Govt rejects Rs7.3b grant for PIA

The federal government, on Friday, rejected a proposal to grant Pakistan International Airlines (PIA) Rs7.3 billion for resolving a dispute with a foreign firm – a move in accordance with its commitments to the International Monetary Fund (IMF). The Economic Coordination Committee (ECC) of the Cabinet did not approve a summary from the Aviation Ministry, which had requested an emergency supplementary grant of Rs7.3 billion or $26 million. This funding was to settle payments to Asian Aviation Capital Limited (AACL). AACL had leased A-320 aircraft to PIA in 2015, but PIA defaulted on payments. The aircraft are currently grounded in Indonesia, and a case filed by AACL is set to be heard in the High Court of Justice of England and Wales on October 30th. Led by interim Finance Minister Dr Shamshad Akhtar, the ECC directed the Civil Aviation Authority to provide bridge financing to PIA to meet its international obligations. The Aviation Division submitted a proposal for financial support to PIACL through the Civil Aviation Authority to meet the airline’s emergent needs, according to a press statement issued by the Ministry of Finance. “The ECC decided to approve the proposal of Aviation Division for bridge financing through CAAs resources amounting to Rs8 Billion for PIA to meet emergent requirements related to overdue payments,” the finance ministry stated. The ECC also allowed the Aviation Division to proceed with the bilateral arrangement between the CAA and PIA, it added. Read PIA cancels 349 flights in last two weeks Some ECC members believed that Committee’s directions were not required in this case, as PIA, being a commercial enterprise, can make its own decisions. PIA is facing a dire financial situation, and the government, as the majority shareholder, has initiated negotiations for its debt restructuring. The interim government has also begun the privatisation process of PIA, but this will take time. Asia Aviation Capital Limited (AACL) leased two A-320 aircraft to PIA for six years in 2015. Last month, PIA received a court notice for immediate payment of $31.3 million for outstanding rent, re-delivery rent, maintenance reserves, and interest charges for the two aircraft. PIA is trying to reach an out-of-court settlement with AACL for $26 million, with Prime Minister Anwaarul Haq Kakar reportedly granting approval, according to sources. As is often the case, PIA has warned that if legal matters with AACL are not resolved and an adverse court decision is reached, its aircraft and foreign hotels could be confiscated. PIA’s legal counsel has clearly stated that the airline’s position in the case is weak, and they have recommended an out-of-court settlement, the ECC was informed. The legal counsel also stated that AACL’s claims were factually correct and that the court might decide the matter on summary judgment. The legal counsel has warned that an adverse judgment by the UK’s court would result in a binding obligation to pay the claimed amount, and failure to do so would lead to the impounding of the aircraft or the attachment of PIA’s properties overseas. Out of the $26 million, the cost of the aircraft was $20.8 million. PIA has already paid $12 million to AACL in two tranches in 2019 and 2021. Due to the weak financial health of the airline, the government and representatives of commercial banks have initiated discussions to prepare a plan for debt restructuring. The 12-member committee consists of an equal number of representatives from the federal government and commercial banks. The committee has done some initial work on Rs15 billion borrowing by the airline from the commercial banks. Last month, PIA requested a moratorium on its Rs260 billion domestic debt repayments to address an annual deficit of Rs153 billion, which is the shortfall between its sales and essential expenditures. PIA’s accumulated losses have reached Rs713 billion, with Rs285 billion worth of loans directly guaranteed by the federal government, not including loans obtained by PIA’s subsidiaries. PIA currently has 34 aircraft, but only 19 are operational. Of the 15 grounded aircraft, six are leased by PIA and incur a monthly charge of $2 million. Published in The Express Tribune, October 28th, 2023. Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.