• CAA grants Rs5bn billion facility to keep PIA afloat.
• Finance ministry refuses to provide any guarantees.
• Aviation ministry makes last-ditch efforts for relaxation. 

ISLAMABAD: Pakistan International Airlines (PIA) sent an SOS (Save Our Ship) to the State Bank of Pakistan, requesting to arrange Rs15 billion loans from commercial banks to help it deal with the prevailing financial crisis, The News reported Friday. 

The Civil Aviation Authority (CAA) has granted Rs5 billion facility to keep the national flag carrier afloat and avoid halting its operations. Otherwise, there are emerging risks of suspension of its operations.

A tug of war continues as there are two approaches within the ranks of the caretaker government. One side wants to bifurcate the PIA and privatise only the entity having a clean balance sheet while the other side is asking for privatising it in its existing shape which might not be possible.

The finance ministry has refused to provide any guarantees, keeping in view International Monetary Fund (IMF) conditions and is even requesting the SBP to relax its regulation which is required to arrange loans of Rs15 billion, top official sources confirmed to The News. 

“There has been indecision on the part of the economic team as to whether they are ready to arrange financing for the PIA or not, pass the buck to other ministries such as the Ministry of Privatisation, Planning, and Law instead of taking any direct decision,” they added. 

The finance ministry has so far refused to rescue the PIA and is reluctant to take any firm decision. Now the Ministry of Aviation has contacted the Finance Ministry to make last-ditch efforts to seek relaxation of prudential regulation PR-8 in favour of commercial banks.

While referring to a PIA letter written on December 14, 2023, the CAA has conveyed to the Finance Ministry that the financial institutions were seriously concerned about the ballooning portfolio of loans which they had furnished to the PIACL and they were not ready for granting fresh loans at the moment. 

Despite constituting a technical committee which was assigned to arrange financing for the cash-bleeding PIA to the tune of Rs15 billion within just 48 hours by end-October 2023, so far financing has not yet been finalised. Although the signed term sheet has been done, the terms and pricing are not only strict but also involve a lot of waivers from the government of Pakistan and the SBP.

It is a fact that the PIACL has been facing a severe financial crisis and remained unable to pay its debt obligations on time. If the SBP does not grant PR-8 relaxation with the permission to treat the income as regular, the banks will be reluctant to offer loans to the PIACL. 

The airlines are already facing a crunch and the non-sanctioning of loans by commercial banks will further deteriorate the liquidity crunch of the PIACL. To avoid this situation, commercial banks may be allowed to treat suspended income on the overdue amounts of the PIACL as regular income. 

The CAA has now requested the Ministry of Finance to approach the SBP for granting PR-8 relaxations to all commercial banks whose dues are over 90 days along with treating income as regular. This act will not only bring confidence in the financial institutions but also provide a better position to support the Pakistan government’s guaranteed loan requirement.

This scribe sent out a question to Ministry of Finance spokesperson Qamar Abbasi to get an official version and was told that “it is not correct that the MoF has refused any such request. Prudential regulations are enforced by the SBP”. “Exemptions/relaxations, if any, are also allowed by the SBP,” he concluded.

When the PIA spokesperson was contacted, he said the PIA was required to make some critical payments including $10.5 million to a leasing company on account of a parked plane in Jakarta as well as some other financial obligations. So it requested the government to provide financial support to keep its financial servicing afloat. With some critical funds obtained on a short-term basis, it is hoped that the PIA would be able to manage its obligations till a decision is made by the quarters concerned, he concluded.