The cash-strapped Pakistan International Airlines (PIA) reported a recovery in its flight operations on Sunday after managing to secure a Rs17 billion bank loan.
The development comes after the national carrier reportedly grounded several aircraft as it struggles to secure funds to maintain its operations for the next few months. Some media reports had also claimed that the operations would be ceased by Sept 15, evoking a strong response from the airline’s management and lawmakers in the Senate.
The Ministry of Aviation, while seeking a cash injection of Rs23 billion, has also informed the government that Boeing and Airbus — two of the leading commercial jet manufacturers — were on the verge of discontinuing spare parts’ supply by mid-September, according to reports.
Earlier this week, PIA spokesperson Abdullah Hafeez Khan refuted reports of the flag carrier’s closure as baseless and said the flight operation was continuing. He added that the airline was also disbursing most urgent domestic and international payments.
A day earlier, the airline said it had managed to get an Rs17 billion loan, after which salaries of employees had been paid and the flight operation was running smoothly.
It stated that PIA was releasing funds and fulfilling its national and international obligations and payments would be made to fuel companies. Spare parts of the aircraft for immediate repair would also be purchased.
In a statement issued today, PIA’s Khan said there was an improvement in the flight operations of the flag carrier.
“Seventy-seven flights will be operated from airports across the country today,” he said.
Of these 77 flights, 25 will be operated locally while the remaining account for international flights, Khan said, adding that the ratio of PIA flights that would operate as per the schedule today was 87 per cent.
Regrettably, PIA serves only a fraction of the country’s population, accounting for less than 3pc of citizens using air travel while consuming significant public funds. This stands in stark contrast to the highly criticised and loss-making power companies that cater to nearly 80pc of the population with electricity.
The government of Pakistan holds a 92pc share in PIA, which was once known for its slogan “Great People to Fly With”. However, since the late 1990s, the airline has faced mounting losses, attributed to competition from emerging regional airlines, a lack of entrepreneurship, external influences, internal mismanagement, and insufficient funding for fleet expansion, as highlighted by the Aviation Division.
To cope with its financial losses, PIA accumulated significant debt, which has now reached unmanageable levels. As of Dec 31, 2022, PIA’s debt and liabilities stood at Rs743bn — five times more than the total value of its assets, the Aviation Ministry said, adding that its total losses for the last financial year (2022-23) stood at Rs86.5bn, out of which Rs11bn were operational losses.
“If the situation continues as such, PIA’s debt and liabilities will rise to Rs1,977bn and its annual losses will rise to Rs259bn per annum by 2030,” it put on record, warning that Rs383bn of the current debt liability of PIA stood underwritten by the government of Pakistan and being 92pc owner, the responsibility for the remaining payables also ultimately rested with it.
Several attempts were made in the last decade or so to make PIA sustainable. These attempts followed two basic approaches. The first approach mainly focused on turning the PIA around by cutting down cost, improving internal management and increasing fleet size with capital investment from the government. However, several attempts of this nature failed to make any headway.
The second approach focused on financial, legal, operational, commercial and human resources restructuring of PIA to clean its balance sheet, aiming to attract private investment through divesting government shares. This approach was identified first in the Dubai Islamic Bank Consortium Report of 2017 that was engaged by the Privatisation Commission and later in Dr Ishrat Hussain Report on PIA Restructuring Plan in 2020.
PIA also carried out a study to formulate a sound business plan to make it profitable by engaging IATA, which also recommended a similar approach while indicating a capital injection of $3.5bn over a period of five years to enhance fleet size from 29 aircraft in 2021 to 49 in 2026. However, none of these reports could be implemented for various reasons.
In view of the continued deterioration of the financial condition of PIA, in June 2023, it was decided to restructure PIA broadly on the lines recommended by the Dubai Islamic Bank Consortium Report. To steer this process, a committee under the then finance minister was constituted to steer and guide the restructuring effort.
Under the directives of this committee, the PIA’s board of directors approved a plan on July 25 this year to restructure PIA in light of the aforesaid report by incorporating a new holding company to retain legacy loans, non-aviation assets and existing PIACL subsidiaries (PIA-IL, Skyrooms Limited, and Saber Travel Network), with PIACL as its wholly owned subsidiary retaining aviation assets and relating liabilities.
Another major hurdle in that direction has also been removed since then. The previous provisions of PIACL Act, 2016 did not allow the transfer of management control and more than 49pc shares of PIACL to a private entity and hence were not conducive for attracting private investment. However, an amendment act was promulgated on Aug 12 and these restrictions have now been removed and PIACL was included in the privatisation list of the Privatisation Commission with the approval of the cabinet on Aug 7.
The restructuring plan is yet to be approved by the government. The Aviation Division last week asked the government to inject Rs23bn funds to cover the markup payment, suspend Rs1.3bn and Rs700m to the FBR and the Civil Aviation Authority, respectively, and defer loans and markup till restructuring is complete in about eight months.
This did not impress Caretaker Finance Minister Dr Shamshad Akhtar at the back-to-back meetings of the ECC and the Cabinet Committee on Privatisation.
The two committees then decided to form a separate panel to assess PIA’s restructuring plan and directed the finance ministry and the State Bank of Pakistan to support the airline to tackle its financial challenges after a concrete plan of restructuring had been finalised.