PIA bidders reject $500mn investment condition

Potential buyers of Pakistan International Airlines (PIA) have refused to meet the government’s demand for a guaranteed investment of $500 million and have declined to accept key performance targets, including increasing the airline’s fleet and operating on a specified number of domestic and international routes. 

According to a news report, out of the six shortlisted bidders—Fly Jinnah, Airblue, Arif Habib Corporation, Blue World City, Pak Ethanol (Pvt) Consortium, and YB Holdings Consortium—several have raised concerns about the proposed shareholders’ agreement and sale-purchase agreement. The conditions laid out in these documents are meant to protect the government’s interest and ensure PIA’s revival. 

The government, seeking to privatise PIA, has imposed conditions that include increasing the number of aircraft and expanding operations on both domestic and international routes within three years. 

However, at least two potential buyers have pushed back on these requirements, insisting they should not be part of the binding agreement.

The bidders have also proposed that the sale proceeds be retained for reinvestment in PIA rather than being transferred to the exchequer. While the government proposed dividing the sale price between the exchequer and PIA reinvestment, at least two pre-qualified parties have suggested that the entire bid amount be reinvested in the airline.

Additionally, bidders are hesitant to make the guaranteed $500 million to $700 million investment into PIA, which the government deemed critical for turning the airline profitable. The government also requested bank guarantees to ensure the investment, but some parties have only offered assurance guarantees, further complicating the negotiations.

Employee retention remains another sticking point. The government proposed that the buyer retain PIA employees for at least three years and take over their liabilities.

However, the bidders have refused to accept responsibility for current employees, proposing instead to retain only those who would receive fresh offer letters, with the remaining employees being transferred to a holding company.

PIA’s total liabilities stand at Rs843 billion, with Rs623 billion already transferred to a holding company to make the airline more attractive to bidders. Despite these efforts, the buyers remain unwilling to shoulder significant financial or operational burdens, including the airline’s employee pension liabilities.

The government had initially planned to complete the privatisation process by mid-2024, but it has now been delayed to October, with negotiations still ongoing.