In need of money, Pakistan will sell its national airline before the elections, how did the fate of PIA, which was involved in the war with India, sink?

Pakistan’s caretaker government is planning to sell loss-making Pakistan International Airlines ahead of elections on February 8. Asked about plans to sell the airline, Privatization Minister Fawad Hassan Fawad told Reuters that our work is 98 percent complete. The remaining two percent is yet to be brought on the excel sheet after cabinet approval. Elected governments in the past have shied away from making unpopular reforms, including the sale of the flag carrier. But Pakistan, mired in a deep economic crisis, in June agreed to liquidate loss-making state-owned enterprises under a $3 billion bailout deal with the International Monetary Fund (IMF).

Pakistan approves plan to sell PIA

The government will use the funds from the sale of the PIA to cover the principal payment as per the terms of the budget agreement. According to the Pakistan-based Express Tribune, the bank will accept a 10-year loan rollover with a 12 percent annual interest rate in exchange for 32.2 billion Pakistani rupees (PKR) in interest payments each year. As a result, banks will receive a total of PKR 322 billion in interest payments over a decade, which will exceed the PKR 268 billion in outstanding stocks. According to ANI, PKR 572 billion will be paid to banks over ten years at a 12 percent interest rate. International Monetary Fund support will be sought by the Finance Ministry. Sources claim that the bank will seek approval from its board of directors. Following the Pakistan Finance Ministry’s decision to stop paying interest on PIA debt in March 2023, the government and PIA management started exploring privatization possibilities. However, concerns remain that the banks’ debt restructuring and the transfer of PIA loan ownership by the Finance Ministry reduced the airline’s primary going concern, eliminating its largest monthly charge from the balance sheet. Fawad said the plan prepared by transaction consultants Ernst & Young will be presented to the Cabinet for approval before the end of the administration’s term after the elections. Fawad said the cabinet will also decide whether the stake should be sold through tender or through a government-to-government deal. Fawad said that what we have done in just four months was what previous governments were trying to do for more than a decade. There is no looking back.” Details of the privatization process have not been previously disclosed.

Progress on privatization will be a key issue if the incoming government goes back to the IMF after the current bailout program ends in March. Acting Finance Minister Shamshad Akhtar had told reporters last year that Pakistan would have to remain in the IMF programs even after their end. Under Ernst & Young’s 1,100-page report, buyers will be offered a 51 percent stake with full management control after the airline’s debts are spun off into a separate entity, two sources close to the process told Reuters. PIA spokesperson Abdullah Hafeez Khan said the airline is assisting in the privatization process and providing full cooperation to the transaction advisor.

huge debt on airline

The airline’s financial difficulties have been attributed to competition from emerging regional airlines, mismanagement and inadequate funding for fleet expansion. As of June last year, PIA had liabilities of PKR 785 billion ($2.81 billion) and accumulated losses of PKR 713 billion. According to Reuters, its CEO has said that the deficit is likely to reach PKR 112 billion in 2023. As of 31 December 2022, the national airline had debt and liabilities of PKR 743 billion ($2.50 billion), more than five times the total value of its assets. The aviation ministry said its deficit in the last fiscal year (2022-23) was PKR 86.5 billion ($291 million).

PIA’s role in the war with India

During the 1965 war between India and Pakistan, PIA played a major role in delivering supplies to the armed forces by operating special flights using Boeing, Super Constellations and Viscounts. During the 1965 war, PIA was operating under the leadership of Air Marshal Asghar Khan.