PIA shows Rs26bn profit, but actually in loss

July 14, 2025 (MLN): Pakistan International Airlines (PIA) recorded a net loss of Rs4.6 billion last year, despite reporting an accounting profit of Rs26bn.

According to the biannual report on federal state-owned enterprises (SOEs), this accounting gain resulted from treating past losses as future taxable income and "should not be misinterpreted as a sign of operational profitability."

The report, released by the Central Monitoring Unit (CMU), provided an in-depth review of PIACL's accounts after restructuring, which involved removing Rs660 billion worth of debt from its books.

The restructuring of Pakistan International Airlines Corporation Limited (PIACL) marks a turning point in the airline’s decades-long struggle with debt and inefficiency.

Through the successful implementation of the Scheme of Arrangement (SOA), the airline has shed legacy debts and non-core assets, emerging as a streamlined, aviation-focused entity.

A new holding company, PIAHCL, was created to absorb approximately Rs660bn in legacy liabilities and real estate assets, substantially cleaning up PIACL’s balance sheet.

With this separation, PIACL now operates solely as an airline, while PIAHCL assumes responsibility for historical obligations via budgetary support and asset monetisation.

This structure enhances financial transparency and paves the way for potential privatisation or strategic partnerships.

Post-restructuring, PIACL’s total assets stand at Rs187bn. Current liabilities fell from Rs482bn to Rs142bn, and non-current liabilities from Rs366bn to Rs41bn.

Long-term financing liabilities, including leases, declined from over Rs295bn to Rs13bn, reducing finance costs sharply from Rs79bn to Rs10bn.

These carve-outs have significantly improved solvency and liquidity.

The airline recorded Rs204bn in revenue for the year, with core income at Rs5.2bn and an operating profit margin of 2.25%.

Gross profit increased from Rs19bn to Rs22bn.

Despite this, the net loss stood at Rs4.5bn.

A deferred tax asset (DTA) of around Rs30bn was recognised, resulting in a reported accounting profit of Rs26bn.

However, the CMU clarified this DTA is a non-cash adjustment based on expectations of future taxable profits and should not be mistaken for real operational performance.

CMU Director General Majid Soofi reiterated that the DTA should not be considered part of core profitability, noting the adjustment impacts the effective tax rate and overall earnings quality.

Operational costs remain high, with aircraft fuel expenses at Rs75.58bn and total operational costs reaching Rs106.6bn.

Administrative and distribution expenses are also elevated at Rs8.29bn and Rs8.33bn, respectively.

The CMU recommended fleet modernisation, fuel hedging, and renegotiation of supply agreements to mitigate cost pressures.

Exchange losses of Rs2.34bn highlighted exposure to unhedged foreign currency risk.

Deferred tax liabilities have decreased from Rs59bn to Rs27.37bn, improving financial clarity and tax planning capacity.

However, overall reserves remain negative at Rs73bn, reflecting accumulated historical losses.

The airline retains a robust operational footprint across domestic and international markets, generating revenue from passenger, cargo, and postal services.

Nonetheless, profitability depends on cutting unviable routes, enhancing load factors, and targeting high-yield markets.

Fleet renewal with fuel-efficient aircraft and lease optimisation are also critical to lowering cost per seat and increasing flexibility.

Following its delisting from the Pakistan Stock Exchange and full government ownership under PIAHCL, PIACL is no longer exposed to short-term market pressures.

The Ministry emphasized the need for performance-based HR reforms, international benchmarks, and merit-driven promotions to address persistent inefficiencies like overstaffing.

The report cautioned that PIA and PTCL pose major risks due to debt burdens and operational shortcomings, stressing urgent restructuring and potential strategic partnerships.

It noted that PIA falls below 60% compliance with the SOEs Act and remains vulnerable to external interference.

The CMU called for realignment of SOEs with national economic objectives, implementation of long-term business plans, and institutionalisation of stakeholder-aligned targets particularly for high-loss entities like PIA.

With financial restructuring complete, PIACL must now focus on operational transformation through digital platforms, CRM systems, dynamic pricing, and ancillary revenue development.

The management must now deliver a sustainable turnaround, positioning the airline to reclaim its place as a symbol of national pride.

Copyright Mettis Link News