Pakistan’s National Carrier – PIA – Set To Go Air India Way; Has Lost Nearly $3.6 Billion In Last 20 Years

Following the steps of its neighbor and adversary across the border, Pakistan is selling its national carrier, Pakistan International Airlines (PIA), which has accumulated losses that run into billions of dollars.

This month, PIA — which has lost over $3.6 billion over the last 20 years — is under focus in the trial run for the government’s proposal to sell off more than 80 state-owned businesses in Pakistan. The move comes ahead of a critical International Monetary Fund (IMF) bailout.

The sale of the airline, which has served Pakistan for decades, comes as the country is set to divest assets worth billions of dollars. It wants to raise billions of dollars from the International Monetary Fund (IMF) to support its struggling economy. Among the assets up for sale are power plants, a bank catering to women, and even a hotel in New York, as recently detailed by Nikkei Asia in an elaborate report.

Ten businesses, including Pakistani billionaire Arif Habib, domestic aviation services provider Gerry’s Group, and three of the country’s private airlines, have put in bids to purchase a majority stake in PIA ahead of the initial deadline of May 4, which was later extended to May 18.

At this point, it is not clear how much stake the Pakistani government would be willing to sell, but some reports say it could be anywhere between 51% to 100%. If the privatization process moves forward, it will provide Pakistan with much-needed funds to pursue additional funding negotiations with the IMF.

The sale of the national carrier—the Pakistani government is anticipated to make at least $300 million from the national airline’s sales, according to reports—has become imperative. The IMF has mandated that the Pakistani government stop funding and endorsing loss-making ventures to provide Islamabad with financial support.

The PIA has suffered due to overstaffing, debilitating debt-servicing costs, and a requirement to fly practically empty planes on dozens of routes across a country of 241 million people.

Since the carrier has been losing money for several years, multiple attempts have been made to dispose of it. It is believed that when the Pakistan Muslim League-Nawaz (PML-N) party came to office in 2013, one of its top priorities was to privatize loss-making companies that were depleting public coffers.

In exchange for a $6.7 billion package from the International Monetary Fund that prevented Pakistan from defaulting in 2013, 68 state-owned enterprises, including PIA, were earmarked for privatization. Despite some early progress, the process came to a standstill in 2016 when the mobilization of employees and the blocking of flights due to protests disrupted the plans.

File:PIA B777-200LR AP-BGZ.jpg - Wikimedia Commons
Pakistan International Airlines- Wikimedia Commons

There were multiple occasions after this when subsequent administrations tried doing away with the loss-making carrier. The former privatization minister, Daniyal Aziz, said in 2018 that the country was trying to privatize its national airline before the general elections that year.

However, no headway could be made. This time, there is more optimism since the military, which is believed to have significant stakes in the country’s internal decision-making, has thrown its weight behind the decision to sell PIA. According to reports, the sale has the backing of the Special Investment Facilitation Council (SIFC), which is supported by Pakistan’s military, which is pushing for these reforms.

Despite that, there is skepticism about whether a sale will go through, given the previous track record and potential legal hurdles that the government might face.

Pakistan is not the only country in the South Asian subcontinent that has been struggling with its national airline. The decision to sell its national carrier has come after India sold its national carrier to an Indian business group after years of losses.

India Also Sold Its National Carrier

In 2021, India’s largest company, the Tata Group, purchased the loss-making Indian national airline, Air India. The incumbent Modi government sold the airline to the firm for roughly $2.4 billion (£1.7 billion), making it the highest bidder.

The airline was first established in 1932 by the Tata Group and taken over by the government in 1953. However, the government had been looking to sell the carrier after it incurred losses of $9.5 billion. The sale was considered a boost to the Modi administration, which had been eager to sell loss-making enterprises since it took over.

Despite high expectations, the government had not been able to sell its shares in several publicly traded companies that were losing money.

The Indian administration was eager to sell the carrier due to the abysmal revenues generated by its operations. In fact, the airline continued to operate with taxpayers’ money.

The government claimed that operating the airline meant losing close to $2.6 million every day. The airline’s management blamed its financial performance on the falling rupee, low-cost carrier competition, growing fuel costs, and airport usage fees. Many of these factors are also currently true for Pakistan.

Image for Representation

The airline described the sale agreement with the government as a “whopping new phase.” The sale has infused the airline with new life. Reports suggest that in recent years, the Tata Group has invested tens of billions of dollars in modernizing the cabins, buying 470 new aircraft, revamping the company’s brand, and improving customer services.

Air India intends to take advantage of the enormous development potential of the Indian aviation sector, which is currently the third largest in the world and has over 145 million domestic passengers annually.

However, with Pakistan, the purchase is more like an attempt to save its economy. PIA’s sale could be crucial to the $6 billion to $8 billion IMF bailout that the nation is requesting.