PIA resolves flight disruptions with credit boost, privatization looms
Pakistan International Airlines (PIA) has taken center stage this week by securing its commitment to Pakistan State Oil (PSO), agreeing to pay 1.35 billion Rupees (USD 16.18 million) for fuel supplies and receiving a 500 million Rupee credit (approximately USD 6 million) from PSO. The financial infusion has allowed PIA to maintain its operations, even as it struggled to cover its fuel expenses. The state-owned airline has faced longstanding allegations of mismanagement and financial strain on the Pakistani government.
Disrupted Network
and Financial Strain
Over the
past two weeks, PIA's flight services have experienced significant disruptions,
resulting in the cancellation of approximately 375 international and domestic
flights. In mid-October, the state oil company, PSO, halted fuel supplies to
PIA due to outstanding debts. Prior to this, PIA had already utilized a 15
billion Rupee credit (equivalent to USD 180 million) from PSO. Nonetheless, PSO
continued to supply fuel for flights prioritized by PIA, which amounted to
approximately 20 flights per day. The widespread flight cancellations over the
past fortnight have caused distress among passengers.
PIA's
financial matters to be transferred to Privatization Commission
Decades of
Mismanagement and Privatization Efforts
Decades of
mismanagement by PIA have weakened the Pakistani government and, more recently,
necessitated an International Monetary Fund (IMF) bailout to prevent the
country from defaulting on its loans. Consequently, Prime Minister Anwaarul Haq
Kakar has expressed concern about the airline's current state and actively
advocates for its privatization, aiming to fast-track the process.
Kakar
believes that privatizing PIA would enhance its reliability, bringing it in
line with the standards of neighboring international carriers like Air India or
Vistara. Privatization is also seen as a path to profitability for the airline
and improved connectivity to remote parts of the country.
Privatization
of PIA-owned Scribe Hotel in the pipeline
Kakar
assumed office in August 2023, following the dissolution of Pakistan's National
Assembly. However, for privatization to proceed, it must be presented to
Pakistan's Economic Coordination Committee. According to Bloomberg, PIA's
liabilities stood at 743 billion rupees, exceeding its total assets by
fivefold.
Credit Boost and
Future Prospects
In a bid to
further support PIA, PSO extended a 500 million rupee credit to the airline
following an agreement on October 27, 2023. With the financial dispute now
resolved, PIA is set to receive increased fuel supplies in the coming days.
This credit extension aims to alleviate some of the financial challenges faced
by the airline, ensuring its continued operations and fuel supply from PSO.
PSO’s
refusal to supply fuel forces PIA to cancel 14 flights
Despite its financial challenges, the state-owned oil company remains committed to providing fuel to the airline, despite its substantial overdue balance, in a manner that benefits both entities.
In
September, there were speculations that PIA might face grounding or closure,
but the airline has persisted in its operations. The airline's management is
grappling with the fact that it has barely generated enough revenue from its
ongoing operations to cover operating expenses and staff salaries.
Additionally, in September, Pakistan's Finance Ministry rejected PIA's request
for a PKR 23 billion (approximately $78 million) bailout.
Source:
Simplyflying.com