In a historic development in the history of the aviation industry in Pakistan, Pakistan International Airlines Corporation Limited (PIACL) has finally been privatized partly after close to twenty years with Arif Habib consortium coming out as the top bidder. In a deal worth Rs. 135 billion, the group bought 75 percent of the largest privatization deal in the country in recent times, the national flag carrier.
The deal is an indication of a significant change in the operations and further course of PIA that has historically faced financial losses, accumulating debts and operational inefficiencies.
How the Auction Unfolded
The privatization auction was done via open and transparent bidding process, the three pre-qualified Pakistani groups that participated in the auction were Lucky Cement, Airblue, and the Arif Habib Group.
Airblue made a bid of 26.5 billion in the first round, which was lower than the value of the reference price and it was thrown out. The other competitors started with Lucky Cement with Rs. 101.5 billion and the Arif Habib consortium with Rs. 115 billion at the top. Following a short break and amended price at which to refer to of Rs. 125 billion, bidding renewed.
In the second round, Lucky Cement increased its offer to Rs. 120.25 billion then that of Arif Habib to Rs. 121 billion. The consortium led by Arif Habib made a final decisive bid of Rs. 135 billion in the last move that ensured a majority stake in PIA.
Deal Structure and Financial Impact
Under the finalized agreement:
- 75 percent ownership of PIACL will transfer to the Arif Habib consortium.
- 92.5 percent of the sale proceeds will be reinvested into PIA.
- 7.5 percent will go to the federal government, translating into Rs. 10.2 billion in cash.
- The government is expected to save nearly Rs. 35 billion annually by ending recurring financial support and bailouts.
The officials also suggested that the winning consortium could induct close to two other partners upon acquisition being made.
Government’s Objective
The privatization is meant to ensure that PIA is put under professional and investor managements to turn around the years of losses and win its competitiveness once again. The government is hopeful that privatization will aid in the introduction of a more substantial governance, a more effective fleet organization, a better quality of service and a more stringent cost regulation.
Finance Minister Muhammad Aurangzeb described the process as transparent and one that was good to the Pakistani economy as all the bidders were local firms. He stressed that the essence lay in the need to put a stop to the financial hemorrhage of PIA and restore its reputation in the airline industry.
What Lies Ahead for PIA
As the ownership change is being executed, the focus is now on implementation. By the new owners, it is projected that they will:
- Restructure management,
- Optimize domestic and international routes,
- Plan fleet renewal, and
- Implement operational and workforce reforms.
A Turning Point for Privatization
Economists consider the sale of Rs. 135 billion a boost of confidence in the larger privatization agenda in Pakistan and it indicates that big state resources may receive significant interest amongst domestic investors provided processes are transparent.
The historic sale of the majority stake in PIA to Arif Habib consortium is a milestone to the national airline of Pakistan. With years of financial pressure, now PIA has a new beginning with the leadership of the people in a private mode and the expectations of recovering and gaining a new growth in the global aviation industry.
