A National Assembly panel on Monday recommended that the government mandate the buyer of Pakistan International Airlines (PIA) to retain employees for at least five years after its privatisation. The airline has incurred losses of Rs500 billion over the past eight years.
However, this recommendation by the National Assembly Standing Committee on Privatisation contradicts the feedback from prospective buyers. During pre-bid conferences over the last 10 days, buyers have expressed reluctance to retain employees, with at least two bidders stating that they would prefer to sign new contracts with employees. Some bidders also indicated that all employee liabilities up to the bid date should be borne by the federal government.
Deputy Prime Minister Ishaq Dar is scheduled to chair a meeting today (Tuesday) to finalise the government's response to the bidders' concerns regarding the draft share purchase agreement, subscription agreement, and shareholder agreement.
The standing committee, chaired by Muhammad Farooq Sattar of the Muttahida Quami Movement (MQM), recommended that PIA employees be retained for at least five years and that the airline's union be involved in the process. Secretary of the Privatisation Ministry Jawad Paul warned that if the government insists on long-term employee retention, the cost would be reflected in the bid price.
The draft Share Purchase and Subscription Agreement currently proposes that existing employees, regardless of their position, cannot be terminated, laid off, retrenched, or forced to resign for three years from the completion date, except in cases of misconduct. However, Paul indicated that this proposal is not yet final.
Sources informed The Express Tribune that during pre-bid conferences held from August 15th to 22nd, prospective buyers suggested offering voluntary separation schemes to employees and retaining them for a maximum of one year. The secretary of the privatisation ministry noted that the buyer would have the option to implement such a scheme. The federal government has authorised the sale of 51% to 100% of PIA's stakes, including management control. Six parties have been shortlisted and are conducting due diligence on the airline, with most expressing interest in acquiring 70% to 90% of the total shares.
The draft sales purchase agreement binds the buyer to maintain all existing employee benefits and facilities, such as pension, gratuity, social welfare, provident funds and benevolent funds. These must remain fully funded and unchanged to the detriment of the employees. Paul clarified that pensioners would be paid by PIA's holding company, while serving employees would be paid by the buyer.
Paul also noted that PIA has incurred Rs499 billion in losses since 2015, with cumulative losses amounting to Rs842 billion, of which Rs622 billion has been transferred to the holding company. The government is in the process of finalising a special audit of PIA's accounts till June 30th, which was the requirement before its privatisation.
The secretary of privatisation stated that bidding for PIA's privatisation is scheduled for October 1st, expressing hope that pending issues will be resolved by then. The privatisation ministry had previously claimed the airline would be privatised by the end of July. In the fiscal year 2022-23, PIA reported a loss of Rs75.7 billion, making it the fourth highest loss-making government-owned entity, according to the finance ministry.
The government has proposed buyer-favourable terms for the sale of majority stakes in PIA, including accepting partial purchase payments and allowing debt-funded investments over three years. Under the proposed terms, the buyer will have the option to pay approximately one-third of the total sale price in cash and settle the remaining amounts against PIA's payables, according to individuals familiar with the draft agreements being finalised for the sale.
The draft agreements also include a provision for a three to five-year pause on dividend payments to shareholders.
When asked why no foreign party showed interest in acquiring PIA, Paul responded that the government cannot force anyone to bid. He noted that while foreign investors are often seen as better managers, the government's past experiences with them have not been positive. Committee members recommended that the government take action against those responsible for PIA's massive losses. MNA Miss Sehar Kamran quipped that perhaps it is time to privatise the bureaucracy as well.
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