PIA offers property swap for debt aid
Farhan Bokhari | Friday, 18 July 2008
FT Syndication Service
ISLAMABAD: Pakistan International Airlines (PIA) plans to ask the government to assume all of its debts stemming from losses over the past three years in return for taking control of a global portfolio of the state-owned carrier's properties worth $1.0bn.
The swap is aimed at helping PIA, which has accumulated losses of Rs45bn ($647m) in the past three years, to break even and eventually return to profit.
According to Aijaz Haroon, who was recently appointed PIA's managing director by Pakistan's newly elected government, the move would also enable PIA to replace its ageing aircraft and improve its financial performance "once the debt [from the past three years] is resolved".
Mr Haroon, a former PIA pilot, said the airline was losing about Rs11bn a year.
PIA, like the rest of the sector, has been hit by the impact of record oil prices and is facing additional costs of maintaining an ageing fleet. "When we get new planes, our engineering costs will go down significantly," Mr Haroon said.
Due to the number of less fuel efficient, older aircraft in its fleet, up to 45 per cent of PIA's expenses go on fuel costs. This is significantly higher than the average 33 per cent spent by other airlines worldwide.
In the past five years, PIA has bought nine new Boeing 777 aircraft for long-haul flights to Europe and North America and seven new ATR turbo-props for short-haul and mainly domestic flights.
But the airline still has to replace six of its Boeing 737's and 12 Airbus. PIA also has seven older Boeing 747's.
"A bail-out or rescue package at this time for PIA would have to be considered very, very sensibly," said one Pakistani finance ministry official.
Pakistan's coalition government, which came to office in February, is under mounting pressure to reduce its budget deficit.
PIA is expected to formally present its plan for a comprehensive revamp including the swap during briefings to government officials by the end of this month.
PIA's brand has suffered over the years due to the declining quality of service as well as the emergence of strong regional competitors such as the Dubai-based Emirates airlines, according to analysts.
But PIA could still tap back into its core market of expatriates, who frequently travel back to Pakistan.
"Expatriate Pakistanis can be won back to PIA. But the airline needs to lift its overall standards," said a former PIA senior executive.
ISLAMABAD: Pakistan International Airlines (PIA) plans to ask the government to assume all of its debts stemming from losses over the past three years in return for taking control of a global portfolio of the state-owned carrier's properties worth $1.0bn.
The swap is aimed at helping PIA, which has accumulated losses of Rs45bn ($647m) in the past three years, to break even and eventually return to profit.
According to Aijaz Haroon, who was recently appointed PIA's managing director by Pakistan's newly elected government, the move would also enable PIA to replace its ageing aircraft and improve its financial performance "once the debt [from the past three years] is resolved".
Mr Haroon, a former PIA pilot, said the airline was losing about Rs11bn a year.
PIA, like the rest of the sector, has been hit by the impact of record oil prices and is facing additional costs of maintaining an ageing fleet. "When we get new planes, our engineering costs will go down significantly," Mr Haroon said.
Due to the number of less fuel efficient, older aircraft in its fleet, up to 45 per cent of PIA's expenses go on fuel costs. This is significantly higher than the average 33 per cent spent by other airlines worldwide.
In the past five years, PIA has bought nine new Boeing 777 aircraft for long-haul flights to Europe and North America and seven new ATR turbo-props for short-haul and mainly domestic flights.
But the airline still has to replace six of its Boeing 737's and 12 Airbus. PIA also has seven older Boeing 747's.
"A bail-out or rescue package at this time for PIA would have to be considered very, very sensibly," said one Pakistani finance ministry official.
Pakistan's coalition government, which came to office in February, is under mounting pressure to reduce its budget deficit.
PIA is expected to formally present its plan for a comprehensive revamp including the swap during briefings to government officials by the end of this month.
PIA's brand has suffered over the years due to the declining quality of service as well as the emergence of strong regional competitors such as the Dubai-based Emirates airlines, according to analysts.
But PIA could still tap back into its core market of expatriates, who frequently travel back to Pakistan.
"Expatriate Pakistanis can be won back to PIA. But the airline needs to lift its overall standards," said a former PIA senior executive.