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PIA confused between Emirates and Etihad privatization offers

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News Analysis |

The government will try to privatise Pakistan International Airlines (PIA) before general elections due this year, privatisation minister Daniyal Aziz said, as the ruling party seeks to restart sales of state-run businesses.

The national flag carrier, losing money and losing market share to Gulf-based rivals such as Etihad and Emirates, has been hit by management turmoil in recent years and a 2016 plane crash that led to 47 deaths.

The privatisation of loss-making entities that were draining the exchequer was a key priority for the Pakistan Muslim League-Nawaz (PML-N) party when it swept to power in 2013. PIA was among 68 state-owned companies earmarked for privatisation in return for a $6.7 billion International Monetary Fund package that helped Pakistan to stave off a default in 2013.

“We will get runs on the board, but the real challenge is to bring to fruition the two big animals: one is PIA and the other one is Steel Mills,” Aziz said.

Despite some initial success, the process stalled in 2016 after staff protests caused havoc with PIA operations and the government passed a law that effectively made it impossible to privatise the airline. But Aziz, chairman of the Privatisation Commission, told a publication that new plans have been drawn up to sell off PIA and he would take the proposals to the cabinet committee on privatisation, chaired by Prime Minister Shahid Khaqan Abbasi.

Read more: PIA to cash in on CPEC by announcing flights to Gwadar

“[The] next step would be going to the cabinet committee … and that’s imminent, maybe even next week,” Aziz said in his Islamabad office this week. The new plans focus on splitting up the carrier, with the core airline business being separated from vast peripheral operations such as catering, hotels and maintenance, Aziz said. The core airline would then be sold.

But to complete the transaction, Aziz said, the government would have to pass laws in parliament to reverse the 2016 legislation that converted PIA into a limited company and effectively barred the government from giving up management control.

Aziz said that, owing to time restraints ahead of the elections, the privatisation commission will focus on one state company per sector, including a bank and an energy company.

The impetus to sell PIA has grown as the airline has piled up huge losses estimated by its former CEO in March at about $30 million a month. Total debt stood at 186 billion rupees ($1.8 billion) at the end of 2016. When asked how soon a buyer could acquire PIA, Aziz said: “Tomorrow morning. If you have the money, come and buy it.”

Emirates and Etihad Airways had showed interest in buying a stake in Pakistan International Airlines (PIA), but the government was forced to retreat from its sell-off agenda as protests kicked off, a top official who was privy to privatisation developments told a publication.

Read more: New PIA chief’s optimism leaves people confused

After earning a substantial $1.72 billion under its ambitious privatisation plan in the first two years, the PML-N’s sell-off programme stalled in the latter half of its tenure. The tactical retreat came as protests erupted after it was reported that the government was considering selling its stake in the national carrier.

Analysts have been skeptical about the government’s ability, or willingness, to take on powerful unions and embark on a privatisation process so close to general elections likely in July or August.

“The Privatisation Commission found potential strategic buyers for two top loss-making state-owned entities; PIA and Pakistan Steel Mills,” an official told an online publication this week. In the past two years, despite repeated claims of restructuring and eventually selling stakes in loss-making entities, not a single privatisation transaction has occurred.

Read more: PIA celebrates Christmas mid-flight

Instead, Pakistan’s taxpayers have had to bear the brunt of coughing up Rs. 500 billion as loss-making enterprises continue to be a strain on the country’s fiscal operations. In addition, these companies have not gone through the restructuring process that was touted before the government was elected into power. Mr. Aziz gave no indication of an expected valuation.

The impetus to sell PIA has grown as the airline has piled up huge losses estimated by its former CEO in March at about $30 million a month.

Analysts have been skeptical about the government’s ability, or willingness, to take on powerful unions and embark on a privatisation process so close to general elections likely in July or August. Aziz said that, owing to time restraints ahead of the elections, the privatisation commission will focus on one state company per sector, including a bank and an energy company.

Read more: PIA turns down bid to sell Roosevelt Hotel

He added that there has been “huge interest” in buying Pakistan Steel Mills, once the pride of Pakistan’s industrial output but is now shut and going down the gutter. “We will get runs on the board, but the real challenge is to bring to fruition the two big animals: one is PIA and the other one is Steel Mills,” Aziz said.


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