In a bid to revive the national airline, the government prequalified six groups in June for a final bid, the stage was thus set for privatization, which would hopefully relieve the ongoing burden on state finances. However, the tight terms set by the government pushed up the ante, so much that all but one contender ended up holding back. This critical juncture has exposed deeper problems in the privatization process-from unrealistic requirements to a continuing lack of investor confidence-that have cast serious doubt on the chosen path forward.
A mere 12.5 per cent of its Rs 80 billion baseline valuation attracted a single bid from a real estate tycoon, who did not know much about the aviation industry. Several channels had reported credible sources saying that the bidder didn’t have immediate funds to back his proposal and accounts suggest that he was looking to negotiate land assets as part of his bid’s worth.
The reverberations from this bid mishap are perhaps even more unsettling. Former Prime Minister Nawaz Sharif, while abroad, shared with the press that his daughter, Maryam Nawaz, had consulted him about acquiring the airline with aspirations of rechristening it “Punjab Air” and investing in a fresh fleet. Should she believe that provincial funds can accommodate such a venture, an honest discussion with the finance secretary is in order, given Punjab’s earlier commitment to the International Monetary Fund to maintain a surplus of Rs342 billion between July and September 2024—a goal unmet by a substantial 182 billion rupees.
Ironically, the Khyber Pakhtunkhwa government suddenly wants to join the would-be bidder so that the airline stays in the country fold. However, KP is no less cash-strapped than Punjab, and one wonders about the sagacity of such bold ventures. What one would have liked to see the focus of both the regional governments remains strengthening core infrastructure and social services rather than all-risk financial roulette where money and expertise fall short.
There are many complications in the pursuit of privatization. They stem from a landscape of investment not attractive enough and a fiscal structure ill-suited to safeguard new owners or the population against accepting the interest on humongous losses relegated to a holding company.
To recall, the public is still absorbing these interest costs in the form of tariffs—an extension of previous policies that migrated the circular energy debt to a holding entity. Such daunting issues require statesmanly answers. Finally, there is the sad trend to downplay accountability for errors in policy decisions of yesteryear. Only with a commitment to rectitude will the nation attract leaders of real economic and political integrity.
The final round of bidding could only manage a Rs10 billion offer for a 60 percent stake in the airline, short of what the government has set as its minimum threshold of Rs85 billion. The only player to place an offer and also a real estate management firm, refused to budge over its estimated value of the airline, rejecting moves from the Privatisation Commission to buy it off with a higher offer.
The government shortlisted six consortiums in June as would-be bidders in the national carrier’s final round of bidding. However, last month, nearly all these groups expressed stiff opposition to specific conditions present in the draft sale-purchase agreement. These included stringed performance targets, including doubling the size of the fleet, operating on some routes, investment in a specific amount of the airline’s infrastructure, and maintaining staff at a prescribed level.
When the government refused to budge and change some of its stringent requirements all but one bidder withdrew from the process. It would have made for prudent policy on part of the authorities at least to modify some of the terms to keep the interest of bidders in the transaction. With the airline severely battered, assuming any rational acquirer would want to take up the acquisition without better terms than set down initially was far too sanguine.
Perhaps even more baffling was the decision to bid down to a final round knowing the last person left in the competition lacked both the acumen and experience requisite to pilot such a complex and specialized organization as an airline. The moves of the Privatization Commission in this fiasco appeared to be inane for incompetence bordering on the ridiculous, ill-conceived gamble at public expense. It is vital that the government scrutinizes consultants who were paid dearly to facilitate this selling process.
Ideally, the new owner must have a background in aviation and a serious intent to implement drastic changes in airline governance and operations. It is only in the long term that this transformation might just begin to redeem the reputation of the carrier. For now, however, there are serious doubts over the ability of the bidder to deliver those aspirations.
Further, this chain of developments raises serious questions about the credibility of assurances made by the government to investors. The withdrawing parties have identified concerns over the government’s ability to uphold long-term commitments, an interpretation certainly informed by recent renegotiations with independent power producers (IPPs), where existing sovereign contracts were served the effect of being effectively nullified. Events such as these are not likely to be any boon for private investment in Pakistan as investors now unmistakably query the stability and credibility of the local landscape.
It is going to decide whether to accept the last offers or terminate the process and issue a fresh tender. While there are pressing demands from the IMF to hasten up the privatization process of PIA, so as to cut down this financial drain on national resources, perhaps, it should begin a new process based on proper planning, strategic foresight, and concrete due diligence.
With the future of the airline still hanging in the balance, the ball is now at the federal cabinet’s court: accepting the current bid, despite all its uncertainty, or the beginning of a more carefully orchestrated privatisation process. Considering the prevailing skepticism on the part of investors and, more so, the innate desire for due diligence and strategic planning, a new beginning might just be the better bet. Such an action would give the government an opportunity to regain the trust of the investors to produce terms that are more closely related to the current realities of the airline and eventually find a way towards a national carrier rejuvenated in real terms.