatisation said that the government had proposed that the buyers would retain the existing employees for two to three years and their financial terms could not be changed.

The buyers would respond to this in the next couple of days, although the majority of the bidders wanted to retain the employees on a contract basis, he added.

"The committee's recommendation is that the existing 7,360 employees should be retained for four to five years and they should also be given an increase in their packages," said Farooq Sattar while showing concern over the term of retaining the employees for two to three years.

Bajwa said that the buyer would be responsible for the Rs35 billion worth of employees-related liabilities.

To another question, the secretary privatisation said that a provision had been included in draft agreements to make sure that the buyer would keep the domestic, regional and international routes operational and the name of the airline could also not be changed.

The ban on PIA to fly to Europe is a concern for the buyers but "we are hopeful that it would be lifted very soon," he said.

MNA Sehar Karman demanded that PIA's draft agreements and the terms should be shared with the standing committee before the bidding takes place on October 1.

PIA cannot be operationally sustainable until new investment is made and the pending liabilities are also cleared, said the secretary. The government has carved out Rs622 billion debt from the PIA balance sheet, leaving it with over Rs200 billion liabilities.

The net negative equity of PIA is now Rs45 billion, down from Rs600 billion before carving out the liabilities, said the secretary.

To a question about the absence of foreign bidders, the secretary said that Air Arabia was teaming with Fly Jinnah, the Turkish airline was joining hands with Younus Brothers and Air Asia was in the consortium of Pak Ethanol group.

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