Pakistan International Airlines (PIA) recently reached out to the State Bank of Pakistan (SBP) with an urgent plea for financial assistance.
The national airline requested the SBP to facilitate a Rs15 billion loan from commercial banks to navigate its ongoing financial troubles, as reported by The News on Friday.
To keep PIA operational and prevent a possible suspension of services, the Civil Aviation Authority (CAA) has already extended a Rs5 billion support facility.
However, the interim government is divided over how to handle PIA’s future. One faction suggests splitting PIA and privatizing the profitable segment, while another advocates selling it as is, which may prove challenging.
The Finance Ministry has declined to offer any guarantees, citing International Monetary Fund (IMF) conditions. The ministry is also urging the SBP to ease its lending regulations to enable the arrangement of the Rs15 billion loan, as confirmed by top officials.
The economic team has been indecisive about financing PIA, preferring to shift responsibility to other ministries like Privatisation, Planning, and Law, rather than making a direct decision.
Despite the urgency, the Finance Ministry has been hesitant to intervene decisively in PIA’s situation. The Aviation Ministry is now making a final effort to persuade the Finance Ministry to loosen prudential regulation PR-8 for commercial banks.
The CAA, referencing a PIA letter dated December 14, 2023, informed the Finance Ministry that financial institutions are wary of extending additional loans due to PIA’s escalating loan portfolio.
A technical committee formed to secure Rs15 billion for PIA by the end of October 2023 has yet to finalize financing. Although a term sheet was signed, the terms are stringent and require numerous concessions from both the Pakistan government and the SBP.
PIA’s severe financial crisis has hindered its ability to fulfill debt obligations on time. Without the SBP’s relaxation of PR-8 and permission to treat income as regular, banks may hesitate to lend to PIA.
The airline’s liquidity crisis could worsen without bank loans. To prevent this, there’s a proposal for banks to consider overdue PIACL payments as regular income.
The CAA has requested the Finance Ministry to ask the SBP for PR-8 relaxations for all commercial banks with overdue dues beyond 90 days, along with treating the income as regular. This measure could restore confidence in financial institutions and support the Pakistan government’s guaranteed loan needs.
