ISLAMABAD — Pakistan’s failed bid to sell its national airline threatens the future of a high-profile privatization drive seen as crucial to helping fix the country’s battered economy.
The government last year picked Pakistan International Airlines (PIA) as the test case for unloading money-losing state companies, with a target to fetch at least $305 million for a majority stake in the struggling carrier.
A half dozen potential buyers were shortlisted, including some of the country’s private airlines. But when bidding closed in the last week of October, a real estate tycoon with no experience in aviation was the only one to come forward with an offer, which — at just $36 million — was far below the minimum.
“What was the need for bidding if there was only one bidder who does not have an aviation background? This process harmed the entire privatization effort in Pakistan,” Fawad Hasan Fawad, a former caretaker minister who started the PIA privatization process last year, told local media.
Saad Nazir, chairman of bidder Blue World City, brushed off criticism of his play for PIA, which hasn’t turned a profit in two decades.
“We wish the government all the best if they don’t want to accept our bid,” he was quoted as saying.
The underwhelming offer for PIA — which the government had previously tried, and failed, to sell — threatens to damage Islamabad’s plan to offload dozens of state-owned firms, including power plants, banks and utilities.
“Credible bidders walked out, leaving only one real estate developer as the sole bidder. With only one bidder, price discovery is impossible, as there’s no counterbidding. Yet, [the government] proceeded with the sale, even going public with it on television,” said Haroon Sharif, chairman of the Pakistan Regional Economic Forum and former head of the country’s Board of Investment.
“Failure to attract credible bidders has now damaged investor confidence. Once bidders walk away, it’s challenging to regain their trust,” he added.
Observers said there were several flaws in PIA’s privatization process, despite the sale being supported by the Special Investment Facilitation Council (SIFC). The newly established body was backed by Pakistan’s powerful military, which plays an outsized role in the South Asian nation’s affairs.
A PIA sales office in downtown Karachi. The carrier has dozens of marketing centers at home and abroad. © ReutersAfsar Malik, an expert in airline economics and former director at the aviation authority, told Nikkei Asia that the government offered a 60% stake in PIA, which was not a feasible option for any buyer. “With a 40% stake, the government can still have a significant say in PIA affairs, making it harder for potential buyers to make major decisions about the airline,” he said.
One PIA official said the airline could get on a solid footing by selling to an experienced buyer.
“A transparent sale of PIA’s assets across the country, which are valuable but underutilized, could help stabilize the airline. Proceeds from these sales could be used to reduce PIA’s losses,” the source told Nikkei Asia on condition of anonymity. “PIA must be handed over to a team of aviation professionals to manage it effectively.”
Despite the setback, Pakistani Finance Minister Muhammad Aurangzeb insisted that the government will take another crack at selling off the once-successful carrier, which has lost a combined $3.6 billion in the past 20 years.
While PIA controls about 41% of the domestic market, it carries an onerous debt load and, with some 8,000 employees, has struggled with overstaffing.
Fewer than half of PIA’s 35 aircraft are operational, according to a recent report by the Auditor General of Pakistan, which also said that ticketing fraud alone cost PIA $160 million between 2007 and 2017.
The carrier, which relies on a $40 million annual government subsidy, incurs losses of as much as $900,000 daily, Malik said.
“The fleet of PIA is more than 20 years old and requires a major overhaul, which is a significant additional expense for a potential buyer,” he continued. “There is no potential for growth in Pakistan’s air travel market due to the economic situation, making the prospects of earning profits from PIA very grim.”
The sale effort came as the International Monetary Fund called on Pakistan to stop subsidizing money losing entities as a condition for loans to help prop up its faltering economy. The IMF and Islamabad reached a deal this year for a $7 billion loan, the latest in a string of bailouts.
PIA’s failed sale now raises questions about the future of the airline, Malik said.
“The government may sell all shares of PIA to its employees, for free, and also provide them with a working capital of $70 million and ask them to operate PIA,” he said.
A last-resort option is to declare bankruptcy and sell off PIA’s assets, Malik said.
“This is the only feasible solution for the government to get rid of PIA and its recurring losses.”
source : asia.nikkei