Pakistan army-backed firm joins race for national airline

TWO of Pakistan's leading business groups and a company backed by the powerful military will bid for the country's ailing national carrier, a divestment the government hopes will kickstart the privatisations of state-owned enterprises.

The sale of Pakistan International Airlines will be the first major privatisation for around two decades, with the sale of loss-making state-owned enterprises a condition of last year's $7 billion (£5.5bn) bailout by the International Monetary Fund.

The government tried unsuccessfully to last year offload a stake in PIA, which is a major burden on its budget, but the sale was aborted because of the poor state of the airline and the conditions attached to any purchase.

Expressions of interest are due by Thursday (19) for an up to 100 per cent stake in the airline, with industry insiders expecting more bidders to emerge. They say the deal has been sweetened with a tax incentive and bolstered by signs of a turnaround in PIA's fortunes.

The Ministry of Privatisation did not respond to a request for comment.

Among those planning bids are the Yunus Brothers Group, owners of the Lucky Cement and energy companies; and a consortium led by Arif Habib Limited that includes Fatima Fertiliser, Lake City, and The City School, sources within the companies said.

Fauji Fertilizer Company, which is part-owned by the military, said it will be making an expression of interest, in a notice to the Pakistan Stock Exchange. Fertiliser production is a lucrative sector in Pakistan.

A group of PIA employees has also come forward to bid.

"The employees will use their provident fund and pension, in addition to finding an investor to place a bid. We're doing this to save jobs and turn around the company," said Hidayatullah Khan, president of the airline's Senior Staff Association.

The airline was restructured last year, offloading approximately 80 per cent of its legacy debt to the government to make it more attractive to investors. But bidders remain concerned about overstaffing and the ability to fire employees.

Last year's sale effort failed when the sole bid of $36 million (£28m) fell far short of a $305m (£240m) floor price.

Interested parties walked away before bidding, partly because the government was not willing to give up 100 per cent of the company, with bidders saying they did not want the government to remain involved.

Since then, PIA has posted its first operating profit in 21 years, driven by cost-cutting reforms, after making cumulative losses of $2.5bn (£2bn).

This success of the current process will depend on whether the government is willing to give up a 100 per cent stake, industry insiders said.

They added that a government decision this month to remove the requirement of paying sales tax upfront on the lease of new aircraft, which had been an impediment, will make the deal more attractive.

PIA resumed flights to Europe in January after the European Union lifted a four-year safety ban. The airline has also approached UK authorities for permission to resume services to London and Manchester.

The restoration of international routes is vital to future growth opportunities and successful bidders are likely to bring in foreign airlines as operators.

(Reuters)