The Pakistan International Airline Holding Company board, in a significant move, has approved the restructuring of the airline’s substantial commercial debt amounting to Rs268 billion. This debt will now be incorporated into the public debt, essentially shifting the burden of the airline’s inefficiency and mismanagement onto taxpayers.
Under the newly approved restructuring plan, commercial banks have agreed to extend the debt’s maturity period to ten years, with a reduction in interest rates from approximately 23.5% to a maximum of 12%. However, should the government fail to privatize PIA within the next three years, banks reserve the right to renegotiate the terms, potentially increasing the interest rates to prevailing rates in 2027.
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The restructuring entails the separation of PIA into two entities, with the holding company assuming the airline’s bad debts, including commercial loans, trade debts, and government borrowings. The majority of PIA’s debt, totaling over Rs650 billion out of Rs825 billion, will be transferred to the holding company, leaving a streamlined PIA entity for prospective investors.
The responsibility for servicing the debt, including annual interest payments of Rs32 billion, will now fall on the federal government, with funds allocated from the national budget. The holding company will not have the authority to raise fresh loans, and commercial banks will retain priority rights over its assets.
While the restructuring aims to provide relief to PIA and facilitate its privatization, it also presents financial challenges for the government. The decision not to convert the $88 million foreign currency loan into domestic currency exposes the exchequer to additional risks due to high interest rates and exchange rate fluctuations.
The restructuring plan includes provisions for NBP and HBL to transfer $53 million to the holding company without restructuring, with repayment scheduled over five years at existing interest rates. Additionally, banks will have sovereign guarantees and exclusive rights to all present and future assets of the holding company, except for any interest or charge on the Roosevelt Hotel.
However, if PIA is not privatized within the stipulated three years, banks retain the option to renegotiate the terms, potentially imposing higher interest rates. Furthermore, lenders have the authority to reject future borrowing by the holding company, underscoring the importance of timely privatization efforts.
Overall, the restructuring represents a significant step towards addressing PIA’s financial challenges, but its success will depend on effective implementation and the government’s commitment to privatization within the specified timeline.
