PIA Privatization: Can it Bring Back Pakistan National Airline's Glory Days?

After decades of failed attempts, the Government of Pakistan has finally privatized the Pakistan International Airline (PIA) under intense pressure from the International Monetary Fund (IMF). Nonetheless, it is a deal that will give the national airline not only a chance to survive but to thrive in the long run. As part of structuring the sale for Rs. 135 billion, the government has assumed Rs. 654 billion in debt and pension obligations. The government gets only Rs. 10 billion in cash but it gives the new owners a clean balance sheet in return for a commitment to invest Rs. 125 billion of the Rs. 135 billion sale price in the carrier. 

PIA Privatization Deal Structure. Source: Standard Capital Securities Pvt Ltd.


Pakistani politicians have used state-owned enterprises like the PIA as a vehicle for doling out political patronage. They have given jobs, including top jobs, to political cronies who have neither the experience nor the inclination to run these PSUs like businesses. Their focus has been on extracting as much financial gains as possible, and sharing some of these gains with their political patrons. 

Privatization will save Pakistan’s taxpayers tens of billions of rupees each year, and raise the prospect of the PIA becoming a contributor rather than a continuous drain on the national  treasury. Prior experience with privatizations of state-owned units like banks and the telecom company has shown that this is a realistic expectation. Taxpayer money saved can be used to fund education, healthcare and critical infrastructure. 

The PIA has a huge potential to succeed as an airline business. It has lucrative routes and landing rights which it is currently unable to fully utilize. It has a small aging fleet of 32 aircraft. Half of the fleet is out of service at any given time due to maintenance issues. 

Arif Habib, the head of the buying consortium, has committed to hiring a professional management team to run the PIA as a business to serve its customers and shareholders. He has announced plans to grow the PIA fleet from around 15-18 operational aircraft to 38 in the first phase, then potentially reaching 64-65 aircraft within a few years, essential for reclaiming international routes and improving service by adding more planes and restoring operational strength. 

Pakistan has the world's 6th largest diaspora. In addition, millions of Pakistanis travel for Hajj and Umrah pilgrimage to Saudi Arabia each year. Majority of the overseas Pakistanis and pilgrims would choose to travel by PIA if it offered convenient schedules and better service with direct flights to Pakistan. 

A successful national airline can make a significant contribution to the nation's economy by improving connectivity for tourism, trade and investment in the country. Business people, in particular, value their time.  Operating direct, non-stop flights to destinations in Pakistan from major international airports are essential for serving this customer base. 

Related Links:

Haq's Musings

South Asia Investor Review

Pakistan Air Travel Market

Pakistan $20 Billion Tourism Industry Booming

Saving PIA, Railways and Education in Pakistan

Pakistan: Political Patronage Trumps Public Policy

Riaz Haq's Youtube Channel



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