ISLAMABAD:
The potential buyers of Pakistan International Airlines (PIA) have refused to make the guaranteed investment of $500 million and also declined to accept targets of increasing the aircraft fleet and flying on certain number of domestic and international routes.
A majority of the potential buyers have proposed to keep the entire sale proceeds to reinvest them in the airline instead of giving to the government, according to sources in the privatisation ministry.
The bidders want to issue new appointment letters to only those employees that would be retained, the sources added.
The matter is now being discussed at the highest government level, as the acceptance of these conditions may heavily tilt the balance in favour of PIA buyers.
Six shortlisted bidders have raised major objections to the proposed shareholders’ agreement and sale-purchase agreements. In case of successful bidding, the government and the winning bidder will sign a share purchase agreement, subscription agreement and shareholders’ agreement.
Sources told The Express Tribune that the conditions had been proposed in those documents to protect the interest of the government of Pakistan and revive the bleeding airline that caused losses of Rs500 billion in the past eight years.
The government has shortlisted Fly Jinnah, Airblue, Arif Habib Corporation, Blue World City, Pak Ethanol (Pvt) Consortium and YB Holdings Consortium for the privatisation of PIA. These companies are in the due diligence process.
The government had initially planned to privatise the airline by June-July 2024 but later extended the deadline to October 1.
Last week, Privatisation Commission Secretary Usman Bajwa told the Senate Standing Committee on Privatisation that out of the six bidders, only two were serious about bidding for the acquisition of the airline.
PIA’s total liabilities amount to Rs843 billion, out of which Rs623 billion has been parked in a holding company, which is now the responsibility of taxpayers, to make the airline attractive for the bidders.
Sources said that a majority of the shortlisted parties were not willing to accept targets related to increasing the number of aircraft, flying on the agreed number of domestic, regional and international routes and making the guaranteed investment in the airline.
When contacted, Usman Bajwa did not comment on whether the bidders refused to accept the key performance indicators.
The government has included the key targets in the shareholders’ agreement to improve the dilapidated condition of the airline.
The buyer will be required to grow the airline business and achieve these targets in three years. It is also supposed to increase the fleet in five years and cover certain numbers of domestic and international routes under the new management.
At least two parties have refused to accept any such targets. They have demanded the deletion of such binding conditions from the agreements. However, they are willing to accept some corporate goals but no binding targets to increase the fleet size and operate on certain domestic, regional and international routes.
Sources said that at least two pre-qualified parties have proposed to retain the entire bid money and invest in PIA instead of depositing in the exchequer.
One local airline that has shown interest in acquiring 100% stake in PIA wants to pay the amount to the government.
The government has proposed that the bid price should be divided into two parts. It wants to deposit some of the proceeds in the kitty and the remaining may be reinvested in PIA.
The government has offered 51% to 100% stake of the airline. In line with the offer, the bidders have offered to buy 51% to 100% shares, with two parties seeking 51% shareholding.
Sources said that the bidders were reluctant to make the guaranteed investment, which was critical to keep the airline flying and make it profitable.
The government has proposed that the buyer will be required to implement the investment plan by pumping $500 million to $700 million into PIA. This investment will not dilute the government’s remaining shareholding.
However, the sources said that a majority of the shortlisted parties have refused to accept any such investment plan, determined by the PIA management. The government has sought bank guarantees to make sure that the investors make the required investment.
Some of the parties were not willing to give bank guarantees and instead offered assurance guarantees.
These bidders have demanded that the concept of a pre-determined business and investment plan should be deleted from the draft of the agreements.
One of the parties has rejected the condition that the government’s equity share will not be diluted in case it did not make a matching investment.
The bidders were also reluctant to accept the condition of retaining the employees. The government has proposed that the investor will keep PIA employees for three years and will take over their liabilities.
The bidders have refused to take responsibilities of the existing employees and instead proposed to park them in the holding company. They are willing to take the responsibility of only those employees that will be retained and get fresh offer letters.
Most of the investors have refused to take any responsibility for payments to the employees that will be terminated and are also not willing to bear their pension liabilities.
