Pakistan International Airlines (PIA) has been a financial drain on the national economy, with cumulative losses amounting to Rs842 billion since 2015, including Rs499 billion in the last eight years alone. Despite these challenges, the government is moving forward with plans to privatise the airline, hoping to transfer management control by selling 51% to 100% of its stakes. The urgency of this decision is underlined by the airline’s recent Rs75.7 billion loss in the fiscal year 2022-23, making it the fourth highest loss-making government-owned entity.
The privatisation process is expected to culminate in a bidding session scheduled for October 1st. However, the process is not without its challenges, especially concerning the future of PIA’s employees. The National Assembly Standing Committee on Privatisation, chaired by Muttahida Quami Movement (MQM) leader Muhammad Farooq Sattar, has recommended that the government mandate the retention of employees for at least five years post-privatisation. This recommendation, however, has not been well-received by potential buyers.
Employee Retention vs. Buyer Interests
During pre-bid conferences held from August 15th to 22nd, prospective buyers expressed reluctance to retain the current workforce, with some bidders preferring to sign new contracts with employees rather than inherit existing liabilities. Additionally, bidders suggested that all employee liabilities up to the bid date should be borne by the federal government. This feedback contrasts sharply with the committee’s stance, highlighting the tension between protecting employees and making the sale attractive to investors.
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The draft Share Purchase and Subscription Agreement currently on the table proposes that existing employees, regardless of their position, cannot be terminated, laid off, retrenched, or forced to resign for three years following the completion date, except in cases of misconduct. However, this proposal is still under discussion and is not yet final. Secretary of the Privatisation Ministry, Jawad Paul, warned that insisting on long-term employee retention could increase the cost reflected in the bid price, potentially deterring investors.
Government’s Strategic Considerations
To address these concerns, Deputy Prime Minister Ishaq Dar is scheduled to chair a meeting to finalise the government’s response to the bidders’ concerns regarding the draft share purchase agreement, subscription agreement, and shareholder agreement. The government is reportedly offering buyer-favourable terms to make the deal more attractive, including accepting partial purchase payments and allowing debt-funded investments over three years. Under the proposed terms, the buyer will have the option to pay approximately one-third of the total sale price in cash, settling the remaining amounts against PIA’s payables.
The draft agreements also include a provision for a three to five-year pause on dividend payments to shareholders, further easing the financial burden on the new owners. These measures are designed to strike a balance between ensuring the airline’s financial viability and addressing the concerns of the employees and their unions.
The Path Forward: Challenges and Opportunities
While the government is keen on moving forward with PIA’s privatisation, the process is fraught with challenges. The requirement for a special audit of PIA’s accounts by June 30th, a precondition for the airline’s privatisation, adds another layer of complexity to the proceedings. Additionally, the government must address the concerns of various stakeholders, including employees, unions, and potential buyers, to ensure a smooth transition.
The privatisation of PIA represents a critical juncture for Pakistan’s national carrier. On the one hand, it offers an opportunity to relieve the national exchequer from the financial burden of sustaining a loss-making entity. On the other hand, it raises concerns about the future of thousands of employees who have dedicated their careers to the airline.
As the government navigates these challenges, it remains committed to finding a solution that balances the needs of all stakeholders. The coming weeks will be crucial in determining the future of PIA, with the final decisions likely to have long-lasting implications for the airline, its employees, and the broader aviation sector in Pakistan.