Pakistan's PIA Up For Sale; Government Approves Privatisation Plan

Pakistan's interim government, in a significant move, has granted approval for a privatisation plan targeting the financially ailing Pakistan International Airlines (PIA). This decision comes despite recent directives from the country's election panel urging restraint in finalising any deals.

The approval from the caretaker cabinet serves as a crucial step preceding the airline's potential market offering for sale, a process that the election panel has requested be put on hold until it has evaluated the plan thoroughly.

Nonetheless, as reported by Reuters last week, the interim government has forged ahead with its plan to divest the national carrier.

The Prime Minister's office released a statement asserting, "These steps will help attract investors towards PIA," highlighting that Ernst & Young, the transaction advisor, has completed a plan aimed at the financial restructuring of the struggling airline.

The decision to bind future administrations regarding privatisation underscores the economic hurdles awaiting the incoming government, operating under stringent conditions set forth by an International Monetary Fund bailout. With Pakistan grappling with decades-high inflation and a population of over 241 million, the challenges are immense.

The cabinet's approval aligns with the recommendation of Pakistan's privatisation commission, tasked with selling off all loss-making state-owned enterprises (SOEs).

The restructuring blueprint envisages dividing PIA into two distinct entities: a 'clean' company earmarked for sale and another to be ensconced within a holding company saddled with legacy debt amounting to 825 billion rupees ($2.95 billion) in loans, creditors' funds, and losses.

According to the statement from the Prime Minister's office, the endorsed plan will see the formation of two companies, TopCo and HoldCo. TopCo will encompass PIA's core operations such as engineering, ground handling, cargo, flight kitchen, and training, while HoldCo will oversee the precision engineering complex, PIA Investment Ltd, and other departments and properties.

Pakistan committed to overhauling SOEs under an agreement with the IMF last June, part of a $3 billion bailout package. The decision to privatise PIA was made shortly after signing the deal by the outgoing government.

With liabilities amounting to 785 billion Pakistani rupees ($2.8 billion) and accumulated losses of 713 billion rupees ($2.55 billion) as of June last year, PIA's privatisation progress will significantly impact discussions if the new government seeks IMF assistance post the current bailout programme's conclusion in March, analysts suggest.

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