09 May 2004	Sunday	18 Rabi-ul-Awwal 1425

KARACHI, May 8: Complete transparency was maintained in the acquisition of new Boeing 777 as part of fleet renewal and expansion plans by the Pakistan International Airlines.

This was stated in a press release issued by the Pakistan International Airlines Corporation on Saturday.

Boeing 777 has "state-of-the-art" technology and can carry 320 passengers as well as baggage and freight. PIA has already acquired three out of eight new 777 aircraft, which have been deployed on both domestic and international flights. The recent induction will allow PIA to provide far better service to travelling public in Pakistan and abroad.

According to the press release, the US government had provided loan guarantees to support PIA's acquisition of these planes. The guarantees issued by the "AAA" rated Export-Import Bank of the United States, were very beneficial to PIA for two reasons. First, the guarantees enabled PIA to borrow 85 per cent of the cost of acquiring each aircraft from Citibank at a very low and attractive interest rate (currently on approximately 1.12 per cent per annum, on a floating rate basis). Secondly, PIA was also able to borrow the funds and repay them over a longer term (12 years per plane) because of the guarantees.

As a pre-condition for extending its guarantees, the Ex-Im Bank requiredthat a special purpose company had to be established outside Pakistan to hold legal title to the aircraft and lease aircraft to PIA for 12 years.

The Ex-Im Bank selected the Cayman Islands as the place to set up this company, as the Cayman Islands has a stable and a well-developed legal and judiciary system. Besides, the Cayman Islands does not impose taxes on the financing payments, which in turn might have also increased the borrowing cost to PIA.

It may be recalled here that as regards its financial position prior to April 2001, the airline was facing a huge loss of five billion rupees and was on the verge of bankruptcy.

When the new management took over in April 2001, its first priority was to rescue the airline from imminent collapse.

In this regard, a major problem faced by the PIA was its aging fleet, which had an average age of 23 years and it was essential to replace it to remain competitive in the international market. The new management prepared a long-term Business Plan 2003-11, which inter alia included replacement of the aging fleet. The plan was later presented and approved by the government.

In May 2002, PIAC Board of Directors in its meeting constituted a six-member high-powered Aircraft Acquisition Committee (AAC) headed by Air Marshal Salim Arshad.

The committee visited the USA, France and Hong Kong and signed MoUs with Boeing and Airbus, besides holding negotiations with the United Airlines to purchase their used B-777.

After protracted negotiations, the AAC finally presented its report to PIAC Board of Directors in July 2002. The Board of Directors after detailed evaluation of the operational, economical and maintenance status of used/new aircraft, approved purchase of Boeing 777 instead of Airbus 340.

The PIA stated that price was not the only criteria for selecting an aircraft's operating capability. Revenue capacity (both passenger and cargo), fuel consumption, maintenance cost and growth potential were also important. All these factors were analysed by the AAC, prior to selection of the aircraft. In fact, PIA won two international awards for this deal being the best aviation deal of the year 2003, the airline claimed.-APP