Practice areas: Mergers & Acquisitions · Capital Markets · Banking & Finance · Dispute Resolution
Key takeaways
The sale of a majority stake in Pakistan International Airlines is the country's first major privatisation of a state-owned enterprise in close to two decades, and it offers a working template for how such transactions can be structured.
The deal's central design feature was a carve-out: legacy debt and non-core liabilities were separated into a holding company and largely retained by the state, allowing the buyer to acquire a comparatively clean airline.
Much of the transaction's complexity lay not in price but in conditions precedent — lessor consents, international and domestic regulatory approvals, and even a change in the law governing the airline.
For investors and policymakers alike, the transaction is a case study in why privatisations in Pakistan are as much legislative and regulatory exercises as they are commercial ones.
After years of false starts, the Government of Pakistan completed the sale of a majority stake in Pakistan International Airlines, with an Arif Habib Corporation–led consortium emerging from a live-televised auction in December 2025 as the successful bidder for a seventy-five per cent holding, and transaction documents signed in January 2026. Whatever one's view of privatisation as policy — and reasonable people in Pakistan hold strong and opposing views — the PIA transaction is significant for a different reason. It is the most instructive recent example we have of how a large, distressed state-owned enterprise can actually be sold, and the legal architecture it relied upon repays close study.
I write here not to argue for or against the privatisation, which is a political question for others, but to read the deal as a transaction lawyer reads a deal: by asking how it was put together and what it teaches.
The carve-out: the single most important structural choice
The defining feature of the PIA transaction was the decision to separate the airline that was being sold from the liabilities that had accumulated against it. A holding company was established to take over non-core assets and a substantial portion of the airline's legacy liabilities, leaving the operating carrier in a far cleaner financial state than its history would suggest. In effect, the state retained the burden of the past so that a buyer could acquire the business of the future.
This "good company, bad company" approach is a familiar tool in distressed-asset and restructuring transactions, and the PIA deal is a textbook illustration of why it is used. A buyer will rarely pay fair value for a business shackled to liabilities it cannot quantify; isolating those liabilities is often the only way to make a sale possible at all. The trade-off is equally visible here: the carved-out liabilities did not disappear, they remained with the state and continued to require funding. Any government contemplating this structure must understand that it is choosing where the legacy burden sits, not eliminating it.
Conditions precedent were the real work
To a casual observer, a privatisation is settled when the winning bid is announced. To anyone who has worked on one, that is the moment the difficult part begins. The PIA transaction was governed by a Share Purchase and Subscription Agreement and a Shareholders' Agreement, and completion depended on satisfying a long list of conditions precedent — by official accounts, more than forty distinct conditions and pre-completion obligations.
These were not formalities. Because a modern airline operates a fleet that is substantially leased, the consent of aircraft lessors was required. Because the carrier holds operating rights in many foreign jurisdictions, those rights had to be transferred to the privatised entity through a series of international regulatory processes. Domestic regulatory approvals were needed, and the operating company was required to maintain positive net equity as a condition of completion. The lesson for any investor evaluating a Pakistani state asset is plain: the price is the easy part, and the conditions precedent are where transactions are delayed, renegotiated, or lost.
Privatisation as a legislative exercise
Perhaps the most striking feature of the PIA transaction, from a legal standpoint, is that it could not be completed by contract alone. Among the conditions to closing was a change in the law itself — the repeal of the statute that had established government control over the airline, alongside the airline's conversion into a public limited company subject to the ordinary regulation of the Securities and Exchange Commission of Pakistan. A sale agreement, however carefully drafted, cannot override a statute; where a state enterprise is governed by its own dedicated legislation, that legislation must be addressed before control can pass.
This is a point too often underestimated. In Pakistan, privatising a major public entity is frequently as much a parliamentary and regulatory undertaking as a commercial one, and the timetable of a transaction can be hostage to the legislative calendar. Investors and advisers who treat the legal framework as background rather than as a critical path do so at their peril.
The contested edges: incentives and equal treatment
No transaction of this scale is without controversy, and the PIA deal illustrates the kinds of tension that privatisations generate. To facilitate the sale, a long-term tax exemption relating to aircraft and associated equipment was extended to the privatised carrier and given statutory cover. That concession drew objection from other operators and from parliamentarians, who questioned why a single airline should receive treatment unavailable to its competitors. There is a genuine policy debate here — between the incentives sometimes needed to make a difficult sale achievable and the principle that the law should treat market participants even-handedly — and it is one that future privatisations will have to confront rather than avoid.
Why this matters beyond aviation
The Government has signalled that PIA is the first of a pipeline of intended divestments, including airport assets. That makes the transaction a test case in the fullest sense. If the structure used here — a clean carve-out, a disciplined set of conditions precedent, the necessary legislative changes, and a design intended to recapitalise the business rather than merely transfer it — proves durable, it will become the template for what follows. For businesses, investors and advisers operating in Pakistan, understanding how this deal was assembled is the best available preparation for the transactions still to come.
This article is general commentary on a matter of public interest and does not constitute legal, financial or investment advice. It reflects the position as publicly reported at the time of writing; the transaction has been subject to change and ongoing developments. Please seek tailored advice before acting on any of the matters discussed. For a consultation, contact Muzy & Meraris LLP.
