Pakistan International Airlines has long been more than an airline. It has been a fluid metaphor for the Pakistani state itself, born as a symbol of national ambition and technical prowess, which gradually turned into a fiscal albatross, year after year circling the public balance sheet, consuming subsidies, eroding credibility and defying reform.
That is why the recent auction awarding a 75% stake in Pakistan International Airlines to a Pakistani consortium led by Arif Habib for around Rs.135 billion feels significant. Not because a sale has finally happened, but because it forces a harder question. Is this the end of a long failure, or just the beginning of a more subtle one.
The transaction, completed after years of aborted attempts, comes amid IMF-backed stabilization efforts and shortly after PIA’s resumption of European and UK routes. This development has been celebrated as a sign of renewal. Yet privatization, like accounting, is implacable. It rewards precision and punishes narrative excess.
To judge this deal, we need to look past the headlines and examine what has actually changed, what hasn’t, and what needs to come next if this is to be a true turnaround and not a cosmetic milestone.
At the heart of the agreement lies a simple but uncomfortable arithmetic. The government has sold 75% of PIA’s airline at an enterprise value of Rs 135 billion. Of this, only a small part flows directly to the state. The majority is structured as new capital that is injected into the airline to stabilize operations, fund fleet needs and restart growth. The state also retains a 25% stake, implicitly valued at around Rs 45 billion.
Against this, the far bigger reality is that most of PIA’s historical liabilities, about Rs.650 billion, have been parked in a separate holding company and remain with the government. When offsetting the immediate fiscal value received, cash plus retained equity, against these legacy liabilities, the government still bears a burden of over Rs 600 billion.
This distinction is significant because it exposes the fallacy of celebrating privatization as fiscal salvation. The sale improves incentives at the operating level, but it does not erase the costs of decades of mismanagement. Several economists have rightly noted this as a necessary structuring choice to make the airline investable, not a magic wand for the public balance sheet.
PIA’s decline is neither sudden nor mysterious. In the 1960s and 1970s, it was a regional manager who advised and even helped establish airlines across Asia and the Middle East. Over time, political interference replaced commercial logic.
Overstaffing drove up costs, procurement became opaque, and routes were chosen for patronage over profitability, while management turnover eroded accountability. Repeated restructuring plans promised revival but delivered little beyond temporary cash injections.
The result was an airline that could not compete on cost, reliability or service quality, even as regional peers professionalized and globalized. Losses were structural, not cyclical. Grants became usual, not unusual. By the time security concerns forced the suspension of international routes, PIA had already become a case study in how government ownership, without institutional discipline, erodes operational capacity.
The current privatization follows a well-known template. Good assets and operations are carved into an OpCo, leaving bad debts and liabilities in a HoldCo. This approach is sound and quite inevitable as no investor would take on decades of accumulated liabilities. Yet the success of such structures depends on what follows.
First, the process has raised questions about the transparency and depth of strategic participation. The absence of tier-one global airline operators in the bidding process suggests that the option may have been designed more as a financial rescue than an aviation strategy.
Second, generous tax breaks and liability shielding reduce the disadvantages for new owners, but shift the risk decisively to taxpayers. Without strict performance covenants, this can entrench moral hazard rather than eliminate it.
International precedents are instructive. Argentina’s airline privatizations oscillated between private control and renationalization due to weak regulation and politicized oversight. Egypt’s reforms stalled as ownership changes were not accompanied by government reforms. These examples show that privatization without institutional redesign often recycles failures under a different label.
If Pakistan wants this privatization to mark a break with the past, it must think beyond the state versus private ownership binary. The question is not who owns PIA, but how capital, manpower and governance are deployed.
One approach is to integrate performance-based, incremental share buybacks. Institutional investors could be offered the option to acquire additional equity upon pre-defined operational milestones such as load factors, timely performance and unit cost reductions. This aligns capital deepening with execution rather than optimism.
Second, as it is, PIA needs strategic airline partners, not just financial sponsors. Code sharing, fleet pooling and joint purchasing with tier-one global carriers can unlock network synergies that balance redress alone cannot deliver. Aviation is a business of scale. Islands are expensive. Perhaps an opportunity for the government to discuss with the United Arab Emirates, whose aviation industry was once supported by Pakistan.
Third, labor reform must be intelligent, not blunt. Across-the-board layoffs would destroy morale and invite political backlash. A better model is skill-based reallocation linked to airline productivity metrics, supported by retraining funds funded through future profit-sharing instruments. Workers then become stakeholders in recovery, not victims of it.
Fourth, PIA should be repositioned within a regional aviation hub strategy. Pakistan’s geography is an asset, not a footnote. Properly geared, PIA can serve trade corridors, tourism flows and a large diaspora market across Europe, the Gulf and East Asia. Connectivity is economic infrastructure. Handled strategically, it multiplies value beyond the airline itself.
Finally, the administration must be modern and public. Independent boards with proven experience in airline turnarounds should be mandatory. Quarterly performance scorecards benchmarking PIA against regional peers on cost, punctuality and service quality should be published. Sunlight is not punishable. It is preventive.
IMF involvement ensures short-term discipline, but it cannot create institutional capacity. It must be built in the home. As reported by financial news media, the markets follow not only the sale price, but also the depth of the reform that follows.
The privatization of PIA is not a judgment. It’s a test. It asks whether Pakistan can convert ownership changes into institutional changes, whether it can use capital for productivity rather than patronage, and whether it can finally treat its national airline as an economic instrument rather than a political ornament.
If this moment is handled with seriousness and imagination, PIA can once again become a link between people, markets and ideas. If not, it will simply fly under a different flag and carry the same old weight. The difference will not be measured in press releases, but in balance sheets, flight schedules and ultimately public confidence.
The author is a Chartered Accountant based in the UK. He can be reached on: [email protected]
Disclaimer: The views expressed in this piece are the author’s own and do not necessarily reflect Pakinomist.tv’s editorial policy.
Originally published in The News
