Business

In the midst of a liquidity crisis, PIA sends the government an SOS for a Rs15 billion loan

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Staff Reporter

2 years ago

ISLAMABAD: In an effort to help the airline cope with the current financial crisis, Pakistan International Airlines (PIA) sent an SOS (Save Our Ship) letter to the State Bank of Pakistan, asking it to set up loans from commercial banks totaling Rs15 billion.

In order to keep the national flag carrier afloat and prevent it from ceasing operations, the Civil Aviation Authority (CAA) has granted a Rs5 billion facility. If not, there are growing chances that its operations may be suspended.

There is still a struggle between two strategies within the caretaker government’s ranks. While some want the PIA to remain in its current form, which may not be feasible, others want it to be split in two and only privatize the entity with a clean balance sheet.

Considering the requirements set forth by the International Monetary Fund (IMF), the finance ministry has declined to offer any guarantees. In fact, it is even asking the SBP to loosen its regulations, which are necessary in order to arrange loans totaling Rs. 15 billion.

The economic team has not decided whether or not to arrange financing for the PIA, they continued, delegating responsibility to other ministries like the Ministry of Privatization, Planning, and Law rather than making a decision themselves.

The finance ministry is hesitant to make any firm decisions and has thus far declined to save the PIA. In an attempt to salvage something, the Ministry of Aviation has now reached out to the Ministry of Finance to request a leniency of PR-8, the prudential regulation, in favor of commercial banks.

The CAA informed the Finance Ministry that the financial institutions were extremely concerned about the growing portfolio of loans they had provided to the PIACL and that they were not currently prepared to make new loan requests, citing a PIA letter dated December 14, 2023.

Even though a technical committee was established with the task of securing Rs15 billion in financing for the cash-sucking PIA by the end of October 2023 in just 48 hours, the financing has not yet been finalized. Even though the term sheet has been signed, the pricing and terms are tight with numerous waivers from the SBP and the Pakistani government.

It is a known fact that the PIACL has been in a serious financial crisis and has not been able to make its loan payments on schedule. The banks will be hesitant to lend money to the PIACL if the SBP does not grant PR-8 relaxation with the authority to treat the income as regular.

The airlines are already experiencing financial difficulties, and the PIACL’s liquidity crisis will worsen if commercial banks refuse to approve loans. Commercial banks might be permitted to treat suspended income on the past-due amounts of the PIACL as regular income in order to avoid this circumstance.

In addition to treating income as regular, the CAA has now asked the Ministry of Finance to apply to the SBP for PR-8 relaxations for all commercial banks with past-due accounts that exceed ninety days. In addition to boosting financial institutions’ confidence, this action will put them in a better position to support the Pakistani government’s demand for guaranteed loans.

In response to this scribe’s inquiry for an official version, Ministry of Finance spokesperson Qamar Abbasi stated, “It is not correct that the MoF has refused any such request.” The State Bank of Pakistan enforces prudential regulations. He concluded, “Exemptions/relaxations, if any, are also allowed by the SBP.”

Upon being contacted, the PIA spokesperson stated that the organization needed to fulfill several important financial obligations, such as paying $10.5 million to a leasing company for a plane that was parked in Jakarta. Therefore, in order to maintain its financial servicing, it asked the government for financial assistance. It is hoped that the PIA would be able to manage its obligations until a decision is made by the quarters concerned with some crucial funds obtained on a short-term basis, he said.

Staff Reporter