Spectators watched as the televised auction of the flag carrier, Pakistan International Airlines (PIA), failed horribly. The government seemed interested in selling PIA for the right price but did not approve the sale when the sole bid was off by 88.2 per cent of the original value.

The reason for only one bid is the government’s condition for the purchasing entity to inject over half a billion dollars into PIA to modernise the fleet. Five business owners out of the six companies selected for the auction process decided to opt out due to this additional investment that they would have to finance after the purchase of PIA itself.

The government was expecting to receive a total of $305 million but managed to get only a reality check. In hindsight, the goal of privatising the national carrier to companies via auction was a bad idea.

If lawmakers in Islamabad aim to make the sale, it will have to explore other avenues.

The auction process could be expanded to include more local businesses and international players, too. As it stands, this seems viable as Saudi Arabia, UAE, and Qatar have all expressed great interest in purchasing PIA in the recent past.

Additionally, these investors in the Gulf also have the financial capability to undertake the massive $700 million fleet modernisation plan once they acquire PIA. This would be a good way for Pakistan to secure FDI (Foreign direct investment) inflows of over one billion dollars.

Alternatively, the government could opt for a simple solution. This could be issuing more shares to be traded on the PSX (Pakistan Stock Exchange). However, this will spell bad news for investors who already have their money parked in the publicly traded PIA holding company. This is because the value of their shares will be reduced due to the dilution of ownership that will occur post-share issuance.

In simple words, the creation of new shares will cause investors to lose out due to more overall shares being traded on the PSX. This is especially true if we consider the fact that Islamabad is currently interested in selling around 60 per cent of PIA.

In this approach, shareholders, in collaboration with the government, could use the funds raised by the sale of shares to modernise the fleet without extensive international investments.

However, as it stands, PIA is a loss-making institution.

With last year’s loss of 75 billion rupees, PIA’s liabilities grew to a staggering 825 billion rupees. If the government retains a majority of the share while raising capital by issuing shares, investors could actually lose out instead. This is because civil servants can simply not run a company with the same efficiency businessmen can.

If investors believe that the government will not commit to running PIA as a profit-maximising business rather than the national carrier, they may not put their money into it to begin with.

The question remains: Which entity will purchase PIA from the government? The answer, while currently uncertain, will be sought by suits in Islamabad’s boardrooms.