• PM says national airline can only progress if run by experts on profit-loss basis
• Dar-led body to present workable solutions immediately after Eidul Azha
ISLAMABAD: Prime Minister Shehbaz Sharif has formed a high-level committee that will work out a plan to restructure and revive Pakistan International Airlines (PIA), which has continued to be in bad shape over the years.
The reputation of the national flag carrier, facing cumulative losses of Rs635 billion by the end of September, has further suffered in recent weeks because of five particular incidents in different continents.
And this happened when the company’s standing had already been at the lowest ebb following question marks raised by a former aviation minister on the qualifications of pilots operating its aircraft globally.
As if that was not enough, the inter-agency acrimony in the aviation chain — including the Civil Aviation, PIA, and the Airport Security Force — is making things murkier.
Things worsened to the extent that ministers for finance and aviation warned these agencies on Tuesday to resolve their issues mutually, including those relating to changes to the aviation law, within a week or else the government might be compelled to outsource not only the airports but also their security operations.
Twelve internationally renowned firms, including the one operating London Heathrow Airport, have shown interest in airport service contracts.
It was highlighted that amendments to the aviation law should be passed by the parliament by mid-July in line with international standards so that global aviation regulators could send their inspectors in August for on-ground verification of operational systems and standards needed for reviving PIA’s operations to the United States, United Kingdom and Europe. If this didn’t happen, Pakistan would have to wait for another year for the inspections.
These operations were stopped about three years ago after a controversy erupted over pilots’ professional degrees and other aircraft safety standards.
The gradual build-up of events and challenges over time landed at the office of the prime minister, who set up a high-level committee on Wednesday to work out the restructuring, reformation and revival of the flag carrier.
The panel, led by Finance Minister Ishaq Dar, has been asked to present workable solutions immediately after Eidul Azha on the way forward, according to an official statement. The committee will deliberate on different options for restructuring and reviving PIA.
The committee also comprises Aviation Minister Khawaja Saad Rafiq, Planning Minister Ahsan Iqbal, Commerce Minister Naveed Qamar, Special Assistant to the Prime Minister on Government Effectiveness Jahanzeb Khan and the aviation secretary.
Earlier this week, the government disbursed Rs4bn in emergency funding to PIA to meet international obligations, although it was seeking about Rs23bn immediate bailout.
This was despite the fact the government had enhanced about two months ago the guarantee limit to over Rs263bn to help the airline arrange commercial funding.
On Monday, the airline reported to the government that under a Dec 30, 2017, decision of the prime minister, the markup on PIA’s debt was to be picked up by the government for five years (from July 2018 to June 2023) and its payment was to be made directly to the lenders.
Consequently, payments of markup on government guarantee loans of PIA had been made to the lenders from July 2018 to November 2022.
In last year’s budget, the Ministry of Finance allocated Rs15bn for the fiscal year 2022-23 against the demand of Rs31.5bn, of which Rs14.69bn was utilised up to November 2022.
The markup from December to June amounting to Rs23.26bn was sought from the Ministry of Finance with the request to disburse additional funds of Rs22.9bn but in vain, except the Rs4bn this week.
The PIA management claimed that the holding of additional markup payment support had exacerbated the already persistent cash flow problem.
Until now, PIA had been, with severe difficulty, making markup payments from its available operating cash flows. However, it had now reached a point where it was unable to make any further payment, it said.
According to PIA, diverting operational cash flows to markup payments has led to delays in payments due in relation to the airline’s core operational obligations.
This includes payments in relation to various services without which flight operations are not possible, such as payments against the lease of aircraft and airport services. Of the PIA’s fleet of 31 aircraft, 13 are on lease.
PIA has confirmed that AerCap, one of its lessors, impounded the B-777 aircraft on May 29 in Kuala Lumpur. It was later released under court order after making overdue payment and pledging PIA receipts through the clearing house of the International Air Transport Association.
Another lessor, Willis Lease Finance Corporation, filed a lawsuit for non-payment in a US court and PIA had to remove two A-320 aircraft engines and was forced to return to Willis to avoid any adverse court decision.
Thirdly, PIA reported that the insurance broker Allianz issued a termination notice, and without payment of over dues, insurance cover would not be available, resulting in the suspension of PIA operations in entirety.
Saudi Arabia’s aviation regulator, the General Authority of Civil Aviation (GACA), has also issued a notice for payment of the full outstanding amount of $48 million to avoid suspension of operations, including Haj flights.
The pilgrims have already travelled to the kingdom and their repatriation operation would not begin until GACA payments are made, PIA said.
Moreover, last week IATA issued a final warning for payment of its outstanding dues of $2.8m by June 21. Failing to comply within notice could have resulted in the suspension of PIA’s IATA membership and, thus flight operations.
This payment was made on June 23, but the existing cash flow problem remained unresolved and could cause greater risk in the near future.
An official statement said the aviation minister briefed the prime minister about the proposed route map and reformative measures for the uplift of the national flag carrier.
The prime minister appreciated the efforts of the minister for the PIA’s revival and believed the airline had the capacity to overcome the losses for which it should expand the fleet from 27 to 49 to avoid the crisis.
Mr Sharif said PIA had lost the Europe and US routes owing to irresponsible statements by the previous government, inflicting the loss of billions of rupees and recalled that the incompetent ministers of the previous government had victimised international investors, Chinese firms and Turkish businesspeople.
Calling the reformation process inevitable, the prime minister told the meeting that the PIA could only progress if run by professional and administrative experts purely on a profit-and-loss basis.
He said the government was heading towards a mechanism in which its role would be confined to making policies and facilitating investors, businesses and companies.
Published in Dawn, June 29th, 2023