ISLAMABAD:
The government has offered substantial tax breaks to facilitate the sale of Pakistan International Airlines (PIA), which has suffered losses of 500 billion rupees since 2015, privatization advisor Muhammad Ali said on Wednesday.
Speaking at a joint press conference with Information Minister Attaullah Tarar, Muhammad Ali made a presentation that implicitly held the three major political parties responsible for the decline of PIA over the past 15 years. According to the report, PIA was profitable between 1989 and 2009, but started making losses from 2008 onwards.
The presentation highlighted that the decline of the airline began during the tenure of the Pakistan People’s Party (PPP), from 2008 to 2013, and worsened during the last five-year tenure of the Pakistan Muslim League-Nawaz (PML-N). Ali said the airline’s financial situation began to deteriorate before 2009, calling the 2010-2020 period “financial distress.”
The press conference aimed to explain the logic 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 Rs500 billion,” he said. According to his presentation, losses amounted to Rs 33 billion in the 2014-15 financial year, rising to Rs 45 billion, Rs 51 billion and Rs 67 billion in subsequent years, with a total of Rs 196 billion in losses during the PML-N’s last four years in power.
In the first year of the PTI government, losses decreased to Rs 53 billion and then to Rs 35 billion in 2019-20. However, losses increased again to Rs 50 billion in 2020-21, and jumped to Rs 88 billion in 2022. The highest annual loss in the last decade was Rs 108 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 blocked by a special parliamentary committee. He questioned whether subsequent losses should be recouped 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 positive equity of Rs9.1 billion. The new buyers also received Rs9.5 billion in cash and bank balances as well as Rs14 billion in advance payments.
Ali said the new investors benefited from GST exemption on induction of aircraft, engines and spare parts. He said no new taxes will be levied for 15 years, including on PIA fuel. There is also an income tax exemption for 15 years for payment of dividends to avoid double taxation, he added.
Tax liabilities of Rs26.6 billion, loans of Rs7 billion and land worth Rs12 billion were also withdrawn from the PIA. The FBR’s tax debts of Rs26.6 billion will be settled by the new buyers in five years in four annual installments, according to Ali.
The advisor said 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 and in the fifth year Rs 8 billion will be invested.
Ali showed that the PIA’s high cost and revenue pattern was due to overstaffing and inefficient use of the fleet in the past.
The government has also pledged not to create a new airline, but such a ban does not exist in the provinces, Ali said. However, he said provinces should not create new airlines either.
The advisor explained that the airline industry contributes only 1.6% to 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 were further exacerbating debts. PIA’s balance sheet is now free of long-term debt and substantial 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 get only Rs 10.2 billion in cash.
Ali shared that after the bidding process, the total value of PIA stands at Rs 180 billion, where Rs 45 billion is the value of the government’s remaining 25% stake.
“If the buyer buys this stake, the government will receive Rs 45 billion. So 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 per cent or Rs 124.8 billion of the bid amount in PIA as fresh equity through a two-tranche ‘rights issue’, two-thirds as upfront payment (Rs 83.25 billion) and one-third as second tranche (Rs 41.625 billion) to be invested within 12 months of financial close.
Ali said the airline currently flies to 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-320s, 12 Boeing 777s and 5 ATRs, but only 19 remain in operation, with a domestic market share of almost 30%.
Ali said Arif Habib wanted to acquire 100% of the shares. Responding to a question, the advisor said the government would welcome Fauji Fertilizer becoming a partner of the winning consortium due to its strong financial position and experience.
