Report urges reforms, warns of lingering risks despite major debt restructuring
Despite reports of a Rs26 billion profit last year, Pakistan International Airlines (PIA) actually incurred a net operational loss of Rs4.6 billion, according to a biannual report released by the Finance Ministry on Friday. The ministry clarified that the so-called “profit” was the result of a one-time accounting adjustment and should not be mistaken for actual operational earnings.
The report, prepared by the Central Monitoring Unit (CMU), reviews the performance of federal state-owned enterprises (SOEs), with a special focus on PIA following its major restructuring, which involved carving out Rs660 billion in legacy debt from the airline’s books.
“Despite shedding its debt burden, PIACL Core still posted a pre-tax loss of Rs4.6 billion for the year and Rs2.3 billion for the last six months,” the report stated.
The ministry explained that the Rs26 billion “profit” was largely due to the recognition of a deferred tax asset (DTA) worth Rs30 billion — a non-cash adjustment made during restructuring, reflecting expectations of future taxable profits. The DTA provides a future tax shield but has no immediate impact on operational performance.
“The deferred tax asset is not part of core profitability,” said CMU Director General Majid Soofi, adding that such adjustments can distort earnings quality and effective tax rates.
Operational Concerns Persist Despite Restructuring
The report pointed out that PIA’s financials improved only on paper. While the airline’s long-term liabilities were reduced from Rs295 billion to Rs13 billion, and finance costs dropped from Rs79 billion to Rs10 billion, operational expenses remain troubling.
- Operational costs stood at Rs106.6 billion
- Administrative expenses totaled Rs8.3 billion
- Distribution costs reached Rs8.2 billion
- The airline also faced foreign exchange losses of Rs2.3 billion due to unhedged exposure
The report emphasized that fleet modernisation, fuel hedging, and renegotiation of supply contracts are essential to bring costs under control.
Call for Governance and HR Reforms
Now fully owned by the government after being delisted from the Pakistan Stock Exchange, PIA is no longer bound by short-term market pressures. However, the finance ministry stressed the need for a performance-based HR model, merit-based promotions, and alignment with global productivity benchmarks.
The report highlighted that PIA and PTCL pose major financial risks to the federal government due to their ongoing inefficiencies and market pressures.
“Despite the debt transfer, PIA still faces insolvency risk,” the report cautioned, calling for urgent restructuring, strategic partnerships, and rapid privatisation. Four parties — three of them cement manufacturers — have been pre-qualified in the second attempt to privatise the airline.
Structural Overhaul and Path Ahead
The Scheme of Arrangement (SOA) has allowed PIA to offload non-core real estate assets and historical obligations to a newly created PIA Holding Company, while PIACL continues as a streamlined aviation business.
- Total assets post-restructuring: Rs187 billion
- Current liabilities reduced from Rs482 billion to Rs142 billion
- Non-current liabilities dropped from Rs366 billion to Rs41 billion
This carve-out improves the airline’s solvency and paves the way for clearer financial reporting, improved transparency, and future privatisation or strategic partnerships.
Broader SOE Reform Needed
The finance ministry urged a comprehensive reassessment of all state-owned enterprises’ mandates. It recommended that long-term business strategies be tied to national economic priorities, particularly for chronic loss-makers like PIA, the power distribution companies, and Pakistan Railways.
“Restructuring PIA is a pivotal step, but sustainable recovery depends on institutional reforms and clear accountability,” the report concluded.
