The antitrust watchdog on Saturday announced the approval of the Scheme of Arrangements for the acquisition of 100% shareholding in Pakistan International Airlines Corporation Limited (PIACL) by a new company named PIA Holding Company Limited (Holdco).

In its order, the Competition Commission of Pakistan (CCP) said that the acquisition of PIA Corporation by PIA Holding Company would not have any material impact on the market. It described the nature of the holding company’s business as real estate, which would own PIA’s liabilities, specific business property, rights and obligations both inside and outside of Pakistan.

The CCP announced the decision two days after the Privatisation Commission (PC) board extended the date for submission of Expressions of Interest (EOI) by investors by 15 days. The commission was compelled to extend the date after a majority out of the 10 parties that bought bidding documents did not submit them. No foreign airline has shown interest in PIA’s privatisation so far, although three domestic private airlines have participated in the process.

The CCP said that as per the approved scheme, Holdco would acquire 100% shareholding in PIA and the airline’s non-core assets and non-core liabilities would also be transferred to Holdco. Holdco, a public limited company wholly owned by the government of Pakistan, was recently incorporated to take over specified assets, liabilities and subsidiaries of PIA, including its business, property, rights and obligations both domestically and internationally.

PIA, a publicly listed company, provides aviation and allied services such as engineering, handling, cargo, flight kitchen and training.

The relevant market identified in this case is the real estate market in Pakistan, as PIA owns properties across the country with homogenous competition conditions, said the CCP. It added that the core aviation activities and allied services of PIA would remain with the company and would not be transferred to Holdco. These core activities will be privatised.

The CCP’s assessment concluded that the proposed transaction would not lead to the dominance of Holdco in the relevant market post-transaction, therefore, the CCP authorised the merger in phase-I.

The competition watchdog said that its approval of the merger demonstrated the commitment to furthering the government of Pakistan’s economic revival plan, particularly in attracting investment through the Special Investment Facilitation Council (SIFC).

Earlier, the shareholders and creditors of PIACL approved the Scheme of Arrangements filed with the Securities and Exchange Commission of Pakistan (SECP). As part of the privatisation process, the federal cabinet approved the legal segregation and restructuring of PIACL, following which the Scheme of Arrangements was filed with the SECP in March. In a meeting of PIACL creditors on April 21, 2024, the restructuring plan and the Scheme of Arrangements were endorsed.

The Privatisation Commission stressed that the restructuring would deliver a significantly “debt-light” PIA, with a better cash flow, focused on aviation and providing a foundation for future growth to potential investors, while ensuring value creation for shareholders. According to the segregation plan, the government has transferred about Rs625 billion to the holding company before selling 51% to 100% stake of PIA. It has also approved the shifting of employees of the Precision Engineering Complex to the holding company.

Foreign investors cannot buy more than 50% shares under the Civil Aviation Act and Air Service Agreements. So, they would have to enter into an arrangement with local investors for acquiring majority shares.

The Precision Engineering Complex, Pakistan International Airlines Investment Limited which owns Roosevelt Hotel and Scribe Hotel, and certain real estate assets have been treated as non-core assets and shifted to the holding company.

All ancillary services including engineering, ground handling, cargo, flight kitchen and training, as core assets, have been kept in the main PIA for privatisation. But their treatment as core assets will depend on the willingness of investors to buy them. About Rs625 billion worth of liabilities are being transferred to the new holding company along with assets. These liabilities include a commercial bank debt of Rs268 billion.

A debt of Rs173 billion is due to be paid to the federal government and advances from subsidiaries are being shifted to the holding company. Similarly, all liabilities of Rs144 billion of the Civil Aviation Authority (CAA), Pakistan State Oil (PSO) and National Insurance Corporation Limited (NICL) are being transferred to the holding company.

A commercial debt of Rs16 billion owed to foreign commercial banks is being kept in PIA. Payables of Rs64 billion to the creditors, mainly lessors and fuel suppliers, are also being retained in PIA and offered to buyers.

Operational liabilities of Rs104 billion related to the fleet, employees’ deferred liabilities and trade payables are also being kept in PIA.

Published in The Express Tribune, May 5^th, 2024.

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