Pakistan to Privatize Pakistan International Airlines: Will it Save the Airline?

On August 7, Pakistan announced plans to privatize its unprofitable state-owned flag carrier Pakistan International Airlines (PIA). This decision was made at a meeting involving the country's Cabinet Committee of Privatisation (CCoP) along with Minister of Finance Ishaq Dar. 

In a statement released by Pakistan's Ministry of Finance, the CCoP "after deliberation decided to include Pakistan International Airlines Co. Ltd in the list of active privatisation projects of the ongoing privatisation programme, following an amendment in the law by the Parliament."

The CCoP also plans to hire a financial advisor to process a transaction involving the Roosevelt Hotel in New York. The hotel was leased to PIA in 1979 through a joint deal with Saudi Arabia's Prince Faisal bin Khalid bin Abdulaziz Al Saud. The lease ran for 20 years at an estimated cost of $35 million, with the two entities paying between $2.7 million and $4 million in rent each year.

Both stakeholders later purchased the hotel for $36.5 million in 2000, with PIA acquiring Prince Faisal's ownership stake. The hotel shut down in December 2020 due to the COVID-19 pandemic and multiple financial challenges the company is facing.

The announcement comes amid Pakistan's plans to outsource airport operations to comply with a deal brokered by the International Monetary Fund (IMF). In July, Pakistan received $1.2 billion from the IMF in order to stabilize its economy. The country was nearing a sovereign debt default before receiving financial assistance from the IMF, the United Arab Emirates, and Saudi Arabia. The IMF will provide Pakistan with $3 billion once the bailout is complete.

Pakistan's economic issues have adversely affected its aviation industry. In July, the country announced that it would outsource operations at three major airports, including Islamabad International Airport (ISB) in the country's capital, Islamabad. Pakistan is currently in talks with Qatar to jointly run terminals at Islamabad, Karachi, and Lahore airports. It is likely that such an investment would be part of the Qatar Investment Authority's plans to invest $3 billion in Pakistan.

PIA has accumulated hundreds of billions of rupees in losses over the years due to Pakistan's weak economy and a variety of controversies surrounding the airline. In 2020, the European Union Aviation Safety Agency (EASA) banned PIA from flying within European Union airspace due to a scandal involving its pilots. This forced the suspension of PIA's flights to the UK and continental Europe.

In June 2020, Pakistan's aviation minister revealed that more than 30% of its civilian pilots had fake licenses and were not qualified to fly aircraft. The 262 pilots paid other people to take the exams on their behalf and earn them licenses despite not having flying experience or subject matter expertise. As a result of this announcement, PIA immediately grounded its pilots without real licenses.

This revelation was made after a PIA aircraft crashed after departing from Allama Iqbal International Airport (LHE) in Lahore on May 22, 2020. The crash killed 97 passengers and crew members in Karachi, with only two surviving.

It is unlikely that PIA will be able to resume flights to Europe anytime soon for safety reasons. Even though Pakistan's aviation minister has hinted at the resumption of flights to the UK, it is unlikely due to a lack of pilots. 141 of PIA's 434 pilots are currently suspended due to the fake pilot license scandal.

On the financial side, PIA has faced hardships for years now. The airline recorded a loss of 38 billion Pakistani rupees (approximately $132.1 million) in the first three months of 2023, which represents a 171% increase from the same period in 2022. PIA's poor financial performance can be blamed on bird strikes, higher fuel costs, flight bans in Europe, and economic and political instability.

PIA's first quarter losses add to the losses from being banned from European airspace. The airline saw a loss of 215 billion rupees (around $747.5 million) due to the ban. PIA's total loss and debt have reached 742 billion rupees (approximately $2.6 billion).

Despite PIA's struggles, Pakistan is determined to make the airline profitable. The federal government has outlined a two-part plan to save PIA. The first part involves creating a new holding company and transferring all of PIA's assets and liabilities to it. The second phase involves PIA being restructured by a foreign consultant, with 40% of its shares sold internationally. This would effectively turn PIA into a public-private partnership.

If this privatization plan succeeds, it could turn PIA into a profitable airline and make it the centerpiece of tourism in Pakistan. PIA's previous incarnation, Orient Airways, was privately held from 1946 to 1955. Pakistan has faced many crises in recent years, ranging from devastating floods that killed 1,739 people to the removal and eventual imprisonment of former Prime Minister Imran Khan. Privatizing PIA will be difficult to execute, but it may be the only way for it to survive.