PIA privatisation: investors might actually bite this time, here’s why…

ISLAMABAD: After a series of multiple failed attempts for privatisation of Pakistan International Airlines (PIA), the government has finally cleared the way for the airline’s full sale, with 75 per cent of its shares set to go under the hammer next week and the remainder offered later at a 12 per cent premium.

According to officials from the Privatisation Commission, PIA now boasts positive equity of Rs 30 billion, the 18 per cent sales tax on aircraft leases has been waived, and international routes are cleared, said a news report by Express Tribune on Wednesday.

A HISTORY OF FAILED BIDS

The current move comes after previous privatization attempts spectacularly flopped. In the last round, the government offered only a 60 per cent stake, setting a minimum price of Rs 85 billion, despite PIA having a negative equity of Rs 45 billion. That bid attracted almost no serious buyers, with only a real estate developer showing interest.

This time, learning from past missteps, the government has opted to offer more flexibility. Only 7.5 per cent of the bid amount will be taken in cash; the remaining 92.5 per cent will be reinvested directly into PIA. Officials said this structure contrasts sharply with earlier attempts, which demanded higher upfront payments that scared off potential investors.

BIDDERS DEMAND CONTROL

The decision to sell a 100 per cent stake follows feedback from prospective buyers, who insisted on minimal government involvement after the sale. “All bidders wanted a minimum of 75 per cent shareholding for ease of decision-making, while some even sought 100 per cent,” said Muhammad Ali, Advisor to the Prime Minister on Privatisation.

The auction will start with 75 per cent of shares, with a “green shoe” option allowing the successful bidder to purchase the remaining 25 per cent within a month at a 12 per cent premium. This premium is intended to account for the deferred payment, offering further flexibility compared with previous failed sales attempts.

FINANCIAL CLEANUP TO ATTRACT INVESTORS

PIA’s financial woes have long deterred investors. Years of mismanagement and operation under retired Air Force officers left the airline with mounting debt and deteriorating assets. To improve its investment appeal, the government last year parked Rs 654 billion of PIA’s debt in a separate holding company, now serviced by taxpayers. This year, PIA will receive Rs 34.7 billion from the budget to cover debt, pensions, and medical expenses.

Despite these measures, the airline will still need to handle Rs 26 billion in pending tax and airport liabilities, as well as foreign lease payments. However, with Rs 35 billion in deferred tax credit and the reinvestment of 92.5 per cent of the bid money, officials believe the sale is now far more attractive.

STRONG INTEREST FROM MAJOR BUSINESS GROUPS

Leading business conglomerates, including the Lucky Cement Consortium, Arif Habib Consortium, Fauji Fertiliser, and Air Blue, are reportedly in the running, the Express Tribune report said. PIA owns 34 aircraft, though only 18 are airworthy, and holds air service agreements with 97 countries and more than 170 paired landing slots worldwide. Highly sought-after slots, such as London Heathrow, are among its most valuable assets.

While the government has offered indemnities and balance-sheet support to sweeten the deal, new owners are expected to exercise patience before seeing dividends.

With this approach, the government hopes to finally overcome the humiliation of past failed bids and restore PIA to financial and operational health, potentially returning the airline to its former glory.