After decades of failed attempts, the Government of Pakistan has finally privatized the Pakistan International Airline (PIA) under intense pressure from the International Monetary Fund (IMF). Nonetheless, it is a deal that will give the national airline not only a chance to survive but to thrive in the long run. As part of structuring the sale for Rs. 135 billion, the government has assumed Rs. 654 billion in debt and pension obligations. The government gets only Rs. 10 billion in cash but it gives the new owners a clean balance sheet in return for a commitment to invest Rs. 125 billion of the Rs. 135 billion sale price in the carrier.
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| PIA Privatization Deal Structure. Source: Standard Capital Securities Pvt Ltd. |
Pakistani politicians have used state-owned enterprises like the PIA as a vehicle for doling out political patronage. They have given jobs, including top jobs, to political cronies who have neither the experience nor the inclination to run these PSUs like businesses. Their focus has been on extracting as much financial gains as possible, and sharing some of these gains with their political patrons.
Privatization will save Pakistan’s taxpayers tens of billions of rupees each year, and raise the prospect of the PIA becoming a contributor rather than a continuous drain on the national treasury. Prior experience with privatizations of state-owned units like banks and the telecom company has shown that this is a realistic expectation. Taxpayer money saved can be used to fund education, healthcare and critical infrastructure.
The PIA has a huge potential to succeed as an airline business. It has lucrative routes and landing rights which it is currently unable to fully utilize. It has a small aging fleet of 32 aircraft. Half of the fleet is out of service at any given time due to maintenance issues.
Arif Habib, the head of the buying consortium which was advised by New York-based Seabury Aviation Partners, has committed to hiring a professional management team to run the PIA as a business to serve its customers and shareholders. He has announced plans to grow the PIA fleet from around 15-18 operational aircraft to 38 in the first phase, then potentially reaching 64-65 aircraft within a few years, essential for reclaiming international routes and improving service by adding more planes and restoring operational strength.
Pakistan has the world's 6th largest diaspora. In addition, millions of Pakistanis travel for Hajj and Umrah pilgrimage to Saudi Arabia each year. Majority of the overseas Pakistanis and pilgrims would choose to travel by PIA if it offered convenient schedules and better service with direct flights to Pakistan.
A successful national airline can make a significant contribution to the nation's economy by improving connectivity for tourism, trade and investment in the country. Business people, in particular, value their time. Operating direct, non-stop flights to destinations in Pakistan from major international airports are essential for serving this customer base.
Related Links:
Haq's Musings
South Asia Investor Review
Pakistan Air Travel Market
Pakistan $20 Billion Tourism Industry Booming
Saving PIA, Railways and Education in Pakistan
Pakistan: Political Patronage Trumps Public Policy
Riaz Haq's Youtube Channel
Riaz Sb., good question. I guess we can look at record of previous privitization of KESC and MCB etc. to gauge if this privitization is going to be successful.
ReplyDeleteZamir
Great news !! Based on Indian experience of Tatas acquiring Air India, the change is gradual but will be evident. Most of Air India domestic flights now have upgraded interiors and service . International sectors are still a struggle due to fierce competition and high expectations from flyers. https://www.aircraftinteriorsinternational.com/news/mro/air-india-completes-first-phase-of-legacy-a320neo-fleet-retrofit-programme.html
ReplyDeleteThe airlines’ current debt is an obligation on PK government. Buyers are paying PK government Rs 135b, in part so PK could neutralize that debt. It is all about sliding numbers. Bottom line — Rs 135b to acquire the asset.
ReplyDeleteBuyers are not under obligation to keep the airline running. Its parts are far more valuable to keep it that way. Lucky group would do the same. Only Air Blue wouldn’t have. PK government did not have courage to shut it down.
Arif Habib is a stock trader. He is not known for long term investments. The government knows that. That’s what raise a large kickback scenario.
PIA restructuring was done prior to the privatization exercise.
