PIA bidders reject $500 million investment condition
Bidders for Pakistan International Airlines (PIA) have declined the government’s requirement for a $500 million guaranteed investment and have objected to several key performance targets. These targets include expanding the airline’s fleet and operating on a specified number of domestic and international routes.
According to reports, out of the six shortlisted bidders—Fly Jinnah, Airblue, Arif Habib Corporation, Blue World City, Pak Ethanol (Pvt) Consortium, and YB Holdings Consortium—many have raised concerns about the terms outlined in the proposed shareholders' and sale-purchase agreements. These terms are designed to safeguard the government's interests and ensure the revival of PIA.
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The government’s privatization plan includes conditions such as increasing the aircraft fleet and expanding operations both domestically and internationally within three years. However, at least two bidders have contested these requirements, arguing that they should not be obligatory.
The bidders have also suggested that the proceeds from the sale be reinvested in PIA, rather than being allocated to the exchequer. While the government had proposed splitting the sale proceeds between the exchequer and PIA reinvestment, some bidders have pushed for the entire amount to be reinvested in the airline.
Moreover, bidders are reluctant to commit to the $500 million to $700 million investment the government deems necessary for PIA’s profitability. The government also requested bank guarantees to back this investment, but some bidders have only provided assurance guarantees, complicating the negotiations.
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Employee retention is another contentious issue. The government has proposed that the buyer retain PIA employees for a minimum of three years and assume their liabilities. However, bidders have proposed retaining only those employees who would receive new offer letters, with the remaining staff being transferred to a holding company.
PIA’s total liabilities amount to Rs843 billion, with Rs623 billion already moved to a holding company to make the airline more appealing to bidders. Despite these efforts, bidders remain hesitant to take on significant financial or operational responsibilities, including employee pension liabilities.
The government initially aimed to complete the privatization process by mid-2024, but it has now been postponed to October, with negotiations still in progress.
Source: Profit Pakistan