The long-awaited privatization of Pakistan International Airlines (PIA) faced a setback on October 31 after the only bid, submitted by real estate developer Blue World City, fell significantly below the government’s minimum price.
Blue World City’s offer of Rs10 billion ($36 million) for a 60% stake in PIA was only about 12% of the government’s anticipated Rs85.03 billion ($305 million) valuation.
This disparity equates to only about 12% of the anticipated value, translating to a $36 million offer against a $305 million valuation in dollar terms.
Single bid fails to meet price target
The Privatization Commission Board and Cabinet Committee on Privatization had set a minimum price of Rs85.03 billion ahead of the bidding process. However, Blue World City, the sole participant, declined to increase its Rs10 billion bid after being invited to match the government’s valuation.
Saad Nazir, Blue World City’s owner, confirmed their best offer stood firm, effectively halting the process. “We have considered the government price and decided to stand with our best offer of Rs10 billion,” said Nazir.
“If the government does not privatise PIA, we wish all the best for them, and if they want to run the airline themselves, we pray for them”, Nazir added.
Despite measures to make the deal attractive, including transferring approximately Rs625 billion of PIA’s debt to a separate holding company, interest remained minimal. PIA was left with Rs202 billion in liabilities and Rs163 billion in assets, though most assets were recorded at book value.
However, potential buyers expressed concern over contingent liabilities and taxes, which deterred many from proceeding.
Lack of competition and bidder concerns stall progress
Blue World City’s Chief Operating Officer, Seham Raza, expressed disappointment over the lack of competitive bids. “I wish there had been healthy competition and feel sad that all other bidders have pulled out,” she said. She further noted that their bid was submitted out of respect for the national flag, despite the airline’s poor financial condition.
The privatization process, intended as a serious attempt to divest from PIA, was televised but proved anticlimactic due to the limited participation.
Blue World City’s bid was the only one to proceed out of six pre-qualified firms, the rest of which opted out after rejecting government-imposed conditions. Notable dropouts included Arif Habib Corporation, Fly Jinnah, Younus Brothers, Pak Ethanol, and Air Blue, who disagreed with conditions surrounding tax liabilities, mandatory investment levels, fleet expansion, and employee retention.
The government had aimed to sell a 51%-100% stake but settled on offering a 60% share. Bidders were expected to commit between $500 million and $700 million to PIA, lower the fleet’s average age from 17 to 10 years within five years, and retain the current workforce for a reduced period of one and a half years. Yet, these requirements were deemed impractical by the bidders, who exited the process before submitting offers.
Privatization Commission Secretary Usman Bajwa previously emphasized that PIA’s sustainability hinges on fresh investments and settling outstanding liabilities. As Blue World City’s bid fell short, the privatization of PIA remains stalled, casting doubt on the government’s broader agenda to privatise other state-run entities.