ReplyDeleteFiscal Year 2024 (Annual): PIA reported an operating profit of PKR 9.3 billion for the year ending December 31, 2024. This was its first operational profit in over 20 years following major restructuring and debt transfer to the government.
First Half 2025: For H1 2025 (Jan–Jun), PIA reported a pre-tax profit of PKR 11.5 billion and a net profit of PKR 6.8 billion.
The bidding has been done on this basis. To reiterate:
The understanding of Headline Value vs. Government Proceeds is critical to comprehend the deal.
- Equity Purchase Price (PKR 10 billion): This is the actual amount the consortium will pay the Government of Pakistan for a majority stake (reportedly 75%) in PIA. This money enters the national exchequer.
- Capital Injection Commitment (PKR 125 billion): This is the amount the new owners have committed to invest into PIA itself after the acquisition. This capital will be used to recapitalize operations, and potentially fund fleet renewal. This money does not go to the government; it is an investment into an asset the consortium will then own.
The addition of these two figures creates the PKR 135 billion Total Transaction Value. While not an uncommon headline in global deals, the lack of persistent, clear differentiation in public messaging has led to a widespread misconception that the government is receiving PKR 135 billion.
From what I read, the buyer would pay the govt 10B cash and the rest would be invested back into the çompany. That’s strange!
ReplyDeleteRashid: “ From what I read, the buyer would pay the govt 10B cash and the rest would be invested back into the çompany. That’s strange”
ReplyDeleteIt ‘s mandatory investment as a condition of sale. I think it makes a lot of sense to ensure the airline gets significant injection of capital to survive and thrive. Not unusual at all for a troubled state owned airline privatisation.
The deal is what it is after multiple failed attempts to sell the PIA! The alternative was to continue the status quo. That was not acceptable to the government or the IMF, nor would it revive the airline or rebuild it.
I guess that was the only legal way to mandate Rs 125 billion investment in the airline!
Riaz Sahib, at these give away terms you and some other Bay Area Pakistanis could have been a part of Arif Habib consortium! 🙃
ReplyDeleteRashid: “at these give away terms you and some other Bay Area Pakistanis could have been a part of Arif Habib consortium!”
ReplyDeleteArif Habib and other members of the consortium are experienced businesspeople running successful businesses in Pakistan. They know how to turn around a business in Pakistan. I think they have a good chance of succeeding in making PIA a viable and profitable business to serve customers and shareholders alike.
To compare with the very similar story of Air India across the border, I'm not sure if Tata group's "re-acquisition" of Air India (JRD Tata founded the airline as "Tata Airlines" in 1932) was such a bright idea after all, as the Tatas are still struggling with many of the legacy issues of the carrier that came from the decades of government ownership and mismanagement - poorly maintained aircrafts that are badly in need of repair or replacement, staff and workers who have been used to a different "work culture" etc. The recent crash of Flight 171 in Ahmedabad and the higher operational expenses arising from Pakistan's ban on the Indian carriers from using its airspace has only made their struggles worse. (The blame for the latter of course lies with the Modi govt's misadventure.)
ReplyDelete"Air India asks govt for access to Chinese airspace as Pak ban strains finances: Report"
https://www.google.com/amp/s/www.cnbctv18.com/business/aviation/air-india-seeks-access-chinese-airspace-pakistan-ban-financial-strain-india-china-direct-flights-19799453.htm/amp
Furthermore, as part of the deal with the government the Tata group is also reportedly under resttrictions as to what it can and cannot do about the airline for a period of 5 years (I think) after its acquisition.
I can only hope that Air India would not become the proverbial albatross around Tata's neck and would not weigh down the group's other profitable businesses.
But good luck to Arif Habib group and the other members of the consortium who bought out the PIA. Just saying from the experience of the Tatas that running an airline and turning around its fortunes while fighting against legacy issues and geo-political troubles isn't exactly cake walk.
Indeed Airlines is not for faint hearted but Tatas have taken the big leap. With troubles for Indigo, Tatas have a small window to solidify their position. Airline market in India still has small room before high speed trains start saturating the travel market in another 10years time.
