ISLAMABAD, Oct. 31 — Pakistan’s ongoing attempts to privatize its debt-laden national carrier, Pakistan International Airlines (PIA), were met with a setback this week when the only bid received fell far below government expectations.
Blue World City, a Pakistan-based real estate development firm, offered PKR 10 billion (around $36 million) for a 60% stake in PIA — a significant deviation from the government’s minimum bid requirement of PKR 85 billion ($306 million), according to Pakistan’s Privatisation Ministry.
This shortfall highlights the challenges Pakistan faces as it attempts to reform state-owned enterprises under conditions set by the International Monetary Fund (IMF), which recently extended a $7 billion loan to the country as part of a comprehensive economic package aimed at stabilizing the economy.
Aiming to reduce fiscal pressure, Prime Minister Shehbaz Sharif’s administration has been actively pursuing privatization for loss-making entities such as PIA.
However, the significant valuation gap between the government’s expectations and the bid underscores the uphill battle in finding investors willing to take on PIA’s substantial liabilities.
Blue World City’s bid was presented during a public ceremony at an Islamabad hotel, broadcasted live on state-owned PTV, where officials announced the firm as the lone bidder.
The government had previously pre-qualified six potential buyers for the process, yet only Blue World City advanced to the final stage, reportedly due to concerns among other bidders about PIA’s debt, aging fleet, limited operational routes, and political interference.
Discrepancies in Valuation and Stake Limits
Saad Nazir, chairman of Blue World City, defended his bid, stating that the PKR 85 billion valuation was “not based on a correct financial model for an organization with significant leakages.”
He further explained that the offer represented a fair market assessment, particularly given PIA’s condition and projected restructuring costs.
“We wish the government all the best if they don’t want to accept our bid,” Nazir said during the ceremony. He added that Blue World City has contingency plans, including establishing its own airline if the government declines the bid.
Despite the bid rejection, Nazir revealed plans to bring in investors from China and Turkey with aviation experience to aid in PIA’s restructuring should the offer be accepted.
The inclusion of such investors could help offset the financial risks of operating PIA, which currently operates only 18 of its 34 aircraft and carries massive debts owed to both state and private creditors.
PIA’s Declining Fortunes and IMF Mandate
With assets estimated at approximately PKR 152 billion — comprising aircraft and operational routes — PIA remains heavily indebted and is currently banned from flying to European Union destinations.
This restriction stems from a 2020 scandal in which nearly a quarter of PIA pilots were discovered to have fraudulent licenses, prompting safety concerns from the European Union Aviation Safety Agency (EASA).
The scandal dealt a further blow to PIA’s brand and operations, intensifying financial losses and limiting expansion prospects.
PIA’s staffing is also a complicating factor.
The airline employs approximately 7,100 individuals, including over 2,400 daily wage employees.
Privatization experts warn that any new owner would face considerable challenges in transforming the organization into a profitable entity while handling workforce restructuring.
Political resistance to layoffs within PIA has historically undermined efforts to implement sweeping changes, a factor that may deter potential investors.
The government is under considerable pressure from the IMF to offload state assets as part of its structural reform commitments, which are aimed at addressing Pakistan’s rising debt and chronic fiscal deficits.
PIA is one of several state-owned enterprises earmarked for privatization, although similar attempts have previously failed due to opposition from political parties and unions, compounded by fears of corruption during the privatization process.
Investor Concerns Over Policy Stability
In recent months, potential bidders for PIA have expressed concerns about the government’s ability to honor long-term agreements, particularly given the political volatility that has defined Pakistan’s coalition-led administration.
Representatives from three groups that opted out of the PIA bid told Reuters, on condition of anonymity, that they doubted the government would adhere to the commitments necessary to manage the airline sustainably.
Investors pointed to Prime Minister Shehbaz Sharif’s reliance on a coalition of politically diverse parties, which they said heightens uncertainty about policy continuity, especially with an election approaching.
This sentiment was echoed by Mohammad Sohail, CEO of Karachi-based Topline Securities, who highlighted the discrepancy between the government’s valuation of PIA and the bid.
“The government will need to reconsider either the valuation or the privatization strategy altogether,” Sohail noted.
Adding to investor skepticism is the government’s recent renegotiation of contracts with several private power companies, where it unilaterally terminated agreements with five firms to address Pakistan’s chronic electricity shortages.
This move has raised red flags about investment security in Pakistan, even when sovereign guarantees are in place, according to Sakib Sherani, an economist at Macro Economic Insights.
Despite assurances from Pakistan’s Power Ministry that all contract revisions would be conducted with mutual consent, analysts argue that policy consistency remains a critical concern for potential PIA investors.
The recent wave of renegotiations and policy reversals further reinforces the challenges investors face in securing a reliable return on investment in Pakistan’s volatile market environment.
Future Prospects and Government Response
The Pakistan government has yet to publicly address concerns over the privatization process, although officials have indicated they might revisit the minimum bid requirement and other terms to make PIA more attractive to investors.
As Blue World City’s offer awaits further consideration by the federal cabinet, the debate continues over the feasibility of the government’s valuation and the future of Pakistan’s national airline.
Nazir’s proposition to launch an independent airline underscores a broader trend of private sector encroachment in Pakistan’s aviation industry, potentially setting a precedent for other investors to follow if the government’s privatization efforts stall.
However, political analysts suggest that without a credible overhaul in PIA’s operational strategy and governance structure, future bids may encounter similar difficulties.
In the meantime, PIA continues to grapple with its financial liabilities, aging infrastructure, and reputational challenges.
For now, the state carrier’s fate rests on whether Pakistan’s coalition government is prepared to make substantial concessions to attract new capital or continues its longstanding battle to rescue the national airline from economic stagnation.
($1 = 277.8500 Pakistani rupees)
