Daily Times

The government has decided to sell a business unit of Pakistan International Airlines (PIA) to the Pakistan Air Force for Rs2.5 billion in cash, which is equal to one-fourth of the price that a sole bidder offered for acquiring 60% shares in the national flag carrier.

The total sales value of Precession Engineering Complex (PEC) is Rs6.5 billion, including Rs4 billion in pensions-related liabilities of its current and retired employees, a senior government official told The Express Tribune. PEC is a business unit of PIA that manufactures high-precision parts for the aerospace industry and a number of other industries.

Government sources said that a ministerial committee had already approved the transfer of PEC to PAF at a total price of Rs6.5 billion. A formal summary is now being moved for approval of the federal cabinet, they added.

PEC has already been separated from the core PIA. It is among the non-core assets that the government has parked in PIA holding company along with Rs623 billion in liabilities of the national flag carrier.

As of the end of December last year, PEC’s total assets were valued at Rs1.2 billion whereas its total liabilities were estimated at Rs2.9 billion. It had a net negative equity of Rs1.73 billion at the time of determining its sale price.

PAF will acquire PEC at a total price of Rs6.5 billion, the official said. PAF will pay Rs2.5 billion in cash within five years and will also assume Rs3 billion in liabilities of pensions and provident fund of the already retired 259 employees of PEC for the next 10 years.

Another Rs1.1 billion in the estimated pension and provident fund liabilities of the existing 251 employees will also be the responsibility of PAF. The prime minister had constituted a four-member ministerial committee under the chairmanship of Finance Minister Muhammad Aurangzeb. The committee has approved the transaction structure for transferring the ownership of PEC to PAF, said the sources.

Among the committee members were the minister for defence and aviation, and the minister for privatisation. The ministerial committee had been tasked to finalise the mode of transfer of assets, liabilities and human resources to PAF.

A sub-committee, with the additional secretary corporate finance as the convener, evaluated the assets and liabilities for their handing over to PAF. The total price of Rs6.5 billion has been determined under the discounted cash flow method. The price is inclusive of land, infrastructure, machinery, equipment and human resources.

PAF will establish a special purpose vehicle for conducting the transaction. The employees’ contract conditions will remain unchanged. The current employees will be entitled to the same pay and allowances, medical services, air passage allowances, pension and provident fund.

PAF will also be responsible for arranging finances for continuing the current operations of PEC. The government attempted in October to privatise PIA, though five out of the six shortlisted bidders had walked out and did not submit financial bids. The government tried to sell PIA to a single bidder – a real estate developer – who offered Rs10 billion against the minimum reserve price of Rs85.03 billion, but it failed.

The bidders wanted the government to write off Rs26 billion worth of tax liabilities, Rs10 billion worth of bridge financing by the Civil Aviation Authority and Rs9 billion in other liabilities, Privatisation Secretary Usman Bajwa told a parliamentary committee last month. Privatisation Minister Abdul Aleem Khan had said that the lack of cooperation by the Ministry of Finance was the reason behind the failed attempt to sell PIA, which did not accept the bidders’ rightful demands.

He also blamed the caretaker government for finalising a faulty privatisation transaction structure, where it left behind a Rs45 billion negative equity on the PIA balance sheet despite taking off liabilities of Rs623 billion. As one of the options, the bidders asked that PIA’s commercial plot valued at over Rs10 billion should be given to the airline instead of keeping it in a holding company, he added. However, the finance ministry got a Rs2.5 billion cash deal despite PEC having Rs1.73 billion worth of negative equity. PEC’s assets included Rs199 million worth of property, plant and equipment, Rs154 million worth of spare parts, Rs742 million in trade receivables and Rs93 million in cash deposits at the end of last year. Its liabilities included Rs1.1 billion in employees-related obligations and Rs1.8 billion worth of trade payables.