Bailout package: PIA may get Rs20b on condition of restructuring
National carrier wants to cut Rs15b debt and save annual interest payment.
ISLAMABAD:
A special cabinet panel on Friday linked a Rs20 billion cash injection request by Pakistan International Airlines (PIA) with undertaking restructuring, as the national carrier added another Rs10.7 billion to losses in the first half of the current year.
The cabinet committee on restructuring of loss-making entities has attached the condition of restructuring to accepting the request for Rs20 billion capital injection by the Ministry of Defence, said an official of the finance ministry. He, however, said the exact figure for capital requirement will be finalised next week.
PIA is seeking funds to cut down its Rs15 billion long-term debt, as the national carrier is paying billions of rupees in interest every year. A recent report by the Auditor General of Pakistan’s office forewarned that PIA’s short-term liabilities are increasing at an alarming level that may further worsen liquidity problems.
PIA’s performance has been deteriorating due to political appointments at key positions.
Plan to add 16 aircraft
to the fleet
PIA plans to add another 16 aircraft to its fleet, however, these may have to be acquired on lease since the federal government is not ready to provide any financing. Another finance ministry official said the government will not provide sovereign guarantees even if PIA obtains loans from banks for these aircraft.
The finance ministry has taken a stance that it would not throw any money and has linked subsidies with reforms in loss-making enterprises.
The panel asked PIA to strengthen its management structure in line with best international practices. The committee also asked it to empower the board of directors and appoint new directors from the private sector, to help curtail approximately Rs2 billion in losses every month.
PIA’s financial position has worsened as losses increased to Rs10.7 billion during January to June 2011 compared with Rs6.5 billion posted in the same period last year, according to PIA’s unconsolidated accounts. PIA’s management blames volatility in fuel prices, political turmoil in Gulf countries, poor economic conditions of the country and worsening law and order situation for these losses.
The profit and loss statement states that the carrier suffered Rs5.2 billion operational losses and paid Rs4.9 billion in interest during the first six months of the year. PIA’s equity has gone negative by Rs71.4 billion. The airline’s total assets stood at Rs129 billion against total liabilities of Rs194.6 billion as of June 2010.
The airline’s accumulated losses stood at Rs73 billion in 2008, which have shot up even further to over Rs107 billion.
During the meeting, PIA Managing Director Captain Nadeem Yousufzai gave a detailed presentation on the strategic restructuring plan of the airline which stressed the need for operational, financial and human resource restructuring.
The management has chalked out an ambitious five-year restructuring plan that is pending with the finance ministry for approval. The plan envisages PIA’s revenue will increase from Rs94 billion in 2009 to Rs217 billion by December 2014. However, this depends on the air carrier adding 16 aircraft to its fleet.
PIA’s fleet currently stands at 40 and some of its planes had to make emergency landing due to technical faults in recent months. For rationalisation of the workforce, PIA intends to send some 4,339 employees on deputation to other allied departments, which would save Rs3.8 billion over five years.
Published in The Express Tribune, October 8th, 2011.
A special cabinet panel on Friday linked a Rs20 billion cash injection request by Pakistan International Airlines (PIA) with undertaking restructuring, as the national carrier added another Rs10.7 billion to losses in the first half of the current year.
The cabinet committee on restructuring of loss-making entities has attached the condition of restructuring to accepting the request for Rs20 billion capital injection by the Ministry of Defence, said an official of the finance ministry. He, however, said the exact figure for capital requirement will be finalised next week.
PIA is seeking funds to cut down its Rs15 billion long-term debt, as the national carrier is paying billions of rupees in interest every year. A recent report by the Auditor General of Pakistan’s office forewarned that PIA’s short-term liabilities are increasing at an alarming level that may further worsen liquidity problems.
PIA’s performance has been deteriorating due to political appointments at key positions.
Plan to add 16 aircraft
to the fleet
PIA plans to add another 16 aircraft to its fleet, however, these may have to be acquired on lease since the federal government is not ready to provide any financing. Another finance ministry official said the government will not provide sovereign guarantees even if PIA obtains loans from banks for these aircraft.
The finance ministry has taken a stance that it would not throw any money and has linked subsidies with reforms in loss-making enterprises.
The panel asked PIA to strengthen its management structure in line with best international practices. The committee also asked it to empower the board of directors and appoint new directors from the private sector, to help curtail approximately Rs2 billion in losses every month.
PIA’s financial position has worsened as losses increased to Rs10.7 billion during January to June 2011 compared with Rs6.5 billion posted in the same period last year, according to PIA’s unconsolidated accounts. PIA’s management blames volatility in fuel prices, political turmoil in Gulf countries, poor economic conditions of the country and worsening law and order situation for these losses.
The profit and loss statement states that the carrier suffered Rs5.2 billion operational losses and paid Rs4.9 billion in interest during the first six months of the year. PIA’s equity has gone negative by Rs71.4 billion. The airline’s total assets stood at Rs129 billion against total liabilities of Rs194.6 billion as of June 2010.
The airline’s accumulated losses stood at Rs73 billion in 2008, which have shot up even further to over Rs107 billion.
During the meeting, PIA Managing Director Captain Nadeem Yousufzai gave a detailed presentation on the strategic restructuring plan of the airline which stressed the need for operational, financial and human resource restructuring.
The management has chalked out an ambitious five-year restructuring plan that is pending with the finance ministry for approval. The plan envisages PIA’s revenue will increase from Rs94 billion in 2009 to Rs217 billion by December 2014. However, this depends on the air carrier adding 16 aircraft to its fleet.
PIA’s fleet currently stands at 40 and some of its planes had to make emergency landing due to technical faults in recent months. For rationalisation of the workforce, PIA intends to send some 4,339 employees on deputation to other allied departments, which would save Rs3.8 billion over five years.
Published in The Express Tribune, October 8th, 2011.