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Lessons from Air India – Business

Pakistan International Airlines (PIA), the government-owned airline that helped build up the Emirates Airline in 1984 when it lacked the critical expertise and aircraft, has been approved to be privatised by the federal cabinet.

According to its latest figures, PIA’s total debt and liabilities stood at Rs743 billion, which is five times greater than its total assets value. PIA’s losses for the last financial year were Rs86.5bn, of which Rs11bn was due to operational losses. If the situation continues, PIA’s debt and liabilities will rise to Rs1.98 trillion, and its annual losses will rise to Rs259bn per annum by 2030.

PIA has a total fleet of 34 aircraft, of which only 22 are operational, and those, too, are nearing the end of their operational life. Now, from PIA’s peak heydays, the only option left for the government is to sell it off, no matter how heart-wrenching it may be. But the question is, should it be heart-wrenching?

The process of privatising ‘white elephants’ in Pakistan is surely a highly politicised dilemma. People across the board have been discussing this matter for a long time, contemplating the pros and cons of privatisation.

Faced with a similar conundrum of having the national flag carrier making billions in losses, India sold it off to a private company

However, there are many who desire and believe that the national flag carrier will rebirth from its ashes as a phoenix, being a beacon of life for the national economy. It doesn’t need to be a government-owned organisation to do that. It can do it while being a privately owned company as well as Pakistan’s national flag carrier.

Contrary to our understanding of what a flag carrier is, it can be a private or government aircraft that bears the national flag. The Pakistani citizens and the employees of many white elephants fear losing their employment, and they protest against it, which is their constitutional right.

Besides, didn’t they give their best even with all the negative remarks and adversities? They did whatever they had to do to operate PIA. Surely, people tend to forget the positives sooner than the negatives that stay for a long time. But on the other side of the coin, the government of Pakistan doesn’t have the luxury to keep heavily subsidising it.

PIA has been subsidised for a long time, whereas the return that was hoped for was never realised. All that money could have been used for many other purposes, such as poverty alleviation, improving the health sector or the education sector.

The government facing huge amounts of circular and fiscal debts along with the deteriorating balance of payments deficit in the face of high inflation and interest rates. It has become inevitable that the national flag carrier becomes a private entity and reduces its burden on the national economy.

According to a study conducted by Pakistan Institute of Developmental Economics Vice Chancellor Nadeem ul Haque and Raja Rafi Ullah, the government footprint in the national economy is at 63pc-66pc. This is the highest in the region and one of the major obstacles to attaining imminently needed growth and a free competitive market with the least amount of sludge.

So, an advantage of privatising PIA would be the reduction of government footprint in the market, which will evidently lead to growth, especially for the aviation industry.

We can take inspiration from India, which recently sold its government-owned airliner Air India to Tata Sons for about $2.4bn. Before this, Air India had racked up a total loss of $9.5bn, with reports saying it made $2.6 million in losses every day.

Although the fleet of Air India is 130 aircraft and a much better air routes network, in 2020, the Indian civil aviation minister said, “there is no choice, we either privatise or we close the airline”.

The Indian government tried to sell a 40 per cent stake in the airline back in 2001, with Lufthansa, British Airways and Singapore Airlines showing interest, but the terms and conditions were not viable as they were made to partner up with an Indian company to make the bid.

In 2018, they tried to sell the airline with a stake of 76pc and a portion of its debt, but again, the terms were unattractive to potential buyers. Now Tata Sons, after buying it, ambitiously says that they want to represent the aspiration of 1.3 billion Indians.

Pakistan has to let go of a leaking bucket and prioritise its national economy. With the current government approving the proposal of hiring a consortium for financial advisory to sell PIA off and with the process of hiring financial advisors already underway, we hope the best for PIA and our country.

The writer is a scholar from the Pakistan Institute of Development Economics

Published in Dawn, The Business and Finance Weekly, October 16th, 2023



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