- Bidders say the risks outweigh the rewards without 100% ownership.
- An investment of $500 million cannot be justified without full management.
- The national carrier is burdened with liabilities worth Rs 200 billion.
ISLAMABAD: Days after Finance Minister Muhammad Aurangzeb reassured about the privatization of Pakistan International Airlines (PIA) this year, bidders aiming to acquire stakes in the national carrier have now demanded full ownership of the airline. News reported on Tuesday.
With concerns about the age of the fleet, financial commitments, and operational hurdles putting the future of the sale in doubt, the six pre-qualified bidders, who were initially tempted by the offer of a 60% stake, now want full control of the project’s implementation body.
The revelation comes on the heels of the publication’s report highlighting bidders’ reluctance to retain existing workers coupled with tax-related concerns.
Last month, the country’s long-awaited attempt to privatize the beleaguered national carrier was postponed until October 31. The postponement came after the privatization process was extended until October 1 before that.
The Privatization Commission informed, at a parliamentary committee meeting last week, that it plans to sell 76% of PIA’s shares. But potential bidders say the government has not formally notified them of this new proposal, one potential bidder told the publication on Monday.
Pre-qualified bidders say that without 100% ownership, the risks outweigh the potential rewards. The financial burden of overhauling the company’s aging fleet, including the planned retirement of 18 widebody aircraft over the next two years, looms large.
The situation is further complicated by the fact that PIA’s small aircraft are leased, meaning any new investor would face the daunting task of rebuilding the airline’s fleet and operations almost from scratch.
Bidders have hesitated over the government’s $500 million investment requirement to replace these retired aircraft, insisting that such a commitment is impossible without full control of the airline.
“Without full management and P&L control, we cannot justify these investments,” the bidders said.
Adding to the concerns of bidders are the risks associated with financing and insurance for PIA’s debt-laden operations.
PIA currently has approximately Rs 200 billion of liabilities. Prospective buyers will need to take out bank loans to finance their stake, which they say is not possible without full ownership.
One of the major red flags raised by the bidders is the suspension of PIA’s operations on international routes, especially to profitable destinations in Europe and the US until these routes are restored, and the prospect of turning the airline into a profitable venture appears bleak. The bidders urged the government to speed up the resumption of these flights to make the deal more attractive.
The divestment plan, designed by financial consultant Ernst & Young, is also under scrutiny. Ernst & Young was appointed in November last year and was tasked with preparing the PIA for sale. However, bidders express reservations about the plan, questioning its feasibility in light of the many obstacles the airline faces.
The country’s open skies policy, which allows international airlines to operate freely within the country, presents another challenge for potential buyers of PIA. Bidders fear that without protection from foreign competition, PIA’s potential for recovery will be limited.
Concerns have also been raised about workforce retention and tax liabilities. Bidders, concerned about the inheritance of the airline’s large workforce and the legal protections afforded to employees, are pressing for clarity.
They say the airline is overstaffed, while the government demands that employees be retained, along with their pensions, for at least three years.
Last week, Secretary of the Privatization Commission, Usman Bajwa, confirmed to a parliamentary committee that the bidders were seeking more information on these issues, especially regarding pensions and protection from long-term lawsuits.
The financial bidding process was originally scheduled to take place on October 1, but has now been postponed to October 31. With many uncertainties still looming, the way forward for PIA’s privatization remains fraught with risks.
The Senate Standing Committee on Privatization stressed that the delay in the sale of the airline could affect other privatization efforts, including the planned liquidation of Pakistan Electricity Distribution Companies.
Right now, the fate of Pakistan’s flag carrier hangs in the balance, as the government and bidders grapple to reach a deal that could reshape the country’s aviation industry — or see PIA grounded forever.