Pakistan has kicked off the search for a strategic airline-investor in Pakistan International Airlines (PIA) as the first move towards a re-capitalisation and further privatisation of the state-controlled carrier over the next 12 months.

In mid-March, Pakistan's Privatisation Commission issued a tender, asking for bids from financial advisory groups to help steer the airline through the first phase of the plan, which covers the search for a strategic partner and the airline's financial restructuring.

The closing date for the bids has been set for 21 April.

The aim is to carry out a trade sale of shares to an airline partner which would contribute a cash injection of 50-100% of the airline group's existing capital base. That would, in effect, give the partner between one-third and one-half of the re-capitalised company.

The second phase of the privatisation is planned to be through a public offering of another "portion" of the Government's shares, to take place "at a later date". The Government now holds around 58%of the airline, with another 29%in the hands of financial institutions. The remainder is held by a mixture of smaller companies.

The privatisation committee says that the aim is to carry out re-capitalisation and restructuring within the "1997/8 period". It adds that the Government's broad objectives are to "-generate the required investments" to upgrade and modernise the fleet and to "-promote private-sector participation" in aviation.

International Finance (IFC), the consulting arm of the World Bank, had originally been called in towards the end of 1996, to draw up a restructuring plan following its success in seeing through the Kenya Airways privatisation, which was based on a similar two-phase investment strategy.

The decision to put the consulting work out to tender, which was taken by Pakistan's incoming Government, precludes a bid from IFC, however, since its charter forbids it from bidding against the private sector.

Meanwhile, in its latest set of figures for the year to the end of June 1996, PIA chairman Hasan Raza Pahsa admits that the airline has been hampered by "cash problems", which have been worsened by restrictions which have been imposed on rupee borrowing by the central bank.

Although PIA managed to show a 9% growth in sales to reach Rs27.7 billion ($690 million), the airline faced tough competition and soaring fuel prices, which left pre-tax profits more than halved at Rs208 million.

PIA, which runs a fleet of around 30 widebodies, is reviewing its international route network for opportunities opened up by the new bilateral agreements struck with Australia, the UK and the USA, where it now has access to seven additional destinations including Chicago and Washington DC. Flights to Johannesburg, in South Africa, could also be started "in the near future", pending approvals, says Hassan.

The PIA chairman adds that the airline is looking at a fleet expansion "-to harness" the growth potential, including the possibility of leasing a freighter to strengthen its cargo operations.

Source: Flight International