PIA privatisation derailed by Blue World City’s shoddy $36mn bid

Pakistan's plan to privatise PIA faces a major setback as Blue World City’s PKR 10 billion bid falls significantly short of the government’s PKR 85 billion floor price. The October 31 bidding process revealed serious investor miscalculations and confusion over asset valuations.

TLDR:

  • PIA privatisation faces serious setback

  • Investors confused over asset values

  • Process marred by inadequate bid


ISLAMABAD (The Thursday Times) — Pakistan’s Privatisation Commission is poised to reject Blue World City’s PKR 10 billion bid for a 60% stake in Pakistan International Airlines (PIA). This bid, the only one that progressed to the final stages, was significantly lower than the government’s floor price of PKR 85 billion, prompting frustration among officials who had high hopes for a robust privatisation deal to aid the country’s ailing aviation sector.

The process marks yet another chapter in the long and complicated history of efforts to privatise PIA. Despite the airline’s extensive financial restructuring aimed at clearing over two decades of accumulated debt, foreign and local investors have remained wary. Even with major assets such as the Roosevelt Hotel in New York excluded from the deal, stakeholders expected more competitive offers, given the airline’s strategic importance and valuable routes.

Restructuring efforts and strategic assets

PIA has struggled under the weight of severe financial difficulties, reporting losses that have compounded over the years. Although its total assets are valued at PKR 152 billion, its liabilities stand at an overwhelming PKR 831 billion. Recent restructuring efforts split the entity into two components: PIA Holding Company, which manages non-core assets, and PIA Sales, focused on operational activities. Speaking to local private television channel Aaj News, PIA spokesperson Abdullah Hafeez Khan, this division was designed to present a “cleaner” and more appealing financial picture to investors.

One of the airline’s key assets is the highly sought-after London Heathrow route, valued at an estimated $100 million. Khan noted that the fleet itself, comprising 33 aircraft including 17 Airbus A320s, carries significant worth. Even though these planes are not new, they represent substantial value that Blue World City and other potential investors apparently failed to properly recognise.

Investor miscalculations

Sources familiar with the bidding process revealed that confusion over the true value of PIA’s assets played a significant role in deterring investors. Abdullah Hafeez Khan highlighted that investors seemed unable to “accurately assess PIA’s books and assets.” This issue was compounded by lingering uncertainty about the airline’s international routes and the ambiguity surrounding its debt obligations, despite governmental assurances of a clearer path forward.

The only serious consortium in the running was Blue World City, in partnership with Blue World Aviation and Iris Communication. However, their experience is rooted primarily in real estate rather than aviation, raising concerns about their ability to manage a complex, international carrier. Their PKR 10 billion bid barely covered the cost of a single Airbus A320, casting doubt on their understanding of PIA’s operational value. The government’s frustration was palpable, with high-ranking officials privately acknowledging the disappointment that comes with yet another setback.

Privatisation strategy under scrutiny

The privatisation effort, part of Pakistan’s broader economic reform programme under the International Monetary Fund (IMF), aims to offload struggling state-owned enterprises and shore up national finances. Privatisation Commission officials had anticipated a competitive bidding environment, especially with PIA’s restructuring efforts designed to simplify the acquisition process. But the outcome has been far from satisfactory.

Local investors, including entities like Air Blue Limited and Arif Habib Corporation, who were initially shortlisted, chose to withdraw, citing unclear data and questionable asset valuations. One investor, speaking on condition of anonymity, said that “uncertainty about PIA’s international operations” and the opaque representation of its debt volumes led to widespread caution. Despite efforts to engage Western and regional investors, no foreign company submitted a bid, leaving Pakistan’s government with few options.

The Cabinet Committee on Privatisation, chaired by Deputy Prime Minister Ishaq Dar and attended by senior officials via Zoom from Doha, must now decide whether to reopen the bidding process or re-evaluate the strategy entirely. The committee’s approval of the reference price reflects the government’s commitment to a financially responsible privatisation, but the lack of serious offers may force a rethinking of how to make PIA an attractive investment.

A way forward or a roadblock?

Abdullah Hafeez Khan stressed that while the privatisation setback is disappointing, the airline’s management remains committed to operational improvements and fleet expansion. Blue World City’s consortium had pledged to inject $300 million into PIA over five years, a plan that now seems increasingly unlikely to materialise. Their promise to expand the fleet to 45 aircraft and revive suspended international routes offered a glimmer of hope, but the feasibility of these plans remains under scrutiny.

Investors and government officials are left contemplating the future of PIA’s privatisation efforts. The roadblocks faced highlight deeper issues in Pakistan’s investment climate, where complex regulatory frameworks and political opposition continue to deter foreign capital. The Privatisation Commission will likely revisit its outreach strategy, potentially engaging with new advisors or conducting additional audits to present a clearer, more appealing opportunity to the global market.

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