LAHORE - Pakistan’s state-owned airline stocks rallied by around 90 per cent during last couple of weeks on the back of unfolding details on PIA privatisation process narrated in the IMF document, despite having very depressed balance sheet with Rs172 billion debt and negative equity of Rs118 billion.

Experts said that marred by management related issues over the years, PIA’s balance sheet looks quite depressed which is evident from Rs172b debt and negative equity of Rs118b as on March 31, 2013. Equity includes Rs156b accumulated losses of past years despite the fact that company’s operating revenues increased at CAGR of 10pc in last 5 years (2008-12) to Rs112b from Rs70b.

According to statistics, in 2007, accumulated losses stood at Rs28b. Significant increase in accumulated loss is due to the management inefficiencies including inability of the airline to pass on cost of services, huge administrative costs and rising debt servicing requirements. In 2012, PIA incurred losses of Rs33b vs. Rs27b last year while company has incurred losses of Rs8.6b in 1Q2013.

Tahir Saeed, an expert, said that huge administrative costs are primarily due to the fact that company has 17,439 employees (as on Dec 31, 2012) while company has a fleet size of 34 aircrafts out of which only 24 are operational. PIA’s employee-to-aircraft ratio is 513 compared to global average of 120. PIA is unable to pass-through rising cost due to uneconomic routes and subsidised air fare for govt officials.

As per the IMF document, govt has shown its intention to restructure PIA by stripping off its non-viable components (including ageing equipment, non flight operations, etc) under another Public Sector Enterprise (i.e. PIA-2) by December 2013. Govt will service the guaranteed past loans of PIA-2, grant a voluntary ‘handshake’ plan for the excess workforce and then liquidate it by June 2014, observed, Muhammad Tahir Saeed, an expert with Topline Securities.

In a report, he said that PIA-1 will retain its airline business while in the meantime will continue contracting leases on more efficient airplanes and rationalise its routes in order to attain efficiencies. PIA-1 will also keep some liabilities that it can service, streamline its workforce and may receive capital injection from the govt. Govt plans to privatize 26pc stake of PIA-1 to strategic investors by June 2014. Ageing fleet, outstanding loans, incomplete cost pass through, lack of quality manpower and overstaffing would make PIA privatisation difficult, we believe. Coupled with these factors, there is lot of pressure against this privatisation from labour unions and political parties too.