For the national carrier: Aviation Division seeks nod to acquire three Boeing 777

PIA Board of Directors makes new plan to restructure entity amid low cost of fuel and borrowings.

ISLAMABAD:

Just months before the scheduled big-ticket sale of Pakistan International Airlines (PIA), the Aviation Division has sought the government’s permission to acquire three Boeing 777 aircraft on lease. This comes along with the national carrier’s board of directors pushing for a new restructuring plan. 

The board has firmed up a restructuring plan, proposing that a cash-rich government entity should pick up PIA’s legacy loans in return of its lucrative assets like Roosevelt Hotel New York and Scribe Hotel Paris, said sources.

The Aviation Division and the Board of Directors of PIA are forwarding their plans at a time when the federal government has come under pressure from the International Monetary Fund (IMF) to fast track the airlines’ privatisation.

Despite the fact that the national flag-carrier is on the privatisation list, the PIA Board and the Aviation Division have not taken the Privatisation Commission on board, which according to independent legal experts, is in violation of the Privatisation Ordinance.

The new deadline to seek bids from prospective investors for the strategic sale is December this year, while the government has assured IMF that the privatisation transaction will be completed in March next year, almost 18 months behind the original schedule.

Adviser to Prime Minister on Aviation, Captain (retired) Shujat Azeem, met Finance Minister Ishaq Dar on Saturday and shared the plan to acquire three Boeing 777, 300 ER aircraft on dry lease, according to officials.

“Provided all laid down procedures are followed, the PIA Board is competent to take any decision on acquisition of new aircraft and they do not need the government permission,” Finance Minister Ishaq Dar told The Express Tribune.

Dar said the acquisition of new aircraft would not mean that the government has abandoned the plan to privatise PIA.

The airline has already been in the process of acquiring 10 narrow-body aircraft, five ATRs and two wide-body aircraft on lease, out of which a few have already joined the fleet.

However, it did not have the cash to acquire the Boeing aircraft and the management had to knock the Finance Ministry’s door to seek finances. Dar has asked Azeem to seek Prime Minister Nawaz Sharif’s permission for the acquisition.

The adviser is said to have claimed that the induction would help the national flag-carrier generate Rs6 billion in additional revenue over a period of five years.

Azeem was not available for comments.

While the Aviation Division sought permission to acquire aircraft, the Privatisation Division Secretary in-charge Ahmad Nawaz Sukhera informed Dar about the status of PIA privatisation in the same meeting. Dar has asked the secretary-in-charge to give a detailed briefing next week, reported the sources.

The Commission has already hired a consortium comprising Dubai Islamic Bank, IATA Consulting, Deloitte, HaidermotaBNR, Freshfields Bruckaus Deringer, Abacus Consulting, APCO, Prestige as Financial Adviser (FA) for the transaction.

The officials said the FA has completed the due diligence of PIA and the transaction structure will now be presented to the PC Board in the next two weeks for approval.

Board plan

The PIA Board has prepared a plan to restructure the entity, as it believes that it is a very favourable time for airline business due to low cost of fuel and borrowings.

It has proposed to give the PIA’s assets to a cash-rich entity in return of picking up its loans, the officials said.

The move is aimed at reducing the debt servicing cost of the airline, which consumes a significant amount of its revenues. From January to March this year, PIA’s financing cost stood at Rs3.5 billion. For the three-month period, the PIA’s operating profit stood at roughly Rs7 billion, although the airline incurred Rs2 billion losses in January-March period.

According to the audited financial statement for January-March period of this year, the accumulative losses of the airlines increased to Rs228.7 billion after net addition of Rs2.1 billion in three months. The total liabilities grew to Rs329.7 billion as of March this year while its assets were recorded at Rs186.7 billion.

Jan-Mar 2015
Financial cost:          Rs3.5b
Operating profit:      Rs7b
Losses incurred:       Rs2b

Published in The Express Tribune, August 23^rd, 2015.

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