Government approves Rs457b PIA restructuring plan

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ISLAMABAD:

The federal government on Wednesday approved a restructuring plan worth Rs 457 billion for Pakistan International Airlines to make the national airline financially viable but without Business plan in place.

The government has decided to lay off about 25% of the existing workforce or 3,500 employees of the national carrier, to close its unprofitable routes and to share international routes with other airlines.

What is described as the “last lifeline” of Rs457 billion for the bloody airline, the Economic Coordination Committee sent the PIA restructuring plan to the federal cabinet for final approval.

Finance Minister Hammad Azhar chaired the ECC meeting. However, the plan may not achieve the intended objectives because it was approved without business plan, which would not be ready in the next six months.

Consulting firm IATA has also started work on PIA’s business plan, which is expected to be finalized by September this year, the ECC has been informed.

The ECC has approved the split of the PIA into two companies – the Good PIA which will have only Rs 137 billion in liabilities as well as core assets, and the Bad PIA which will choose a liability of Rs457 billion and retain ownership of its non-core assets.

“After detailed consultation, the ECC recommended that PIACL’s restructuring plan be submitted to Cabinet, after reconciliation of tax payable figures, with the instruction to cap future debt that PIACL could take on its balance sheet. improved, once the restructuring plan is implemented, ”the finance ministry said.

In March of last year, the government asked Dr Ishrat Hussain to prepare the restructuring plan for the PIA.

“With negative equity of Rs 460 billion including bank loans of Rs 326 billion and other debts of Rs 118 billion on its balance sheet, the company has not remained a commercially, operationally efficient and self-sustaining entity. sustainable, “she informed.

The company has more than 14,000 employees and operates on unprofitable routes. The options open to the government were to shut down PIA, privatize it or restructure it.

There will be two PIA companies – the bad government owned company that removes financial liabilities from PIA’s balance sheet along with some non-core assets and a new company doing the core business with resizing, streamlining profitable routes and sharing the rest. codes with other airlines, capitalization on the ethnic diaspora and religious tourism and modernization of the fleet.

Bad PIA

The documents showed that out of the 457 billion rupee debt, the federal government would immediately pick 203 billion rupees.

According to the plan, commercial loans of Rs 201.8 billion secured by sovereign guarantees will be paid by the federal government from 2021 to 2027. Meanwhile, Rs 45.3 billion will be paid in this fiscal year, Rs 41 billion. rupees in the next financial year. Rs 42 billion in 2022-2023, Rs 48.4 billion in 2023-24, Rs 16 billion in 2025, Rs 7 billion in 2026 and Rs 4 billion in 2027.

The government will immediately cancel its 55.6 billion rupee loans it gave to the bloody airline. Another Rs 53 billion loan taken from PIA’s balance sheet will also be paid by the federal government with interest charges of Rs 16 billion.

The restructuring plan envisages wiping out the Rs118 billion PIA liabilities by the federal government, preferably by canceling these liabilities by the Civil Aviation Authority (Rs 86.7 billion), Pakistan State Oil (16 , Rs 4 billion) and the Federal Board of Revenue (Rs14 .7 billion).

The government will also bear the cost of 12.9 billion rupees for the layoff of around 3,500 employees, which it has already approved.

According to the plan, if there are legal obstacles to setting up the business, the government will take the responsibilities directly and convert them to equity.

Good PIA

The PIA with the necessary approvals in place will submit a comprehensive plan with a revised balance sheet of the correct PIA taking into account the main activity, the desired workforce in accordance with international best practices, streamlined routes and key elements of the outdoor policy adapted to the PIA.

The Good PIA will only have 137 billion rupees in liabilities, mainly 58.5 billion rupees of commercial debt and 60.7 billion rupees of employees and liabilities related to the leasing of aircraft.

Successive PIA executives over the past 13 years have promised to turn the company around financially, on condition that the federal government recovers its inherited debt.

The ECC has been informed that after three years of implementing the plan, the indicator of success will be that the PIA will not seek further bailouts.

The PIA would use its restructured balance sheet, reduce its current financial commitments to raise its capital by obtaining a credit rating from the three international rating agencies.

The ECC has been informed that the PIA may cripple its operations as it has exhausted its commercial borrowing capacity and the decision to restructure its finances has been excessively delayed.

The ECC has taken over the summary of the one-time grant of Rs 14.5 billion to GENCO for subsequent payment to DISCO for the actuarial value of pensions and pension benefits of surplus employees and has also assumed responsibility for the payment of pensions to existing retirees in power. plants whose immediate closure is decided by the Cabinet Committee on Energy (CCOE).

After soliciting detailed comments from the stakeholders concerned, the committee asked the Energy division to deliberate further and to present cost optimization options regarding pension commitments.

The government had shut down power plants with a capacity of 1,800 megawatts, resulting in a staff surplus of 1,753. The power division demanded 14.5 billion rupees to pay their dues as well as the cost. pensions of retirees about 2,368 employees of these power plants.

The ECC has approved Rs330 million for the Ministry of Defense to maintain the aircraft. It also approved 2.4 billion rupees for the Federal Ministry of Education and Vocational Training for the Prime Minister’s special package to implement the “Skills for All” strategy for the TVET sector.

The organization also granted 1 billion rupees to the finance division to repay the balance of funds from the Insaf Imdad Ehsaas program.

The 280 million rupees for the Ministry of Information Technology and Telecommunications has been approved for the advice and implementation of Internet voting.

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