Pakistan International Airlines (PIA) has requested an additional Rs45 billion relief package from the government in order to cover interest expenses and fund its operations, a request that provides additional grounds for selling the company.
According to sources in the ministries of finance and aviation, the Ministry of Aviation has requested a continuation of the five-year government facility to cover interest costs, which expires on June 30, until the airline’s balance sheet is restructured.
According to sources, the demands were presented to Finance Minister Ishaq Dar on Thursday, but he did not immediately commit to additional financial support. Sources added that Dar instead requested that management create a viable business plan.
According to the sources, the PIA has requested a Rs22 billion federal injection to pay off interest on its loans, Rs15.6 billion in the form of additional sovereign guarantees to take on more loans, and Rs7 billion to purchase an aircraft.
The Federal Minister for Railways and Aviation, Khawaja Saad Rafique, was also present at a meeting convened by Dar on Railways and Aviation matters, according to a ministry of finance document.
According to the ministry, restructuring PIACL to improve its performance and conform to international standards was also discussed at the meeting. In addition, the finance minister promised to support the timely execution of the Civil Aviation, Pakistan International Airlines, and Pakistan Railways initiatives.
The 2013-18 Pakistan Muslim League-Nawaz (PML-N) government made the error of amending the PIA law to prevent the sale of majority shares that would have transferred management control – a political decision that has cost taxpayers Rs100 billion between 2018 and 2023 alone. In September 2022, PIA’s losses had risen to Rs633 billion, having multiplied during this period.
The Pakistan Tehreek-i-Insaaf (PTI) government also sanctioned splitting PIA into two companies in April 2021; good PIA with only Rs137 billion in liabilities and core assets, and bad PIA with Rs457 billion in liabilities and the ownership of its non-core assets. However, this scheme was never executed.
Since 2017, there have been at least three reorganisations at PIA, but without a viable business plan, the national flag carrier has continued to incur substantial losses.
According to the sources, the then-government waived PIA’s interest payments for five years in December 2017 on the condition that the airline become financially viable. Thursday, the PIA management requested the finance minister to extend the interest-payment facility until the financial restructuring is complete – an objective that may never be achieved given the company’s poor past performance.
In the budget for the current fiscal year, Rs15 billion has been allocated for interest payments. However, PIA has demanded an additional Rs22 billion. In the meeting, it was asserted that the finance ministry had allocated only 15 billion rupees of the nearly 32 billion rupees needed annually. The airline added that due to a rise in interest rates, the total debt servicing costs for the current fiscal year would increase to Rs37 billion.
PIA owes money to the Pakistan State Oil Company, K-Electric, the Federal Board of Revenue, fleet insurance, aircraft and engine lessors.
The airline has also requested that the limit of the sovereign guarantee be increased by Rs15.6 billion to over Rs263 billion so that it can take out more loans to stay viable. The current assurance limit for PIA, Rs248 billion, has been exhausted. In the event that PIA is unable to pay its debts, the banks may cash in these sovereign guarantees.
Additionally, PIA sought exemptions from taxes and duties on the import of aircraft parts and related equipment.
The airline has been managed by individuals with no relevant experience, resulting in massive losses at a time when the government faces the very real possibility of defaulting on its foreign payments. According to sources, there was significant opposition to the idea of privatising PIA.