ISLAMABAD:
The government offered significant tax breaks to facilitate the sale of Pakistan International Airlines (PIA), which has incurred losses of Rs500 billion since 2015, Privatization Adviser Muhammad Ali said on Wednesday.
In a joint press conference with Information Minister Attaullah Tarar, Muhammad Ali gave a presentation that implicitly held the three major political parties responsible for PIA’s decline over the past 15 years. According to the briefing, PIA was profitable between 1989 and 2009 but started incurring losses from 2008 onwards.
The presentation highlighted that the airline’s decline began during the Pakistan People’s Party’s (PPP) tenure from 2008 to 2013, and worsened during the Pakistan Muslim League-Nawaz’s (PML-N) last five-year term. Ali said the airline’s financial position had started to deteriorate before 2009, marking the period from 2010 to 2020 as a “financial distress”.
The press conference was held to explain the rationale and structure of the privatization agreement. The government sold a 75% stake in PIA for Rs 10.2 billion in cash, a day before the briefing.
Ali acknowledged that PIA’s performance had deteriorated over the past 15 years. “From 2015 to 2024, the airline suffered losses totaling Rs 500 billion,” he said. According to his presentation, the losses were Rs33 billion in the financial year 2014-15, increasing to Rs45 billion, Rs51 billion and Rs67 billion in subsequent years, with a total of Rs196 billion in losses during the PML-N’s last four years in power.
During the first year of PTI’s government, losses fell to Rs53 billion, further falling to Rs35 billion in 2019-20. However, losses rose again to Rs50 billion in 2020-21, jumping to Rs88 billion in 2022. The highest single-year loss in the past decade was Rs108 billion in 2022-23, when the PDM alliance was in power.
Ahmad Nawaz Sukhera, the former privatization secretary, said on social media that PIA was to be privatized in 2016 with strong market interest, but the process was stopped by a special parliamentary committee. He questioned whether the subsequent losses should be recovered from the parliamentary panel.
According to Ali’s presentation, the new buyers got assets worth Rs 191.2 billion and liabilities worth Rs 182.1 billion. It has positive equity of DKK 9.1 billion. The new buyers also got Rs9.5 billion in cash and bank balances and Rs14 billion in advance payments.
Ali said the new investors have been given GST exemption on induction of aircraft, engines and parts. He said no new tax will be levied for 15 years, including on PIA fuel. There is also a 15-year income tax exemption on dividend payments to avoid double taxation, he added.
Rs26.6 billion tax liabilities, Rs7 billion loans and Rs12 billion worth of plots have also been taken out by PIA. FBR’s Rs26.6 billion tax liabilities will be cleared by the new buyers in five years in four annual installments, according to Ali.
The consultant said the new buyer would make Rs116 billion worth of capital investment till 2029. In the first year Rs35.6 billion will be invested, in the second year Rs37.4 billion will be invested, in the third year Rs23.2 billion, in the fourth year Rs11.9 billion and in the fifth year Rs8 billion.
Ali showed that PIA’s high cost and revenue model was driven by overstaffing and inefficient fleet utilization in the past.
The government has also pledged that it will not start a new airline, but there is no such bar in the provinces, Ali said. However, he said the provinces should not start new airlines either.
The advisor shared that the aviation industry contributes only 1.6% to Pakistan’s GDP, which is low. “With a meager share of only 0.3%, the aviation industry also does not contribute to employment in Pakistan,” he said.
Ali said macroeconomic variables such as rupee devaluation and rising interest rates further aggravated liabilities. The PIA balance sheet is now free of long-term debt and significant tax system concessions are built into the reserve price.
Arif Habib Corporation Limited-led consortium, which also included Metro Ventures (Private) Limited, Fatima Fertilizers Company Limited and City Schools (Private) Limited, acquired 75% of PIA for a total of Rs135 billion, but the government will get only Rs10.2 billion in cash.
Ali shared that the total value of PIA after the tender process is Rs 180 billion ie. Rs 45 billion is the value of the 25% government’s remaining share.
“If the buyer buys this stake, the government will receive Rs 45 billion. So the total economic value of the PIA transaction for the government is Rs 55 billion,” he said.
The bidder will invest the remaining 92.5% or Rs 124.8 billion of the bid amount in PIA by way of new equity via ‘Rights Issue’ in two tranches viz. two-thirds as an upfront payment (Rs83.25 billion) and one-third as the second tranche (Rs4126 billion) within close to 4126 months invested.
Ali said the airline currently serves 30 destinations, while PIA has rights as a designated airline for 78 countries and has air service agreements with 97 countries. “PIA’s biggest asset is its landing rights,” he said.
Currently, the airline has 33 aircraft, including 16 A-320, 12 Boeing 777 and 5 ATR, but only 19 remain in service with a domestic market share of almost 30%.
Ali said that Arif Habib wanted to acquire 100% of the shares. To a question, the adviser said the government would welcome Fauji Fertilizer becoming a partner in the winning consortium because of its strong financial position and experience.