Delete@Anon,
DeleteI'm not expecting "high-speed trains" to saturate travel market in India anytime soon. The Vande Bharat isn't exactly "high speed" or even "semi-high speed" when you consider their current operational speeds in the Indian rail network. As for the real "high-speed" trains that can compete with airlines in travel times, its likely to take India a couple of decades at least to build a high speed rail network that comes anywhere near as large as China's at present.
Semi high speed will actually make a big dent in <1000km sectors/traveller volume.. as flights have hassle of travel to airports+security which in itself adds to travel time..where as most train travel connects city centres directly .. you mentioned Vande bharat and just that platform can scale to semi high speed and 10years is a long time in life of a young nation if things are done right ..
Delete@Anon,
Delete- "you mentioned Vande bharat and just that platform can scale to semi high speed and 10years is a long time in life of a young nation if things are done right"
The bottleneck here is not the "platform" but the infrastructure. As Vande Bharat's sub-optimal operating speeds on most routes show, the primary challenge in achieving high speed or semi-high speed rail travel in India isn't the building of trainsets. That's actually the easy part. The real challenge is in modernizing the track and signalling infrastructure to safely support such speeds - upgrading the rails and joints, straightening curves, fencing the routes to prevent trespassing, in-cab signalling for loco pilots etc. Even if the govt gets serious about these things and start addressing them I do not expect sustained semi high-speed (160 km/h) travel to materialize across most inter-city routes in 10 years. Things here just doesn't happen at the pace they do in China.
400 million USD capital injection by Arif habib is a decent amount if the investors can actually pull this off. For reference Air India has 6x fleet size of PIA and approx 3B USD Tata/Singapore air consortium is injecting.. so 400million in is in same zone.
ReplyDelete1. PIA being KHI focused, it was sold. Like KESC. Same with Pak Steel, soon. But white elephants like WAPDA and Pakistan Railways and all Punjab based electrical power companies are not IMF worries ? Hogwash.
ReplyDelete2. Fauji Fertilizer that had stepped off competition has suddenly been inducted into the buyer consortium upon “invitation” by Arif Habib himself. Saving his neck?
Shams: "PIA being KHI focused, it was sold. Like KESC. Same with Pak Steel, soon. But white elephants like WAPDA and Pakistan Railways and all Punjab based electrical power companies are not IMF worries ? "
ReplyDeleteI think Karachi will be a major beneficiary of PIA’s turnaround!
PIA privatisation drives PSX past 172k mark
ReplyDeleteKSE-100 climbs 0.58% Arif Habib-led consortium secures 75% stake in 135b deal
https://tribune.com.pk/story/2584069/pia-privatisation-drives-psx-gains
The KSE-100 Index posted a solid +0.58% gain on a week-on-week basis, closing the period on a positive note amid strong investor sentiment.
The primary catalyst was the landmark privatization of Pakistan International Airlines (PIA), finalized at Rs135 billion (approximately US$480 million), marking one of the largest and most significant privatization deals in Pakistan's history.
The successful auction, won by the Arif Habib-led consortium for a 75% stake, signals a major step toward reducing the government's burden from loss-making state-owned enterprises and boosting private sector confidence.
A positive session was observed at the exchange, as the index gained to close at an all-time high of 172,400 level (up by +0.92%).
Top positive contributions to the index came from ENGROH, PPL, SYS, NBP, and MLCF, as they cumulatively added +774 points to the index, according to Topline Securities. Traded value-wise, BOP (Rs3.1b), NBP (Rs2.94b), SEARL (Rs2.05b), PPL (Rs2.03b), PTC (Rs1.51b), and MLCF (Rs1.35b) dominated the trading activity. Traded value and volume for the day stood at 797 million shares and Rs38b, respectively.
This positive momentum was further supported by the State Bank of Pakistan's (SBP) recent 50 basis points policy rate cut to 10.5%, which continued to encourage investment in equities by lowering borrowing costs and improving liquidity. Trading activity remained robust, with average daily volumes at 736 million shares and a value of Rs31.5b.
