ISLAMABAD:
The government offered significant tax concessions to facilitate the sale of Pakistan International Airlines (PIA), which has suffered losses of 500 billion rupees since 2015, privatization adviser Muhammad Ali said on Wednesday.
In a joint press conference with Information Minister Attaullah Tarar, Muhammad Ali made a presentation that implicitly held the three main political parties responsible for the decline of the PIA over the past 15 years. According to the report, PIA was profitable between 1989 and 2009, but began to suffer losses from 2008 onwards.
The presentation highlighted that the airline’s decline began during the rule of the Pakistan People’s Party (PPP) from 2008 to 2013, and worsened during the last five-year rule of the Pakistan Muslim League-Nawaz (PML-N). Ali said the airline’s financial situation had begun to deteriorate before 2009, marking the period from 2010 to 2020 as one of “financial difficulties”.
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 Rp500 billion,” he said. According to its presentation, losses were Rs 33 billion in the 2014-15 fiscal year, rising to Rs 45 billion, Rs 51 billion and Rs 67 billion in the following years, with a total of Rs 196 billion in losses during the PML-N’s last four years in power.
During the first year of PTI rule, losses declined to Rs 53 billion and fell further to Rs 35 billion in 2019-20. However, losses rose again to Rs 50 billion in 2020-21 and jumped to Rs 88 billion in 2022. The highest single-year loss in the last decade was Rs 108 billion in 2022-23, when the PDM alliance was in power.
Ahmad Nawaz Sukhera, former privatization secretary, said on social media that PIA was to be privatized in 2016, with strong market interest, but the process was stalled by a special parliamentary committee. He questioned whether subsequent losses should be recovered from the parliamentary panel.
According to Ali’s presentation, the new buyers obtained assets worth 191.2 billion rupees and liabilities worth 182.1 billion rupees. It has a positive equity of Rs 9.1 billion. The new buyers also got Rs 9,500 crore in cash and bank balances and advance payments of Rs 14,000 crore.
Ali said new investors have been granted exemption from GST on induction of aircraft, engines and parts. He said no new tax will be imposed 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.
Tax liabilities of Rs 26,600 crore, loans of Rs 7,000 crore and land worth Rs 12,000 crore have also been withdrawn from PIA. According to Ali, the new buyers will clear the FBR’s tax liabilities of Rs 26.6 billion over five years in four annual installments.
The advisor said that the new buyer would make capital investment worth Rs 116 billion till 2029. In the first year, Rs 35.6 billion will be invested, in the second year Rs 37.4 billion will be invested, in the third year Rs 23.2 billion, in the fourth year Rs 11.9 billion will be invested and in the fifth year Rs 8 billion will be invested.
Ali demonstrated that PIA’s high cost and revenue model was driven by overstaffing and inefficient fleet utilization in the past.
The government has also pledged not to start a new airline, but there is no such ban in the provinces, Ali said. However, he stated that provinces should not start new airlines either.
The advisor shared that the airline industry contributes only 1.6% of Pakistan’s GDP, which is low. “With a meager share of just 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 exacerbated liabilities. PIA’s balance sheet is now free of long-term debt and significant tax regime concessions are built into the reserve price.
The consortium led by Arif Habib Corporation Limited, which also included Metro Ventures (Private) Limited, Fatima Fertilizers Company Limited and City Schools (Private) Limited, acquired 75% of PIA for a total of Rs 135 billion, but the government will only receive Rs 10.2 billion in cash.
Ali shared that after the bidding process, the total value of PIA amounts to Rs 180 billion, i.e. Rs 45 billion is the value of the government’s remaining 25% stakes.
“If the buyer buys this stake, the government will receive Rs 45 billion. Therefore, the total economic value of the PIA transaction to the government is Rs 55 billion,” he said.
The bidder will invest the remaining 92.5% or Rs 124.8 billion of the offer amount in PIA in the form of fresh equity through a ‘rights issue’ in two tranches i.e. two-thirds as upfront payment (Rs 83.25 billion) and one-third as second tranche (Rs 41,625 crore) to be invested within 12 months of financial close.
Ali said the airline currently serves 30 destinations, while PIA has designated airline rights to 78 countries and has air services agreements with 97 countries. “PIA’s greatest asset is its landing rights,” he said.
The airline currently has 33 aircraft, including 16 A-320s, 12 Boeing 777s and 5 ATRs, but only 19 remain in operation, with a domestic market share close to 30%.
Ali said Arif Habib wanted to acquire 100% of the shares. To a question, the advisor said the government would appreciate Fauji Fertilizer becoming a partner in the winning consortium due to its strong financial position and experience.
