Aircraft lease: ECC refuses bidder’s demand for sovereign guarantee

Committee also turns down request for tax exemption.

ISLAMABAD:

The Economic Coordination Committee (ECC) has turned down a bidder’s demand to provide sovereign guarantee worth millions of dollars to provide five aircraft on lease, saying that it was against bid requirements. The ECC also refused to cave to a demand for tax exemptions.

Sources said that the ECC, in its meeting held on December 3, observed that the proposed acquisition of five A-320 aircraft was in order and all formalities were completed.

However, it noted that the bidder’s reported requirement of a sovereign guarantee for the proposed lease was not in order as it was not in accordance with the terms and conditions. The meeting also observed that, for the acquisition of the remaining five aircrafts preferably not older than 2007, a second round of advertisement should be urgently initiated, in accordance with the Public Procurement Regulatory Authority (PPRA) rules.

Pakistan International Airlines (PIA) Board of Directors, in its 325th meeting, approved the induction of ten A320/A319 aircraft, costing $64.8 million including taxes ($30 million without taxes). PIA was of the view that it was not liable to pay taxes on leased aircraft.

It was stated in the meeting that in addition to the security deposits, the lessors have asked for government guarantees of up to $65 million as part of lease obligations mainly for delivery conditions. It was pointed out that a credit note of $15 million was available with Airbus which could only be used for pro rata reduction in monthly lease rental over the term.

As for the payment of taxes on the leased aircraft, it was observed that total exemption was not possible because such exemptions from duty were required to be across the board. Temporary import also entails import duty.

The committee also believed that PIA needed to negotiate with existing lessors for an extension of the wet lease of its aircrafts so that operations were not negatively affected.

The ECC approved acquisition of five narrow body A320-200 aircraft on lease by PIA subject to the condition that the Finance Division would not provide any sovereign guarantee to the lessors for the proposed deal.

The ECC also directed PIA to undertake another round of bidding for acquiring five narrow body aircraft on lease, for delivery by June 15, 2014, while following the PPRA rules in letter and spirit.

The meeting was informed that the government had allocated an amount of Rs16 billion as cash support for PIA which was to be released as per approval by ECC, which in its meeting held on July 12, 2013, had approved release of Rs12.7 billion while an amount of Rs3.3 billion against dry lease of aircraft was pending.

The meeting was further informed that PIA floated a tender for the dry lease of ten narrow body aircraft in August 2013 as per PPRA rules. In response, five leasing companies offered a total of 25 aircraft which were evaluated as per the criteria given in the tender document.

Approval of the ECC was then solicited for the proposals which included disbursement of $30 million for the induction of ten narrow body aircraft.

The PIA also asked the Federal Bureau of Revenue (FBR) to release the aircraft upon arrival pending payment till the resolution of issues over taxes between PIA and FBR was sought.

The meeting observed that the acquisition of the A-319 aircraft would not be viable and should be dropped.

Published in The Express Tribune, December 15^th, 2013.

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