Analysts view this as a turning point for market reforms, with the PIA deal expected to pave the way for more divestments and enhanced economic efficiency.
Why Pakistan sold PIA — and why the deal is controversial
ReplyDeleteBy André Orban
https://www.aviation24.be/airlines/pakistan-international-airlines/why-pakistan-sold-pia-and-why-the-deal-is-controversial/
Pakistan’s government sold a 75% stake in Pakistan International Airlines (PIA) for $482 million to a private consortium led by financier Arif Habib to halt mounting losses and meet conditions tied to a $7 billion IMF bailout.
Once a flagship national carrier, PIA had become a heavily indebted state-owned enterprise, burdened with more than $2.3 billion in long-term liabilities, a shrinking market share, an ageing fleet, and years of operational mismanagement. Repeated privatisation efforts had failed until the government restructured the airline by carving out its debts, offering tax relief and policy guarantees, and staging a transparent, live-broadcast auction to attract credible investors.
The winning consortium committed to reinvesting about 92.5% of the purchase price back into PIA to revive operations, while the government retained a 25% stake. Officials argue this approach was aimed less at maximising sale proceeds than at stopping further fiscal drain and restoring the airline’s viability under private management.
The controversy stems from both the structure of the deal and the participants involved. Opposition parties claim the airline was effectively sold too cheaply, arguing that only a small portion of the bid flows directly to the state, while most funds benefit the airline now controlled by private owners. More sensitive still is the post-auction entry of Fauji Fertilizer Company, a military-linked conglomerate, into the consortium. Critics see this as extending the military’s economic influence and question whether PIA has truly moved out of state control or merely shifted from civilian to military-associated ownership. Supporters counter that the military-linked partner offers stability and investor confidence in Pakistan’s volatile policy environment.
PIA’s new owners in Arif Habib Consortium used the services of Seabury Aviation Partners Consulting. New York based Seabury advises clients on airline valuation, restructuring and financing:
ReplyDeleteFleet and Balance Sheet Restructuring ~ Business Planning ~ Operations Restructuring ~ Liquidity and Cash Management, Liability Management
Debt & Equity Capital Raising ~ M&A ~ Restructuring ~ Capital Structure Optimization ~ Liability Management ~ Board Advisory
New Aircraft and Engine Evaluations ~ New Aircraft and Engine Negotiations ~ New vs Used Aircraft Analysis ~ Engine Lifecycle Costs ~ Aircraft Leasing and Financing
Commercial Strategy: Network & Revenue ~ Fleet Strategy ~ Partnering & M&A strategy ~ Cost / Operations Optimization: Maintenance, Cargo, Labor / Workforce, Ancillary Businesses ~ Business Planning
Carnegie Hall Tower, 53rd Floor
152 West 57th Street
New York, NY 10019
https://seaburyaviation.com/
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Watch Consortium Member Gohar Ejaz talk about the process
https://youtu.be/KVIWR3dT1Lg?si=C5Y44ocvenX1pG2V
Pakistan International Airlines has officially entered a new chapter after being sold in one of the most consequential privatisation deals in Pakistan’s history.
In this exclusive episode of On My Radar, Kamran Khan is joined by Gohar Ejaz, Chairman Lake City Holdings, former Commerce and Industries Minister, and a core member of the Arif Habib Consortium that secured PIA with a landmark Rs135 billion bid.
Speaking directly from the inside, Gohar Ejaz shares never-heard-before details of how the winning consortium built its strategy, how it decisively defeated the powerful Lucky Group, and what the future holds for Pakistan’s national airline.
The conversation dives deep into the vision for reviving PIA, investor confidence, operational reforms, and why this privatisation could reshape Pakistan’s aviation sector for decades.
