PAF Acquires PEC from PIA

ISLAMABAD: In a significant move to streamline its assets, the government has decided to sell a business unit of Pakistan International Airlines (PIA) to the Pakistan Air Force (PAF) for Rs2.5 billion in cash. This transaction forms a part of a broader strategy to divest non-core assets of the national flag carrier.

Overview of the Sale Agreement

The total value of the Precession Engineering Complex (PEC) is set at Rs6.5 billion, which includes Rs4 billion in pension-related liabilities for current and retired employees. PEC is a specialized unit of PIA, known for manufacturing high-precision parts for both the aerospace and various other industries.

Government officials confirmed that a ministerial committee has approved the transfer of PEC to PAF, with a formal summary awaiting federal cabinet approval. This transaction is part of the government’s efforts to manage and offload PIA’s non-core assets, which are currently parked in a holding company alongside Rs623 billion in liabilities.

Financial Details and Liabilities

As of December last year, PEC’s total assets were valued at Rs1.2 billion, with liabilities estimated at Rs2.9 billion, resulting in a net negative equity of Rs1.73 billion. Despite this, PAF will acquire PEC for a total of Rs6.5 billion. The breakdown includes Rs2.5 billion in cash payments over five years and the assumption of Rs4 billion in pension liabilities for both current and retired employees.

The deal requires PAF to take responsibility for Rs3 billion in pension and provident fund liabilities for the 259 already retired employees of PEC over the next ten years. Additionally, PAF will assume Rs1.1 billion in pension and provident fund liabilities for the existing 251 employees.

Committee and Transaction Structure

A four-member ministerial committee, led by Finance Minister Muhammad Aurangzeb, approved the transaction structure. The committee, which also includes the ministers for defense and aviation and privatization, was tasked with finalizing the transfer of assets, liabilities, and human resources to PAF.

A sub-committee, headed by the additional secretary for corporate finance, evaluated the assets and liabilities, determining the total price using the discounted cash flow method. The price encompasses land, infrastructure, machinery, equipment, and human resources.

Employee Terms and Future Operations

The employees of PEC will maintain their current contract conditions, including pay, allowances, medical services, air passage allowances, and pension benefits. PAF will also be responsible for securing finances to continue PEC’s current operations.

Background of the Sale

The government’s attempt to privatize PIA in October faced significant hurdles. Five of the six shortlisted bidders withdrew, leaving a single real estate developer offering Rs10 billion against a reserve price of Rs85.03 billion. The deal failed due to the bidders’ demands for the government to write off substantial liabilities, which the finance ministry did not accommodate.

Privatization Minister Abdul Aleem Khan cited the finance ministry’s lack of cooperation and the caretaker government’s faulty transaction structure as key reasons for the failed sale attempt. Despite the challenges, the finance ministry managed to secure a Rs2.5 billion cash deal for PEC, a unit with Rs1.73 billion in negative equity.

PEC’s Financial Overview

PEC’s assets at the end of last year included Rs199 million in property, plant, and equipment, Rs154 million in spare parts, Rs742 million in trade receivables, and Rs93 million in cash deposits. Its liabilities comprised Rs1.1 billion in employee-related obligations and Rs1.8 billion in trade payables.

FAQs

What is PEC?

PEC stands for Precession Engineering Complex, a unit of PIA specializing in manufacturing high-precision parts for the aerospace and other industries.

What is the total value of the PEC sale to PAF?

The total value is Rs6.5 billion, including Rs2.5 billion in cash and Rs4 billion in pension-related liabilities.

How will PAF manage PEC’s existing employees?

PAF will maintain the current contract conditions for PEC’s employees, including pay, allowances, and pension benefits.

Why did the previous attempt to privatize PIA fail?

The previous attempt failed due to the bidders’ demands for the government to write off substantial liabilities, which the finance ministry did not accommodate.

What are the future plans for PEC under PAF?

PAF will establish a special purpose vehicle for the transaction, continue current operations, and secure necessary finances.

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