Why is the sale of Pakistan’s national airline stirring a political storm?

Islamabad, Pakistan – In a publicly traded auction earlier this week, the government sold a majority stake in Pakistan International Airlines (PIA) for $ 482 million, putting an end to years of unsuccessful privatization attempts.

Arif Habib Limited (AHL), a Karachi-based securities brokerage, led the winning consortium, which includes AKD Group Holdings Limited, fertiliser manufacturer Fatima Fertilizer, private school network City Schools, and real estate firm Lake City Holdings Limited.

Following the successful bid, Fauji Fertilizer Company Limited (FFC), a military-owned and publicly listed company, also joined the consortium. The group was in opposition to Air Blue, a private airline, and a rival consortium led by Lucky Cement.

The government made a significant public effort to privatize PIA following the government’s coverage of the auction. A previous effort in October 2024 collapsed when a single bid of $36m from a private real estate firm fell far short of the government’s $305m floor price.

The International Monetary Fund (IMF), which had urged Islamabad to turn over its state-owned businesses, prompted the privatization of PIA. By the end of this year, Pakistan, which is currently receiving a $ 7 billion loan from the IMF, had pledged to finish the airline’s privatization.

Here is what is known so far about the sale, the winning consortium, and why the deal has drawn criticism from opposition parties and other quarters.

What is known about the winning bid?

Bidding lasted 90 minutes, with a few breaks, in a crowded five-star hotel in Islamabad on Tuesday. Three parties submitted initial bids for a 75 percent stake in the national carrier.

Last year, the government restructured PIA by transferring long-term liabilities worth more than $2.3 billion into a separate entity in an effort to attract investors. Additionally, it provided tax relief and policy continuity guarantees, both of which the IMF had approved.

In the first round, Air Blue was disqualified from open bidding after offering $94.59m, well below the government’s minimum price of $356.9m.

Open bidding began once the two remaining consortia had raised the floor price. The AHL-led organization won the 75% stake with a final offer of $482 million.

At a news conference a day later, Muhammad Ali, the government’s adviser on privatisation, said 92.5 percent of the winning bid, amounting to about $446m, would be reinvested into PIA itself. The government would receive the remaining 36 million dollars, which will also retain a 25% stake, which will be roughly $ 160.6 million.

Later, Arif Habib revealed to a private television station that the consortium plans to also purchase the remaining 25% of the company in order to relaunch the airline by April of next year.

Under the terms of the deal, the consortium must pay two-thirds of the purchase price within three months, with the remaining one-third due within a year. Within three months, the remaining 25% of the company must be decided.

Why was PIA required to be privatized?

Once regarded as Pakistan’s most prestigious brand, PIA operated flights across the world and even boasted uniforms designed by Pierre Cardin. The airline quickly expanded its footprint with a fleet of 13 aircraft that were founded in 1955.

PIA reached a number of milestones after making its first international flight to London via Cairo and Rome. It became the first Asian airline to acquire a jet aircraft, the Boeing 707, opened new international routes, and is credited with helping launch Emirates, the Dubai-based carrier, in the 1980s.

However, more than 20 years later, the state is widely believed to be burdened by the airline. Successive governments attempted to delegate PIA, but failed as a result of protests by employee unions and opposition parties.

According to Ali, PIA accumulated more than $1.7bn in liabilities between 2015 and 2024, while long-term liabilities exceeded $2.3bn.

At Wednesday’s news conference, he stated that the process was “completed with extensive preparation and accountability” and that lessons from the past had been learned.

Ali claimed that PIA once operated nearly 40 international destinations and operated about 50. Today, only 18 aircraft are operational out of a fleet of 33.

He added that the airline currently operates 240 weekly round-trip flights, serves about 30 destinations, and controls more than 30% of the domestic market. With the expansion of private carriers, that share has fallen dramatically from its previous peak of at least 60% in recent years.

Additionally, PIA has access to more than 170 airport slots and has access to at least 78 landing points.

More than 19, 000 people, including at least 16, 000 permanent staff, were employed by the airline in 2014. Over the years, that number gradually reduced to fewer than 7, 000 employees.

In June 2020, a month after one of its aircraft plunged into a Karachi street, killing 97 people, PIA was also prohibited from flying to the United Kingdom and Europe. The pilots and air traffic control blamed human error for the disaster, which was followed by claims that nearly a third of the airline’s pilots’ licenses were fake or questioned.

However, the four-year ban from Europe was lifted in December 2024 by the European Union Aviation Safety Agency, and the Pakistani state-owned carrier resumed flights to the continent in January. The UK, &nbsp, also lifted its ban in July.

