Pakistan International Airlines Corp., on course for a fourth straight annual loss, plans to raise 30 billion rupees ($379 million) by pledging two hotels as it struggles to raise funds amid the credit crunch.
“We are an organization no one wants to invest in,” Managing Director Mohammad Aijaz Haroon said in an interview in his Karachi, Pakistan office yesterday. The airline’s Roosevelt Hotel in New York and Hotel Scribe in Paris will be put into a new business, which state-owned companies will be invited to invest in, he added.
The nation’s largest airline also plans to cut 5,000 jobs, or 28 percent of its workforce, by shifting workers to outsourcing companies after failing to get a cash injection from Pakistan’s cash-strapped government. The carrier, which is 88 percent state-owned, is also battling higher fuel costs and a travel slowdown caused by the global recession.
“There are no prospects for this airline,” said Habib-ur- Rahman, who manages 4.5 billion rupees in stocks and bonds as chief executive of Karachi-based Atlas Asset Management Ltd. “It’s a drain on the national exchequer and the government should examine its viability and wind it up.”
PIA, as the carrier is also known, posted a loss of 38.4 billion rupees in the first nine months compared with 10.9 billion rupees a year earlier.
The carrier expects to get government approval for the hotel plan next week, Haroon said. Investors will receive a guaranteed rate of return from the hotels, which are worth more than 60 billion rupees, and the carrier would pledge to buy them back in about five years, he added.
Wall Street, Malcolm X
“One way out of our problems is to go to the market and sell our assets,” Haroon said. “But that’s not a smart decision because there’s no money in the market.”
The 45th street, Madison Avenue, Roosevelt Hotel has been featured in several movies, including “Wall Street,” “Malcolm X,” and “Maid in Manhattan,” according to its Web site.
The money raised will be used to partly pay off the airline’s short-term debts amounting to 55 billion rupees, said Haroon. The 53-year-old took charge of the company in May after three decades at the carrier as a flight captain.
Pakistan International’s shares, which have dropped 33 percent this year, were untraded at 4.20 rupees on the Karachi Stock Exchange yesterday.
The airline will shift employees to outsourcing companies to manage operations such as catering and ground services, Haroon said. The airline has 18,000 employees now.
“There will be some resistance to this plan, but we will have to explain the benefits to employees.”
The carrier this year hedged fuel for the first time and plans to hedge as much as 30 percent of its fuel needs.
Pakistan International plans to expand its fleet to 59 aircraft by the end of 2010 from 40, Haroon said. The airline would begin flights to Barcelona and Dublin next year.