The Economic Coordination Committee (ECC) of the cabinet on Wednesday approved the restructuring plan of the Pakistan International Airlines Corporation Ltd (PIACL).
Federal Minister for Finance Hammad Azhar chaired the ECC meeting, before having a viable business plan in place for the national carrier.
The Aviation Division submitted a summary before the ECC regarding the restructuring plan of the PIACL. Adviser to the PM for Institutional Reforms and Austerity Dr. Ishrat Hussain made a detailed presentation on human resource and operational restructuring of the PIACL.
He drew attention to the various options for restructuring and outlined measures to minimize losses and transform PIACL into a financially viable entity. It included human resource restructuring through Voluntary Separation Scheme (VSS), hiring aviation experts, fleet modernization, routes rationalization, product development, and revenue enhancement measures.
It was decided to lay off about 25% of the existing workforce or 3,500 employees of the national flag carrier, shut its non-profitable routes, and share the international routes with other airlines.
After a detailed consultation, the ECC recommended the restructuring plan of PIACL for onward submission before the cabinet, after reconciliation of tax liability figures, with a direction to place a cap on future debt which PIACL could take against its improved balance sheet, once the restructuring plan is implemented.
However, there is a small hiccup. The plan is unable to achieve its targets unless a business plan is set to achieve new targets. The proper plan may take up to six months to be ready to be presented.
The IATA Consulting firm has also started working on the PIA business plan, which is expected to be finalized by September this year, the ECC was informed.
During the meeting, the ECC approved splitting the PIA into two companies, namely the Good PIA that will have only Rs137 billion liabilities along with core assets, and the Bad PIA that will pick Rs457 billion liabilities and will retain the ownership of its non-core assets.
The government-owned bad company will take away the financial liabilities off the balance sheet of PIA along with some non-important assets and a new company carrying out the business like a new venture, including employment, profitable routs and will work on capitalizing on ethnic diaspora, religious tourism, modernizing of the fleet and sharing routes with other airlines.
Out of the current 457 billion rupees debt, the federal government will immediately pick Rs203 billion worth of debt.
The current write-off of government loans worth Rs55.6 billion will happen immediately, and the rest (commercial loans secured against the sovereign guarantees) will be paid by the government from 2021 to 2027 according to a plan.
The government will also bear the cost of Rs12.9 billion for laying off around 3,500 employees, which it has already approved.
As per the plan, if there are legal obstacles in setting up the company, the government would directly assume the liabilities and convert them into equity.
Meanwhile, The PIA with the necessary approvals in place will submit a comprehensive plan with a revised balance sheet of the Good PIA keeping in view the core business, desired workforce as per international best practices, rationalized routes, and key elements of an open-air policy suitable to PIA.
The Good PIA will have only Rs137 billion worth of liabilities, mainly Rs58.5 billion trade debt and Rs60.7 billion employees and aircraft lease-related liabilities.
The ECC was ensured that the carrier would be turned around within three years. However, such promises have been made for the past 13 years as well.
The ECC was informed that the PIA may come to a standstill in its operations as it has exhausted its commercial borrowing capacity and the decision to restructure its finances has been delayed inordinately.
The meeting was also attended by Planning Minister Asad Umar, Minister for Energy Omar Ayub Khan, Privatisation Minister Muhammad Mian Soomro, Minister for National Food Security and Research Syed Fakhar Imam, Advisor to the PM on Commerce Abdul Razak Dawood, SAPM on Power Tabish Gauhar, SAPM on Revenue Dr Waqar Masood, federal secretaries, Governor State Bank of Pakistan Reza Baqir, Chairman Board of Investment (BOI) and other senior officials.