ECC told: PIA losses still in the billions
Report says air carrier undertaking steps to improve financial health.
ISLAMABAD:
The financial position of national flag carrier Pakistan International Airlines (PIA) remains precarious as it continues to suffer an annual loss of billions of rupees despite hiring aircraft on lease to improve efficiency and service.
In 2013, when the Pakistan Muslim League-Nawaz (PML-N) government came to power in June, losses of PIA exceeded those recorded in previous years, standing at Rs44.531 billion. For six months of the current calendar year, the losses were Rs10.131 billion.
According to a report submitted to the Economic Coordination Committee (ECC) in its meeting on October 30, from 2011 to June 2014 the air carrier had suffered a loss of Rs207.69 billion. Before that, the figure stood at Rs74.89 billion.
The breakdown of figures showed that the loss was Rs20.785 billion in 2010, Rs26.767 billion in 2011 and Rs30.586 billion in 2012 – the period when Pakistan Peoples Party (PPP) was in power. However, the yearly loss rose to Rs44.531 billion in 2013.
The report said PIA had been spending heavily on maintenance of aircraft for the last many years because of the ageing fleet. The losses forced the airline to borrow heavily from banks at high interest rates, which further hurt its financial health.
However, it said, the PIA management had taken various steps to improve the conditions including hiring of four narrow-body aircraft on wet lease and introduction of cost-cutting measures like route and manpower rationalisation at foreign stations.
PIA has also prepared a business development plan for the period 2014 to 2017 that revolves around induction of new-generation fuel-efficient aircraft on dry and wet lease.
The ECC was told that PIA was in desperate need of government’s cash support to bridge the deficit of Rs20 billion in its cash flow in the fourth quarter of this year. In the absence of the cushion, the air carrier’s working capital would further erode, leading to suspension of operations as critical suppliers had already started holding back supplies and further borrowing was not possible.
Moreover, PIA would not be able to add to the capacity as projected in the business development plan for 2015 and onwards.
It was suggested that the Ministry of Finance may be authorised to issue government guarantees for a Burj Bank loan amounting to Rs2 billion having a two-year grace period. Terms and conditions would be finalised by the ministry.
It was also requested that the Ministry of Finance may give fresh guarantees to the tune of Rs10.50 billion to arrange loans for the airline.
PIA loans with guarantees stood at Rs141 billion in September 2013 and were at Rs129 billion a year later in September 2014.
It was proposed that the finance ministry may be allowed to issue replacement guarantees in place of vacated ones.
Later, the ECC approved sovereign guarantees to facilitate PIA in acquiring loans of Rs12 billion to enable the airline to meet critical requirements. It also agreed that terms and conditions of the loans would be determined in consultation with the finance ministry.
Published in The Express Tribune, November 11th, 2014.
The financial position of national flag carrier Pakistan International Airlines (PIA) remains precarious as it continues to suffer an annual loss of billions of rupees despite hiring aircraft on lease to improve efficiency and service.
In 2013, when the Pakistan Muslim League-Nawaz (PML-N) government came to power in June, losses of PIA exceeded those recorded in previous years, standing at Rs44.531 billion. For six months of the current calendar year, the losses were Rs10.131 billion.
According to a report submitted to the Economic Coordination Committee (ECC) in its meeting on October 30, from 2011 to June 2014 the air carrier had suffered a loss of Rs207.69 billion. Before that, the figure stood at Rs74.89 billion.
The breakdown of figures showed that the loss was Rs20.785 billion in 2010, Rs26.767 billion in 2011 and Rs30.586 billion in 2012 – the period when Pakistan Peoples Party (PPP) was in power. However, the yearly loss rose to Rs44.531 billion in 2013.
The report said PIA had been spending heavily on maintenance of aircraft for the last many years because of the ageing fleet. The losses forced the airline to borrow heavily from banks at high interest rates, which further hurt its financial health.
However, it said, the PIA management had taken various steps to improve the conditions including hiring of four narrow-body aircraft on wet lease and introduction of cost-cutting measures like route and manpower rationalisation at foreign stations.
PIA has also prepared a business development plan for the period 2014 to 2017 that revolves around induction of new-generation fuel-efficient aircraft on dry and wet lease.
The ECC was told that PIA was in desperate need of government’s cash support to bridge the deficit of Rs20 billion in its cash flow in the fourth quarter of this year. In the absence of the cushion, the air carrier’s working capital would further erode, leading to suspension of operations as critical suppliers had already started holding back supplies and further borrowing was not possible.
Moreover, PIA would not be able to add to the capacity as projected in the business development plan for 2015 and onwards.
It was suggested that the Ministry of Finance may be authorised to issue government guarantees for a Burj Bank loan amounting to Rs2 billion having a two-year grace period. Terms and conditions would be finalised by the ministry.
It was also requested that the Ministry of Finance may give fresh guarantees to the tune of Rs10.50 billion to arrange loans for the airline.
PIA loans with guarantees stood at Rs141 billion in September 2013 and were at Rs129 billion a year later in September 2014.
It was proposed that the finance ministry may be allowed to issue replacement guarantees in place of vacated ones.
Later, the ECC approved sovereign guarantees to facilitate PIA in acquiring loans of Rs12 billion to enable the airline to meet critical requirements. It also agreed that terms and conditions of the loans would be determined in consultation with the finance ministry.
Published in The Express Tribune, November 11th, 2014.