Pakistan International Airlines (PIA) is expected to be run by a new owner from April next year, subject to approvals, and receive fresh capital under a deal to privatise the flag carrier, Adviser to the Prime Minister on Privatisation Muhammad Ali said on Wednesday.
A consortium headed by the Arif Habib Corporation emerged as the top bidder in a live-televised auction for a 75 per cent stake in PIA on Tuesday, marking a breakthrough for the government’s long-delayed privatisation of the carrier.
The Arif Habib consortium offered Rs135 billion, surpassing a government reserve price of Rs100bn, in a sharp turnaround from last year’s failed sale attempt.
Muhammad Ali, the privatisation adviser to the prime minister, told Reuters in an online interview that the state expects a new owner to be running the airline by April, subject to approvals.
The process now moves to final approvals by the Privatisation Commission board and the cabinet, expected within days, with contract signing likely within two weeks and financial close after a 90-day period to meet regulatory and legal conditions.
Ali said the government would receive about Rs10bn in cash upfront and retain a 25pc stake valued at around Rs45billion.
The deal was structured to inject fresh capital into the airline rather than simply transfer ownership, he said.
“We did not want a situation where the government sells the airline, takes its money and the company still collapses,” Ali said.
The winning consortium also comprises fertiliser maker Fatima, private school network City Schools and real estate firm Lake City Holdings Limited.
Ali said Fauji Fertiliser Company did not bid but could still join the winning consortium as a partner, noting the buyer can add up to two partners including a consortium partner or a foreign airline if they meet the qualifying criteria.
Allowing partners adds financial strength and could bring global aviation expertise, he said.
Fauji Fertliser was initially in the race to acquire PIA shares but it later opted out of the bidding process.
IMF pressure
Ali said safeguards, including retained earnest money and an additional payment on signing, would allow the government to move to the second-highest bidder if the deal fails to close.
On labour, Ali said the buyer must retain all employees for 12 months after the transaction, with contracts unchanged, adding that the PIA workforce has already shrunk in recent years.
The sale is closely watched by the International Monetary Fund, which has pressed Pakistan to halt losses at state-owned enterprises.
Ali said the privatisation was a key test of Pakistan’s reform credibility with the IMF, adding that failure to offload loss-making state firms risked renewed pressure on public finances.
He said closing the deal would signal momentum on reforms and privatisations, adding that the government was working through a pipeline of future transactions once PIA closes.
CDF played an ‘important role’
Separately, Ali also addressed a press briefing in Islamabad, where he said the process for the “strategic sale” of PIA was initiated 20 years ago. An attempt to sell the airline had also been made last year, which unfortunately had not been successful, he recalled.
The latest attempt, which resulted in the airline’s sale, was a result of six months of persistent efforts, hard work, due diligence and cooperation of all stakeholders, he said, adding that the process was completed with the guidance of Prime Minister Shehbaz Sharif, federal cabinet, Deputy Prime Minister Ishaq Dar and Chief of Defence (CDF) Forces Field Marshal Asim Munir.
He recalled that there was a time, around 50 years ago, when PIA was operating around 50 aircraft. The number should have increased to 100-115 by now, but the airline was presently operating just 18 planes, he added.
“We reached this stage because several mistakes have been committed in the past, over the years,” Ali said, adding that the private sector was best-suited to run such businesses. “It‘s not the government’s job to run businesses.”
He further stated that now private entities would invest in the airline, more planes would be added to its fleet, aircraft would be revamped and service quality would improve.
Ali once again lauded PM Shehbaz for his guidance and support, adding that CDF Munir also played an “important role” and there was “total commitment from his side. He also guided us”.
He also acknowledged the support from Dar, Finance Minister Muhammad Aurangzeb, the Competition Commission of Pakistan (CCP) and other members of the cabinet.
Ali also addressed the criticism on the transaction, adding that it was being said that the government was to receive just Rs10bn from the total bidding amount.
Under the transaction arrangement for PIA’s privatisation, the government is to get 7.5pc of the total bidding amount, which adds up to around Rs10bn, and the rest 92.5pc is to be injected back into the airline.
But, Ali contended that the government was getting a “value of Rs55bn”.
