Meeting a central condition of its IMF-backed reform programme, Pakistan on Tuesday, Dec 23, completed its most significant privatisation drive in nearly two decades, selling a 75 per cent stake in loss-making Pakistan International Airlines for PKR135 billion (USD480m) to a consortium led by Arif Habib Corporation.
The transaction, officials stressed, was structured primarily to revive the national carrier rather than bolster the treasury.
Of the total proceeds, only PKR 10.125bn (USD36m), or 7.5 per cent, will flow to the federal exchequer, while PKR 124.875bn (USD444m) will be reinvested directly into the airline. The post-deal valuation of PIA stands at around PKR 180bn (USD640m), according to officials, reports The News International.
The winning consortium comprises Arif Habib Corporation, Fatima Fertilizer, AKD Group, City Schools and Lake City Holdings. It narrowly edged out the Lucky Cement-led consortium, which made a final offer of PKR 134bn (USD476m).
That rival group included Hub Power Holdings, Kohat Cement Company and Metro Ventures. Private carrier AirBlue submitted a bid of just PKR 26.5bn (USD94m), well below the government’s confidential reference price USD355m.
The auction marks Pakistan’s first major privatisation drive since the mid-2000s and comes under increasing pressure directed towards Islamabad, with critics calling for the urgent need to overhaul the loss-making state-owned flagship air carrier part of a USD7bn IMF programme.
A previous attempt last year collapsed after drawing a single bid of PKR 10bn (USD35m) against an official benchmark of more than PKR 85bn (USD300m) for a smaller stake.
Under the agreed terms, the sale-purchase agreement is expected to be signed within two weeks.
The consortium must pay two-thirds of the bid amount within 90 to 120 days, and the balance payable within 12 months. The government will retain a 25 per cent stake for now, with the option for the buyer to acquire it later at a 12 per cent premium within 90 days.
After the auction, Arif Habib said the group’s immediate focus was on consolidating the 75 per cent stake, adding that the army-owned entity, Fauji Fertiliser — which had earlier withdrawn from the auction could still join the consortium under the transaction structure.
The government sought to defuse labour concerns by guaranteeing PIA employees job security for 12 months. Pension liabilities, medical benefits and post-retirement perks will be assumed by a state-owned holding company, while salaries and current benefits will be paid by the new owners.
Pakistani PM Shehbaz Sharif hailing the auction, called it “a historic day for Pakistan”, saying the transparent and competitive process demonstrated the government’s resolve to privatise state firms that had become a burden on the economy.
He extended his congratulations to senior cabinet members and institutions involved in concluding the deal.
Founded in 1955, the PIA was once Islamabad’s premium air carrier and a symbol of national pride for their aviation, The airline fell into trouble due to a myriad of problems, including massive bureaucratic corruption, growing safety concerns, over the years leading to the decision to disinvest the airline.
Reported annual losses of around PKR 50bn (USD178m) weighed heavily on public finances. Of its batch of 34 aircraft, fewer than 20 are operational, though flight bans imposed by the UK and EU have been lifted this year.
Arif Habib said that the expanding the fleet of operable aircraft was a top priority, and will begin as per a phased initiative, with the first phase raising the number of operational aircraft to 38 in the first phase, and 65 in the second.
He said that the deal would help attract foreign investment and hinted that Middle Eastern airlines and other strategic partners could join later, once the initial transaction is completed.