What are the objections to the auction’s outcome, and how do analysts feel about it?

While the government hailed the transaction as the “best possible outcome” with “great symbolic value”, opposition parties condemned the deal.

The former prime minister Imran Khan’s Tehreek Tahafuz Ayeen-i-Pakistan (TTAP), an opposition alliance led by the Pakistan Tehreek-e-Insaf (PTI), objected to the privatization and warned that disposing of a national asset without a public mandate, parliamentary oversight, transparency, and constitutional legitimacy would be unacceptable.

Other commentators questioned the bidding process, calling it an “obfuscation” that raised more questions than answers. Some accused the government of effectively selling the 75 percent stake for just $36m — since the rest is to be invested back into an airline that its new, private owners will now benefit from.

Ali refuted those assertions.

“Our structuring was such that we received cash in the form of 10 billion rupees ($36 million) and our equity is valued at 45 billion rupees ($160 million). So, the government will get a value of 55 billion rupees ($196m) in total, and 125 billion rupees ($446m) will flow back into the airline”, he said.

Regardless of which government was in power, several economists and aviation analysts claim the outcome was the best possible arrangement.

The agreement was described as watertight by Fahd Ali, an assistant professor and economist at Lahore University of Management Sciences (LUMS).

“Critics have also been talking about the lucrative landing rights and routes that it holds and how the new owner may sell these to recover its costs. However, he claimed that “people don’t understand that the geese that lay the golden eggs” are the PIA’s destinations.

He claimed that the airline couldn’t capitalize on those routes because they needed additional funding from the state, and that selling them would hurt company earnings in the future.

“Given these constraints, the deal seems all right”, he said.

Economic commentator Khurram Husain from Karachi said the transaction was unusual and was less motivated by profit than the need to reduce losses.

You can profit from two opportunities. Either you shut it all down, denotify and delist the company, with PIA ceasing to exist. Or, he said, “to have them run it and hand it over to the private sector”

If the government hadn’t taken action, Husain, a former Woodrow Wilson Center fellow, claimed that PIA’s $2.3 billion long-term liabilities would have continued to grow.

“At what point does one stop? The government’s calculus was that. They were merely trying to control losses, he said.

Who is part of the consortium and why is the military’s inclusion raising questions?

Arif Habib, who owns the consortium, has business interests spanning brokerage, fertilizers, steel, and real estate. Prior to joining the Privatisation Commission, he was a member.

Other partners include Fatima Fertilizer, part of the Fatima Group and Arif Habib Group, City Schools, founded in the late 1970s and now operating more than 500 campuses with at least 150, 000 students, and Lake City Pakistan, a Lahore-based real estate developer. The group includes businessman Aqeel Karim Dhedhi’s business unit, AKD Holdings.

However, there has been discussion about the Fauji Fertilizer Company Limited (FFC)’s decision to join the consortium following its sale. FFC, which is listed on the Pakistan Stock Exchange, is a subsidiary of the military-run Fauji Foundation, which owns more than 40 percent of its shares.

FFC’s move is seen by some as an expansion of the military’s footprint into the aviation sector because it is Pakistan’s largest producer of fertilizer with interests in energy, food, and finance.

The military, which has been in full control of Pakistan’s affairs for more than three decades and has had a significant impact on political, social, and economic affairs, continues to be the country’s most powerful institution.

Critics point to the Special Investment Facilitation Council (SIFC) as an example of the military’s growing role in economic decision-making. The SIFC, a powerful group of civilian and military leaders tasked with promoting investment by removing bureaucracy, was established in June 2023 during Prime Minister Shehbaz Sharif’s first term. Its lack of transparency has drawn insatiable criticism.

Husain said FFC’s presence in the consortium could prove “very significant” over the long term.

According to him, “It’s possible that what has really happened is that PIA has switched from one branch of the state to another” under the terms of the agreement.

According to Ali Khizar, an economic analyst based in Karachi, FFC’s inclusion might offer private investors long-term security assurances.

“Historically, we have seen in Pakistan with policies taking 180-degree turn with changing government, so perhaps they needed to ensure to have military presence for providing investor security. However, he claimed that if FFC and AHL both have more shares, that could affect their standing and decision-making.

According to Fahd Ali, military-run companies typically operate differently from state-owned companies (SOEs).

“They remain shielded from the political interference that besets other SoEs. Nevertheless, he warned that those who believe the state will be able to rid itself of PIA may be mistaken.

Concerns will persist if one airline, which is now backed by significant private capital and the military’s influence, assumes control of the aviation market, according to Khizar, despite the transaction’s breakthrough following two decades of unsuccessful attempts to privatize the carrier.

Source: Aljazeera