Pakistan International Airlines (PIA), the national airline of Pakistan, is on the brink of privatization. This move is part of a broader initiative by the Pakistani government to restructure financially struggling state-owned enterprises, in line with an agreement with the International Monetary Fund (IMF) to secure a $3 billion bailout.
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The Privatization Plan
The privatization plan, drawn up by Ernst & Young, will go to the cabinet for approval before the current government's term ends after the election. The cabinet will also choose between selling the airline's stake through a tender or a government-to-government deal. A 51% ownership stake with complete managerial authority would be made available to purchasers, following the transfer of the airline's debts to a separate entity.
Challenges Faced by PIA
PIA has faced numerous problems, including the suspension of its European and UK routes, a tax dispute, financial mismanagement, and safety concerns. A significant blow came with the cessation of its European and UK routes in 2020, following the withdrawal of authorization by the European Union's Aviation Safety Agency (EASA) due to a scandal involving fake pilot licenses. In light of this, a tax dispute emerged with Pakistan's Federal Board of Revenue (FRB) in 2023, leading to the repeated freezing of the airline's bank accounts. PIA's financial woes worsened mainly due to fund mismanagement and increasing fuel costs.
Impact on Operations
In the autumn of 2023, PIA was unable to pay for its jet fuel needs, forcing it to cut flights¹. The airline was almost close to shutting down. As of October 16, 2023, PIA owed Pakistan State Oil (PSO) Rs26.8 billion ($96 million). However, PIA was able to resume its operations after it got a credit of Rs. 500 million ($1.7 million) from PSO.
The Road Ahead
The privatization of PIA is expected to facilitate negotiations between Pakistan and the IMF about future financial assistance packages. The new government has also introduced legal changes that will allow it to sell off its majority stake in the company. In the meantime, the government will need to inject another 23.7 billion Pakistani rupees (around US$85 million) into the airline to keep it afloat for five to six months before the sale can be completed. The privatization of PIA is a significant step towards overhauling the airline's financial troubles and injecting fresh vitality into the aviation sector. It represents a pivotal moment in the history of PIA and the aviation industry in Pakistan.