KARACHI, Feb 27: As part of its fleet renewal and expansion plan, PIA is in the process of acquiring three new Boeing 777-200ER model wide-body aircraft in 2004, along with spare engines and parts. Each aircraft has "state-of-the- art" technology and can carry up to 320 passengers as well as baggage and freight, a PIA spokesman said on Friday.

The acquisition of these aircraft, which are being deployed on both domestic and international flights, will allow PIA to provide even better service to the travelling public in Pakistan and abroad. PIA has already taken delivery of two aircraft and with third delivers in late March 2004.

The United States has agreed to provide loan guarantees to support the acquisition of these planes. The guarantees, which are being issued by the Export Import Bank are very beneficial to PIA for two reasons.

First, the guarantees enables PIA to borrow a full 85 per cent of the cost of each aircraft from Citibank at a very low and attractive interest rate (currently only about 1.12 per cent per annum).

Secondly, because of the guarantees PIA is also able to borrow the funds and repay them over a longer term (12-years per plane), than would otherwise be attainable in non-guaranteed financing.

As a pre-condition for extending its guarantees to support these financing by PIA, Ex-Im required the financing to have certain legal, structural and technical features.

One such requirement was for the Ministry of Finance of Pakistan to provide assurances and a counter guarantee to Ex- Im that PIA would repay the loans in full over the next 12 years.

A second requirement that Ex-Im imposed was that a special purpose company had to be established outside of Pakistan to hold legal title to the aircraft and lease each aircraft to PIA for 12 years. Ex-Im selected the Cayman Islands as the place to establish this special purpose lessor company because the Cayman Islands does not impose taxes on the finance payments. Under its charter and articles of incorporation the special purpose company is not allowed to conduct any business other than PIA 's financing.

PIA has assured that the Cayman Island arrangements were required by Ex-Im and are very beneficial to the airline and to Pakistan. Had these arrangements not been followed, PIA would have been denied the US government loan guarantees and instead would have had to borrow the necessary funds from traditional banking sources on a non-guarantee basis, the spokesman said.

The Cayman structure has also been thoroughly discussed and cleared with the government of Pakistan at all appropriate levels. It has been carefully researched and cleared by PIA's highly regarded local and international attorneys and by the major international law firms that represented the US government in these financings.

In the early 1990 PIA acquired its A310 wide-body aircraft manufactured by Airbus Industries of Europe using a similar special purpose structure, the spokesman concluded.

PROMOTED: Meanwhile, PIA has promoted its general manager for fleet planning, Shah Nawaz, to the position of director for coordination.