The Privatisation Commission (PC) in Pakistan has taken a significant step towards the privatization of Pakistan International Airlines (PIA). The board, during its recent meeting, approved a transaction structure aimed at selling a minimum of 51 percent stake in PIA. Ernst & Young presented the proposed transaction structure, emphasizing the legal separation of PIA into distinct entities – referred to as “good” and “bad” PIA.
The transaction involves selling the majority of PIA’s shares along with the division of the company’s assets and liabilities. Financial consultants recommended selling shares with accompanying management control. To facilitate the separation, non-core assets and liabilities will be retained in a holding company.
PIA’s total liabilities, estimated at Rs. 825 billion, prompted advisors to suggest transferring approximately three-fourths of this burden to the federal government. A new holding company is proposed to manage about Rs. 640 billion of PIA’s liabilities, including government and commercial bank debts. Additionally, Rs. 140 billion in payables from entities like Pakistan State Oil and the Civil Aviation Authority would be moved to this holding firm, which would also encompass PIA’s properties and foreign hotels.
Preserving key assets, including approximately $88 million and leasing agreements, is part of the proposal. The financial experts recommend that the federal government take responsibility for Rs. 83 billion in payments to aircraft lessors.
Furthermore, advisors suggested the separation of specific debts, such as the Civil Aviation Authority’s Rs. 64 billion debt, Pakistan State Oil’s Rs. 69 billion liabilities, and the Federal Board of Revenue’s Rs. 6 billion tax arrears. These separated entities could then be sold to potential investors.
In summary, the proposed transaction structure aims to privatize a significant portion of PIA, alleviate its financial burden through the separation of liabilities, and create distinct entities to attract potential investors, both local and foreign.
