In a recent bidding round for Pakistan International Airlines (PIA), only one bidder, Blue World City, emerged, submitting a bid significantly lower than the government’s reserve price of Rs 85.034 billion, proposing a mere Rs 10 billion. This wide gap underscores the severe challenges facing PIA, and experts have cited a combination of overwhelming liabilities, operational hurdles, regulatory constraints, and economic instability as major deterrents for potential investors. Here’s an in-depth look into the factors that led to this disappointing response. PIA’s financial health has been in decline for decades, amassing liabilities that now exceed Rs 740 billion, including long-term debts, vendor obligations, and fuel charges. The airline’s debt-to-equity ratio is alarmingly high, creating unsustainable interest payments and debt-servicing costs that exceed Rs 80 billion annually. PIA reported an operational loss of Rs 75 billion in 2023 alone, further exacerbating its financial struggles. Potential investors face the daunting prospect of inheriting these liabilities and absorbing the financial strain of high operational costs, necessitating an immediate cash infusion for fleet renewal, modernized systems, and debt repayment. The substantial gap between PIA’s assessed reserve price and Blue World City’s bid reflects investor concerns about inheriting these liabilities and the need for heavy restructuring efforts. Many prospective investors cited unclear terms and unattractive financial conditions as additional deterrents. PIA’s aging fleet, consisting of several outdated aircraft, has significantly raised its maintenance and operational costs. For example, older aircraft such as the Boeing 777-200 Euro cost up to 30 percent more in fuel and maintenance than newer, more efficient models. These additional operational costs reduce profit margins and increase ticket prices, making it challenging for PIA to compete with regional carriers. The carrier’s operational load factor – the ratio of passenger revenue to seat capacity – is consistently low, averaging around 68 percent compared to the industry benchmark of over 80 percent. This discrepancy indicates that PIA is underutilizing its fleet, with planes flying at suboptimal capacity and incurring unnecessary expenses. PIA’s operational setbacks also stem from significant regulatory and safety issues. In 2020, a PIA crash led to global scrutiny and revealed that approximately 30 percent of PIA’s pilots held fraudulent licenses, prompting the European Union Aviation Safety Agency (EASA) and the UK to impose bans on PIA flights. Since then, PIA has been barred from accessing lucrative European and UK routes, resulting in an estimated annual revenue loss of over Rs 50 billion. Potential investors face the challenge of not only restoring PIA’s image but also regaining these essential international certifications, a lengthy process that adds further uncertainty. Without the European and UK markets, PIA’s ability to operate profitably is severely constrained, as these routes are vital revenue streams for international carriers. Pakistan’s policy landscape has been marked by inconsistent decisions and regulatory unpredictability, which have raised concerns about the country’s commitment to long-term agreements. Recently, the government terminated several power purchase contracts, signaling a risk that similar contract alterations could occur in other sectors. This instability raises red flags for investors regarding potential government interventions and the risk of future policy shifts. In PIA’s case, investors are particularly wary of government influence in operational decisions. PIA’s board has historically been under significant governmental control, leading to potential conflicts over strategic and financial autonomy. This perception of political interference makes PIA less appealing to private investors seeking full operational control. PIA has been steadily losing market share to more competitive Middle Eastern carriers, such as Emirates, Qatar Airways, and Etihad, which dominate international routes from Pakistan with better service, modern fleets, and extensive networks. PIA’s current passenger load factor is below the industry average, and its inability to compete on price and quality with these carriers limits its market potential. According to industry estimates, PIA’s share of international travel from Pakistan has declined to around 20 percent, with Middle Eastern airlines capturing over 60 percent of the Pakistani international travel market. With limited access to high-revenue routes and an outdated fleet, PIA struggles to maintain a strong market position, further diminishing its appeal to investors. Many prospective investors cited unclear terms and unattractive financial conditions as additional deterrents. The government set a reserve price of Rs 800 billion, yet did not provide comprehensive clarity on whether subsidies or financial support would be extended to ease PIA’s debt burden. Additionally, there were concerns over tax policies and long-term liabilities that an investor would be required to assume without guarantees of protection against unforeseen future costs. These factors suggest that the bidding process itself may have lacked the transparency and flexibility necessary to attract more competitive offers. Without clearer assurances on the level of financial and operational autonomy, investor hesitation is likely to persist. PIA’s privatization attempt underscores the complex challenges faced by Pakistan’s national carrier. From unsustainable liabilities and regulatory issues to competition from global giants and policy inconsistencies, the airline presents a formidable challenge to potential buyers. With just one bid of Rs 10 billion against a reserve price of Rs 85.034 billion, it’s evident that for successful privatization, a revised strategy with greater financial incentives, debt restructuring, and guaranteed policy support is essential. Without addressing these foundational issues, Pakistan’s efforts to privatize PIA will continue to face hurdles in attracting credible and competitive offers. The writer, a chartered accountant and certified business analyst, is serving as a CEO for Model Bazaars.