KARACHI: The recently privatized Pakistan International Airlines (PIA) will continue to face financial losses for another few years before start making profits, its new owner said on Monday, promising to do all it takes to revive the Pakistani carrier.

A Pakistani consortium, led by Arif Habib Group, on Dec. 23 secured a 75% stake in PIA for Rs135 billion ($482 million) after several rounds of bidding, valuing the airline at Rs180 billion ($643 million).

The sale marked Pakistan’s most aggressive attempt in decades to reform the debt-ridden airline, which had accumulated more than $2.8 billion in financial losses. The government said it would end decades of state-funded bailouts and help revive the airline.

Arif Habib, CEO of Arif Habib Group, said the airline will take time to start giving “reasonable” returns to its investors, including AKD Group Holdings, Fatima Fertilizer Company, City Schools, Lake City Holdings and Fauji Fertilizer Company, a publicly listed firm owned by Pakistan’s military.

“It may take about one to two years’ time because in initial period of one to two years, we may see some losses but into medium term, I think, that would be turned around,” Habib said in an exclusive interview with Arab News.

“In a longer period of time, if we say about 10 years’ time, this business is expected to give a reasonable return to the investors.”

Once considered among Asia’s leading carriers, PIA struggled with chronic mismanagement, political interference, overstaffing, mounting debt and operational issues that led to a 2020 ban on flights to the European Union, United Kingdom and the United States (US) after a pilot licensing scandal. The EU and the UK lifted the bans, providing fresh momentum to the carrier that still remains barred from flying to the US.

PIA currently has around Rs9 billion ($32 million) liabilities on its balance sheet and the injection of “a reasonable capital” will keep the airline afloat, according to Habib.

“It will take care of initial period losses and will also take care of the development capital expenditure,” he said.

RENOVATION PLANS

Habib plans to renovate PIA planes, improve maintenance and flight schedule, and bring in new aircraft to revive the carrier.

“We will renovate the check-in counters and the cabins. We will replace the seats and put the entertainment equipment into it,” he said.

“We will also ensure the punctuality of flights. That will bring market confidence, and with that there will be a culture change.”

Bound by his agreement with the government that he will not change PIA’s logo and name, Habib did not rule out the new management could change the uniform of the airline staff.

“It’s too early, but I definitely will consider all options whereby we improve the brand,” he said.

The privatization of PIA as well as other loss-making, state-run enterprises is a key requirement of the International Monetary Fund (IMF) under its $7 billion loan program.

Pakistan’s equity investors welcomed the airline’s sell-off, with PIA Holding Company (PIAHC) being one of the most-traded scrips on Monday, according to the Pakistan Stock Exchange (PSX) data.

Habib, whose conglomerate is involved in businesses ranging from stock brokerage services to real-estate projects, plans to invest about $400 million in PIA to sustain its initial losses as well as fund its overhauling that he aims to complete in the next seven years.

He said he would invest two-thirds of the planned investment in the airline upon taking it over in April, while another one-third would be injected in one year afterwards.

“Since we are putting in a large sum, about $400 million, into the company, that $400 million will be available to the company for all these improvements,” he said.

Habib’s consortium has engaged global advisory firm, Seabury Aviation Partners, to help find “viable” markets for the carrier, and targets more than 70 million Pakistani travelers to expand its local and international footprint.

If PIA is able to improve its services and improve its cabin and aircraft, I think there is a huge market waiting for PIA,” he said.

‘STRATEGIC INVESTOR’

The consortium may look to buy the government’s remaining 25% stake and offer part of it to a “strategic investor,’ preferably a foreign airline, to make PIA more competitive.

“The government has given [us] an option of acquiring 25 percent and that option we have to exercise in 90 days,” Habib said. “We are thinking of bringing in some foreign airline as our partner who would be the technical partner for [our] airline.”

The consortium does not intend to lay off any of the airline’s 7,000 employees, unless someone fails to perform, according to Habib.

The existing members of the consortium will hold 75 percent shares of the airline for the next three-year mandatory period and may expand the group afterwards.

“We may consider getting this company listed on the stock exchange and also bring in some partners if additional capital is required,” he added.

Presently, the airline’s parent company, PIAHC, is listed on the PSX, but not the newly privatized PIA.
Habib said the listing would happen once the company starts showing some profits.

“Then there would be a case for going into the market. That would be around a three-year time period,” the businessman said.

“As far as the 25% option is concerned, there we have the ability to attract more investors, more qualified investors, and preferably airlines,” he said, referring to the government’s remaining share in the airline.

FLEET AND ROUTE EXPANSION

PIA’s new management plans to more than triple its fleet to 64 aircraft from 19 at present in up to eight years. In the first phase, the airline would induct 38 four- to seven-year-old, narrow and wide body aircraft which would go up to 64 in the second phase.

“There are routes where there is incremental demand there, but because of the limited aircraft available with PIA, they are not able to serve the whole market,” Habib said, adding the delivery scheduled for new aircraft was very tight and buying old passenger jets would be easier for the group.

“Those are very suitable for the business of PIA as well.”

PIA’s new owners see the region comprising the United Kingdom (UK), the US and Canada as a “lucrative market” for their business.

“There we can increase the frequency of the flight,” he said. “We will also try to run flights to Canada from Karachi, Lahore, and I think it’s already in Islamabad.”

Habib said the PIA management was in talks with the US Federal Aviation Administration about the resumption of its flights to the US.

“We will try to comply with whatever the requirements are,” he said. “Definitely, we would like to be approved worldwide.”