TILL the early 1950s — after the country’s independence, and before the establish-ment of a national airline — the aviation business in the region consisted of British Overseas Airways Corporation (BOAC), which operated between Pakistan and India, and some other regional carriers. In the early years of its existence, the Pakistan International Airlines (PIA) was an amazing entity as it was the first airline in the region to operate jet aircraft. Today, as part of the privatisation agenda, PIA is being restructured to better align with the government’s goal of making state-owned enterprises (SOEs) in Pakistan efficient and profitable.
There is an array of problems that is faced by PIA, such as poor financial performance, management problems, overstaffing and political interference. This has made the airline a financial burden because it needs humungous loans and subsidies to continue its operations.
The government has proposed restructuring PIA’s finances so that the airline can be sold as a debt-free ‘clean entity’ without what is called the legacy loans. PIA with only current core assets and current liabilities would be offered for privatisation.
The most important question is: how difficult of a task is it to sell an organisation like PIA as a clean entity and how can this objective be efficiently achieved? At the moment, the offer to buy the airline is not very appealing to potential investors. If we look around, we can find a similar case in the aviation industry that might interest us.
Japan Airlines (JAL) was struggling, but the Japanese government played a critical role in keeping it functional. There were several hurdles during the privatisation of JAL in 2011. JAL had been facing issues with its finances and decided to file for bankruptcy that year. It went through a massive reorganisation process when it was in the midst of filing for bankruptcy. This procedure involved grounding of 103 aircraft, the termination of about 15,000 personnel, and the reduction of 49 routes.
A plan that required creditors to forgo about $8 billion in outstanding debts was backed by the government. The plan also called for direct state help in the amount of 300 billion Japanese yen ($3.29 billion) and a line of credit in the amount of 600 billion yen ($6.58 billion).
Taking into account PIA’s current liabilities and debt, which amount to a whopping Rs743 billion, the government can offer PIA a financial relief plan in which it can park the liabilities in another government-created entity and slowly clear off debts and liabilities.
The other option on the table would be debt restructuring, but it will still not make the airline debt-free. Making it debt-free will attract many investors and allow PIA to flourish under private ownership. The implementation of these changes may appear to be a simple task, but, in reality, it is a difficult process.
However, this process can be accelerated by the government, which needs to seek inspiration from other countries’ experiences, such as JAL and Air India, in order to address the challenges it is currently facing.
Aadil Riaz
Islamabad
Published in Dawn, November 19th, 2023
