Islamabad (GNP): Pakistan International Airlines (PIA) has faced challenges in its privatization efforts, resulting in the withdrawal of potential and serious investors. Former Finance Minister Miftah Ismail highlighted the reasons for the failure of the government’s approach, resulting in all bidders walking away.
Miftah Ismail, a former Minister of Finance, emphasized the need to understand the failure of PIA’s Privatization and said, “The Shahbaz Sharif government’s failure to privatize PIA has to be understood in its proper context.”
Initially, he pointed to the economic factor and said, “PIA is set to lose over Rs 150 billion ($550 million) in the last quarter of this year and the next year. These further losses will now be borne solely by the people of Pakistan.”
Moreover, he mentioned the total debt under PIA “of over Rs 800 billion ($2.9 billion), and of this, the government was absorbing over Rs 600 billion ($2.16 billion) but passing on over Rs 200 billion ($720 million) in debt to the private sector bidder for it to pay.”
Additionally, he asserted that selling PIA would alleviate “future losses” and open the “Pakistan aviation sector.” Ultimately, it would provide more jobs and air travel services to Pakistanis around the world.
However, the government seemed not interested in the Privatization of PIA, therefore almost all the bidders walked away.
In light of this, Ismail offered suggestions for the Special Investment Facilitation Council (SIFC): first, he said “to facilitate investment and support the government” in calling all the bidders who walked away and discussing the reason for walking away with the concessions needed.
The second, he recommended to “call the people responsible for this fiasco” to explain the reason which led the serious bidders to walk away.
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Lastly, he suggests formulating a “committee of eminent professionals” to negotiate with any of the bidders.
https://x.com/MiftahIsmail/status/1852776210163433947
Reasons for Pakistan International Airlines Privatization’s Bidders Walking Away
Highlighting the reasons for the bidders walking away, Miftah Ismail pointed out the following important reasons:
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Government Control Concerns:
The Privatization Commission (PC) wanted the government directors should have a final call in all the major decisions, but the government would be a minority stakeholder. To this, bidders didn’t agree.
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Financial Holes:
The bidders highlighted a hole of Rs 45 billion in the balance sheet, and demanded the government to transfer those to the PIA holding company. Though these dues are related to the Civil Aviation Authority and tax authorities, the PC didn’t agree.
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Asset Valuation:
Bidders argue that the government was over-valuing PIA assets on the balance sheets, in addition to the Rs 45 billion hole. They even estimated that it would almost take $150 million to make a “PIA-owned grounded aircraft airworthy.”
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Lease Return Challenges:
The PIA’s history of never being able to return a “single leased aircraft” to the lessor in its original condition. The bidders estimated that it would cost about $10 million to reshape the aircraft in their original condition (or to buy them).
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Regulatory Uncertainty:
The Civil Aviation Authority (CAA) is considered not a “fit and proper” regulatory agency by most Western aviation authorities.
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Lack of Viable Recognition:
The PC’s reluctance to admit PIA’s non-viability hindered potential improvements. Instead of allowing new ownership to take over and revitalize the airline, the PC opted to maintain control, leading to ongoing monthly losses.
