Inside Financial Markets

PIA seeks increase in GOP guarantee limit

Pakistan International Airlines (PIA) has approached the Finance Ministry for an increase in GoP guarantee limit by Rs 10.5 billion to Rs 161.5 billion from Rs 151 billion on the plea that its financial woes have increased after the crash of PK-661, sources close to Finance Minister told Business Recorder. The Economic Co-ordination Committee of the Cabinet will consider PIA’s request in its meeting on Wednesday (today), the sources added.

The liquidity crises of PIACL, sources said, have been continuing for several years and 2016 was not much different. The addition of aircraft has improved the flight regularity and operational efficiency of the airline but revenue could not be augmented due to low yields and excess capacity. Despite these limitations, PIACL pulled along in 2016 with the support of the Government.

According to sources, recent crash incident of PK-661 has drastically impacted the airline both in financial and operational terms. The shake down inspections of the fleet required support on an urgent basis and hampered revenue. The situation is getting worse as PIACL has not been able to pay to the lessors which may result in grounding of aircraft or lead to default. Similarly, PSO receivables have ballooned and fuel supplies have been refused. Saudi Arabia Civil Aviation Authority (GACA) has also threatened to stop PIA’s operations in case of further non-payment.

Details of immediate cash requirement of PKR 6.746 billion to meet overdue liabilities are as follows;(i) PSO- Rs 1 billion;(ii) lease rental dry lease aircrafts Rs 1.093 billion;(iii) Boeing CSP- 6 months overdue Rs 476 million;(iv) FED & taxes in current month Rs 800 million;(v) TFC mark-up ( overdue 90 days) Rs 570;(vi) provident fund arrears Rs 500 million;(vii) overflying-Euro control & others;(viii) engineering service and spare parts Rs 567 million ;(ix) GACCA Rs 870 million;(x) Air France & Bakri Rs 498 million and ;(xi) other operational payments Rs 200 million.

Further PIA needs support to repay its loan instalments and mark up from January 1, 2017 until June 30, 2017 as per following details;(i) GoP guaranteed loan repayments, Rs 15.169 billion;(ii) repayment of Non GoP guaranteed loans, Rs 4.227 billion;(iii) mark up payments on GoP guaranteed loans, Rs 5.548 billion, totalling it to Rs 24.944 billion.

The sources said, PIACL will work with the banks and endeavour to meet the non-GoP guarantee loan instalments from its own sources and rollover GoP guaranteed loans with the help of Ministry of Finance. PIACL will also endeavour to make the overdue payments from its own resources to the extent of PKR 1.794 billion.

However, keeping in view the situation, GoP support will be required in the form of guarantees to meet the remaining Rs 10.5 billion obligations (mark up payments of Rs 5.548 billion + overdue payments of Rs 4.952).

The sources said, Finance Ministry has supported increase in guarantee limit from Rs 151 billion to Rs 159.3 billion subject to the condition that the enhanced limit of Rs 8.3 billion would be exclusively directed towards payment of financing cost on GoP guaranteed loan of Rs 6.2 billion and Rs 2.1 billion for lessors and General Authority of Civil Aviation (GACA) of Saudi Arabia. However, PIAC may arrange repayment of non GoP guarantee of Rs 4.2 billion from their own sources or alternately approach the lenders for re-scheduling.

Finance Ministry further argues that with a view to address the issue on long-term basis, PIAC is expected to look inward and formulate a comprehensive debt retirement plan rather than seeking more loans to pay off the existing ones, since continuous borrowing is not only unsustainable but may even affect PIA as a going concern.

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)