The Pakistan International Airlines (PIA) has rallied 89 percent in last 10 days due to unfolding details on PIA privatisation process narrated in the IMF document released on September 04.
Moreover, Prime Minister Nawaz Sharif, on September 13, directed Ministry of Privatisation and Civil Aviation Division to begin the privatisation process of the PIA with immediate effect.
“We think it is still too early to be optimistic on the stock like the PIA because of uncertainties regarding the transaction,” said Muhammad Tahir Saeed of Topline Research.
Therefore, the analyst said, he was cautious on the stock due to many questions that may be clarified in future.
Major questions that, he said, needed to be addressed to determine whether investors will benefit or not are: What will be the share split between PIA-1 and PIA-2? Will there be any serious buyers for 26 percent stake of PIA-1?
As per the IMF document, the government has shown its intention to restructure the PIA by stripping off its non-viable components (including ageing equipment, non flight operations etc) under another Public Sector Enterprise (i.e. PIA-2) by December 2013.
The government will service the guaranteed past loans of PIA-2, grant a voluntary ‘handshake’ plan for the excess workforce and then liquidate it by June 2014.
The PIA-1 will retain its airline business while in the meantime it will continue contracting leases on more efficient airplanes and rationalise its routes in order to attain efficiencies. The PIA-1 will also keep some liabilities that it can service, streamline its workforce and may receive capital injection from the govt.
The government plans to privatise 26 percent stake of the PIA-1 to strategic investors by June 2014.
“Ageing fleet, outstanding loans, incomplete cost pass through, lack of quality manpower and overstaffing would make the PIA privatization difficult, we believe,” said the analyst.
Coupled with these factors, there is lot of pressure against this privatization from labour unions and political parties too.
Marred by management-related issues over the years, the PIA’s balance sheet looks quite depressed which is evident from Rs 172 billion debt and negative equity of Rs 118 billion as on March 31, 2013.
Equity includes Rs156 billion accumulated losses of past years despite the fact that company’s operating revenues increased at CAGR of 10 percent in last five years (2008-12) to Rs 112 billion from Rs70 billion.
In 2007, accumulated losses stood at Rs 28 billion. Significant increase in accumulated loss is due to the management inefficiencies including inability of the airline to pass on cost of services, huge administrative costs and rising debt servicing requirements.
In 2012, the PIA incurred losses of Rs 33 billion vs Rs 27 billion last year while the company has incurred losses of Rs 8.6 billion in 1Q2013.
Huge administrative costs are primarily due to the fact that the company has 17,439 employees (as on Dec 31, 2012) while company has a fleet size of 34 aircrafts out of which only 24 are operational.
The PIA’s employee-to-aircraft ratio is 513 compared to global average of 120. The PIA is unable to pass-through rising cost due to uneconomic routes and subsidised air fare for govt officials.
govt take right decision as soon as private is the best
the sooner the better, take tough decision early will decrease the late burdens. wish success for PIA
FOR PRIVATIZATION YOU NEED TO HAVE COMPETENT PEOPLE TO RUN THE AIRLINE SO IT CAN BE TAKEN TO PRIVATIZATION. AND THE SALE TO BE HANDLED AT ARMS LENGTHS
PIA NEEDS A PROFESSIONAL ON MERIT TAKEN THRU THE ADVERTISEMENT AND EMPLOYED HE NEEDS TO BE A CORPORATE AVIATION PERSON. THE PROCESS NEEDS TO BE CLEAN AND TRANSPARENT AND NO ONE OVER THE AGE OF 60 NO MORE BABA'S AND JIHALA'S PROFESSIONALS TO SAVE.
This is the proper way to deal with this issue not Mian's getting together with Agha Khans and doing deals with hotels and Airline and then the debt still with Govt.
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