AI Overview
ReplyDeleteMuhammad Ali, the Prime Minister's Adviser on Privatisation, is the key government figure publicly advising on Pakistan International Airlines (PIA) privatization, while a consortium led by Ernst & Young (including Bauer Aviation Advisory, Haidermota & Co, Freshfield Bruckhaus Deringer, Nutshell, and Knight Frank) serves as the lead financial advisor for the entire process. The government is selling 51% of PIA to a consortium led by Arif Habib Corporation, aiming to complete the transition by April 2026, after years of stalled attempts.
Key Advisors & Figures
Muhammad Ali: PM's Adviser on Privatisation, handling public communication and strategy.
Ernst & Young-led Consortium: The main advisor guiding the transaction structure, legal separation, and valuation.
Abdul Aleem Khan: Federal Minister for Privatisation, overseeing the process.
The Deal & Process
A consortium led by Arif Habib Corporation won the bid for a 75% stake in PIA.
The government retains a 25% stake, with assets like the NYC & Paris hotels excluded from the sale.
The privatization aims to turn around the loss-making airline, with new owners expected to take over by April.
Key Financials
The government expects to receive approximately PKR 55 billion in value, not just the initial cash injection.
This effort marks a significant step in Pakistan's privatization drive, following failed attempts in the past.
AI Overview
ReplyDeleteYes, the Lucky Group, as part of a consortium bidding for Pakistan International Airlines (PIA), engaged Pegasus Airlines (Turkey's low-cost carrier) as their technical aviation advisor to help with the complex privatization process, alongside other bidders like the Arif Habib consortium who used Seabury Aviation Partners, highlighting a move towards expert consultation in the sale of the struggling national airline.
Key Details:
Role of Pegasus Airlines: Pegasus provided technical guidance and expertise on aviation strategy and operations, helping the Lucky Group navigate the PIA privatization bid.
Part of a Bidding War: The Lucky Group was a serious contender alongside the Arif Habib consortium in the race to acquire PIA, with both groups leveraging international aviation consultants.
Government Goal: This privatization is part of Pakistan's economic reforms, aiming to revive PIA, which has faced decades of financial struggles, noted The Telegraph and Reuters.
Outcome: Ultimately, the Arif Habib Consortium won the bid in December 2025, acquiring a 75% stake in PIA.
ReplyDelete@Asad_Ashah
This analysis by @AtifRMian overlooks three fundamental realities.
First, the past cannot be undone. As Oscar Wilde observed, “No man is rich enough to buy back his past.” Decades of accumulated losses are sunk costs and were never saleable to investors. Public policy must be judged on future value creation, not on attempts to recover irrecoverable history.
Second, it ignores what has materially changed. The financial hemorrhage has been arrested, and total liabilities—widely reported to be around Rs 800bn—have been structurally rationalised. Approximately Rs 600–620bn of legacy obligations have been ring-fenced in a holding company, leaving the operating airline to be transferred with residual liabilities of roughly Rs 180bn and a far cleaner balance sheet. Media reports also suggest that part of the ring-fenced liability may unwind further, potentially reducing overall public-sector exposure to around Rs 565bn. These figures are indicative rather than precise, but the direction is unambiguous: legacy burdens have been isolated and the operating entity stabilised.
Third, the upside is materially underestimated. A viable airline is being created with over Rs 135bn of fresh equity capital, improved capital structure, and clear competitive advantages over domestic and regional peers. In present-value terms, the future tax revenues and economic spillovers from a successful airline can reasonably exceed the residual legacy burden.
The correct benchmark is not the illusory goal of “recovering past losses,” from investors but whether this structure converts a perpetual fiscal drain into a long-term generator of value and tax revenue. Judged on that basis, this is a brilliant transaction that has the potential of turning a huge burden on the public into a major asset for the country.
https://x.com/asad_ashah/status/2004782743318921468?s=61&t=mgTxrmITUbpo9NntN5677Q
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How good is PIA's Privatization?
what the government gets, and doesn't get
ATIF MIAN
https://www.atifmian.com/p/how-good-is-pias-privatization?utm_medium=android&r=2eczvt
Hope to see PIA here soon.. https://www.youtube.com/watch?v=J69gI2Xz-6k
ReplyDelete