A meeting of Pakistan's federal cabinet has approved the partial privatisation of PIA - Pakistan International Airlines (PK, Islamabad International) despite opposition from the country's electoral commission and last-minute concerns from the International Monetary Fund (IMF).

A February 6, 2024, cabinet meeting chaired by caretaker Prime Minister Anwaarul Haq Kakar okayed the plan just two days ahead of a general election, which will see the current interim administration replaced. The outcome, one of several significant reforms locked in before the election, was confirmed via announcements on the government's social media.

The decision clears the way for the next government, most likely led by the pro-privatisation Nawaz Sharif, to sell a 51% stake and management rights in the perennially loss-making state-owned carrier. The outcome is despite the Election Commission of Pakistan (ECP) requesting the caretaker government pause its privatisation plans, arguing they were beyond an interim administration's remit.

It also emerged that the IMF, which is providing Pakistan with a multi-billion dollar bailout package if it divests a swag of loss-making state-owned enterprises, including PIA, raised concerns about the haste with which the caretaker government was pushing through privatisation plans, resulting in several last-minute meetings in Islamabad earlier this week. The Express Tribune reports that the IMF had issues with the amount of PIA debt the interim administration was prepared to take on, the timing of PIA's privatisation, and the minimum sale price. However, late on February 6, Pakistan time, the IMF agreed in principle to support PIA's partial privatisation and will provide some short-term assistance.

In the wake of the meetings, details of the arrangements made to facilitate PIA's sale have emerged. The government will take responsibility for around PKR268 billion rupees (USD958.5 million) PIA owed to seven local banks. Recently, the caretaker government negotiated an agreement to roll that debt over for ten years at 12% per annum interest. The IMF has agreed to provide funding for one year to cover the interest bill. After that, the new government should be able to start servicing the loan using funds received from PIA's privatisation. Budget funds will be used if the sale proceeds are not immediately available. The agreed annual interest payable on the bank debt is PKR32.2 billion (USD115.1 million).

In total, PIA owes approximately PKR825 billion (USD2.95 billion) to various parties, including PKR120 billion (USD429.2 million) to Pakistan's Civil Aviation Authority and PKR19 billion (USD68 million) to the Federal Board of Revenue. However, any potential buyer of PIA will not need to worry about this as the vast bulk, if not all, of the debt, will be moved across to a separate legal entity and become the responsibility of the government of the day.

The plan is that IMF assistance and proceeds from PIA's partial privatisation will allow the government to pay these debts rather than sheet home the liability to taxpayers. In the longer term, it is anticipated dividends from the government's remaining stake in a profitable PIA will provide for the ongoing servicing of these debts.

Meanwhile, as part of the partial privatisation, the cabinet meeting provided details on two newly formed PIA-related entities, TopCo and HoldCo. TopCo will take on basic engineering operations, ground handling, cargo, flight kitchen and training, while HoldCo will be responsible for complex engineering, investments, assorted subsidiaries, and properties. The split is designed to make PIA even more attractive to buyers.