Pakistan International Airlines Corporation Limited (PIACL) has reportedly resolved a $26 million dispute with Asia Aviation Capital Limited (AACL) through an out-of-court settlement. This decision was reached following legal counsel advice, as it was believed that PIACL’s position in the case was not particularly strong.
Ministry of Aviation informed the Economic Coordination Committee (ECC) on October 27, 2023, that the PIACL leased two A320 aircraft registered as AP-BLY (MSN 2926) and AP-BLZ (MSN 2944) from AACL in 2015 for a year period.
According to a previous report by Profit, the two planes were leased at a monthly rent of nearly $550,000 including rent, maintenance costs and insurance for the aircraft. For the next six years, the planes flew as part of PIA’s fleet. These two A320s were flown for a while as part of AirAsia – the Malaysian multinational air carrier.
In typical aircraft lease agreements, the lessee is responsible for returning the aircraft in its original condition. When it was time to return the planes, AACL could not send their team to Pakistan for inspection due to COVID 19 restrictions. Instead, they engaged FL Technic, a global aircraft maintenance provider based in Lithuania, to conduct the inspection in Jakarta.
It was planned that the aircraft will be redelivered in six to eight months after repairs. However, this schedule could not be followed. This led to exchange of claims and counterclaims between AACL and PIA as to the responsibility for the delay, actual amount of the lease rent, penalties and interest to be paid to AACL.
Even a year later, the aircraft was not repaired and remained undelivered and the PIA bled of $5 million just on paying the rent for two planes they were not even using.
The dispute on lease rent led to litigation on two previous occasions, in 2019 and 2021, as a consequence of which PIA was forced to pay $12.058 million to AACL.
Since April 2022, PIA tried to reach out to AACL through inter alia visits by senior officials to their headquarters at Kuala Lumpur, but they remained largely unresponsive.
However on September 11, PIA received a Court Notice through AACL’s UK-based counsels Herbert Smith Freehills for immediate payment of $31.3 million against outstanding rent, redelivery rent, maintenance costs and interest charges for the two aircrafts.
PIA’s UK-based counsel Norton Rose & Fullbright sought time from High Court of Justice, England and Wales, London to reply to AACL’s claims. Accordingly, the next date of hearing is now for October 30, 2023.
At the same time, PIA’s counsels have categorically opined that PIA’s position in this matter was quite weak. They have recommended that PIA may find an out-of-court resolution with AACL, which could be one of the three modes i.e. payment of cash, maintenance buyout or purchase of one or both aircraft.
The counsel further stated that since AACL’s claim does not involve factual controversy, it may be decided on a summary judgment for which the case could be heard in around six weeks.
Taking cognizance of the matter, the PIA board recommended that two board members and the Secretary Aviation should negotiate with AACL for an out of court settlement in the larger interest of the company.
On submission of this recommendation, the Prime Minister had allowed the negotiation team to proceed to Kuala Lumpur on 9th October, 2023.
After having five rounds of negotiation with the Chief Executive Officer, Air Asia Aviation group and his team negotiation succeeded in convincing them to settle the matter at a consolidated amount of $26 million which includes transfer of titles of two aircraft in two installments.
Sources said that PM approved in principle to conclude the negotiation with the AACL on the loans and placed the case before the ECC for a provision of a grant of PKR 7.3 billion to PIA.
Letter of intent to settle the matter in the above terms agreed between PIA and AACL besides comments of Finance and Privatisation Divisions were invited on 13, October, 2023.
Both the divisions have supported financial support of Rs 7.3 billion to PIA. However, the finance division was hesitant to issue supplementary grant during the period of SBA with the IMF and advised to arrange financial facility from the market against the balance of guarantee ceiling i.e Rs 7.5 billion.
On October 27, ECC approved the proposal of Aviation Division for bridge financing through Civil Aviation Authority’s (CAA) resources amounting to Rs 8 Billion for PIA to meet emergent requirements related to overdue payments.
responsible should must be accountable
Corruption, malpractices, incompetence….. Great people to fly with
As you sow, so shall you reap.
Why can’t government take a decision to recover all looted funds of PIA from it’s corrupted higher management during 1990 to 2022? No other option either government should provide 1000 Arab Rupees or y to catch the Dacoos of last three/four decades who looted the airline.