Bidders are seeking full ownership of PIA amid impending privatisation

• Bidders say the risks outweigh the rewards without 100% ownership.
• A $500 million investment without full management cannot be justified.
• The national carrier is saddled with liabilities of around Rs 200 billion.
  

ISLAMABAD: Days after Finance Minister Muhammad Aurangzeb assured of 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. The News reported on Tuesday.

With concerns over fleet age, financial liabilities and operational hurdles putting the future of the sale in doubt, the six default bidders, initially lured by a 60% stake offer, now want full control of PIA.

The disclosure follows the publication’s report highlighting bidders’ reluctance to retain existing employees along with tax concerns.

Last month, the country’s long-awaited bid to privatize its beleaguered national carrier was postponed to October 31. The postponement came after the privatization process was extended to October 1 before that.

The Privatization Committee, in a parliamentary committee meeting last week, informed that it plans to sell 76% stake in PIA. However, potential bidders say the government has not formally notified them of this new proposal, one of the potential bidders told the publication on Monday.

Default bidders argue that without 100% ownership, the risks outweigh the potential rewards. The financial burden of overhauling the airline’s aging fleet, including the planned retirement of 18 wide-body aircraft over the next two years, looms large.

The situation is further complicated by the fact that PIA’s smaller planes are leased, meaning any new investor would face the daunting task of rebuilding the airline’s fleet and operations almost from scratch.

Bidders balked at the government’s demand for a $500 million investment to replace these retiring aircraft, insisting such a commitment is impossible without full control of the airline.

“Without full management and damage control, we cannot justify these investments,” the bidders said.

Adding to the bidders’ concern are the risks associated with financing and securing PIA’s operations with debt.

PIA currently has liabilities of around Rs 200 billion. Potential buyers would have to secure bank loans to finance their stake, which they argue is not possible without full ownership.

A major red flag raised by the bidders is the suspension of PIA’s operations on international routes, particularly to lucrative destinations in Europe and the United States until these routes are restored, the prospect of turning the airline into a profitable venture looks bleak. Bidders urged the government to expedite the resumption of these flights to make the deal more attractive.

The divestment plan, drawn up by financial adviser Ernst & Young, is also under scrutiny. Appointed in November last year, Ernst & Young has been tasked with preparing PIA for sale. But bidders are expressing reservations about the plan, questioning its feasibility in light of the numerous hurdles facing the airline.

The country’s open skies policy, which allows international carriers to operate freely within the country, is another challenge for potential buyers of PIA. Bidders fear that without protection from foreign competition, PIA’s recovery potential is limited.

Concerns have also been raised about workforce retention and tax liabilities. Bidders, wary of inheriting the airline’s sizeable workforce and legal protections afforded to employees, are pushing for clarity.

They say the airline is overcrowded, while the government is demanding workers be kept on with their pensions for at least three years.

Last week, Privatization Commission Secretary Usman Bajwa confirmed to a parliamentary panel that bidders are seeking more information on these issues, especially on pensions and protection from long-term litigation.

Originally scheduled for October 1, the financial bidding process has now been postponed to October 31. With so many uncertainties still looming, the road ahead for the privatization of PIA remains fraught.

The Senate Standing Committee on Privatization stressed that delays in selling the airline could affect other privatization efforts, including the planned divestment of Pakistan’s electricity distribution companies.

For now, the fate of Pakistan’s national carrier hangs in the balance as the government and bidders wrestle with a deal that could reshape the country’s aviation industry – or see PIA grounded for good.