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Pakistan’s largest airline seeks to soothe troubled times

The government is to allow another bailout package worth Rs13 billion to sick national flag carrier, Pakistan International Airlines (PIA). The country’s largest airline is a habitual recipient of bailouts in the form of capital injections from the budget or commercial loans from banks against the government’s sovereign guarantees due to its continuous losses. It has been in continuous default on payments to fuel suppliers, including the state-run Pakistan State Oil (PSO). This year, the government increased its guarantee limit for PIA by Rs10.5 billion to Rs161.5 billion to address the airline’s immediate challenges.

The national airline had been operating with a liquidity crisis for several years. The PIA’s revenue could not pick up due to a surplus capacity and low yields. Pakistan International Airlines Corporation (PIA), the national flag carrier of Pakistan, registered a net loss of $433 million for 2016, a rise of 36 percent over the loss of $310 million incurred in the previous year. The national carrier accumulated losses continued to soar mainly due to non-stop flights on several loss-making routes. PIA continued to fly on several loss-making routes to Europe and the US. The airline also released financial figures for January-March. It posted a net loss of Rs11 billion in the three-month period, up 91 percent from Rs6 billion in the similar quarter of the earlier year. The national carrier has also lost much business on domestic routes to international airlines under the open skies policy of the government. The government has allowed Gulf airlines, particularly UAE carriers, to operate to and from multiple airports in Pakistan, which is driving up PIA losses. The national carrier carried its last flight in New York ending some 56 years old flight operations to the United States.

PIA is facing financial losses worth billions of rupees while flying on the route, being operated for New York via Manchester. The airline has continued to shock the senate also. A monthly loss of Rs5.6 billion is being added to the already outstanding liabilities of over Rs300 billion. This was explained to a Senate committee by the PIA management.

It is true that the airline has generated more revenue this year compared to the previous one, surely pointing the blame for Rs5.6 billion monthly worth of losses on the ‘open skies’ policy of Pakistan is not enough. International airlines such as Emirates, Etihad and Qatar Airways get more customers from the country because they have more to offer, both in terms of service and quality of the product being meted out. As of August 2017 there are 33 operational aircraft and eight on order. Definitive figures are hard to find; but in March 2017 the airline probably had 14,771 people permanently employed with a further 4,500-5,000 temporary contract workers. There are already liabilities of Rs300 billion and the new money will be swallowed servicing the circular debts of the airline. It has been in continuous default to the likes of Pakistan State Oil. This is another state entity and supplier of jet fuel for years.

PIA cannot continue to receive taxpayer money to help run their payrolls and service their debts. Successive governments have failed to find a way forward. The half-heated handling of the privatization effort failed completely at the first step when the government tried to convert it into a corporation, inciting protests from the unions that led to damaging clashes in the end, and the stoppage of the effort altogether. The repeated changes of management have not shown any positive results in the working of PIA. The political elements must stop its interference in its functioning. The open skies policy needs to be freshly worked out for the satisfaction of PIA. Due to its operational structure and small fleet, PIA is not able to compete with single hub airlines. PIA is flying point to point but its competitors can fly point to hub to destination.

Gulf’s mega carriers board passengers for 50 destinations and bring them to their hub and place them in different flights. The decision has rightly been condemned by opposition parties. The US has several big cities that attract significant air traffic from Pakistan which has over the years shifted to airlines operated by several Gulf States.

There is no denying that the PIA has been in deep financial troubles for some time. The negligence of the airline by successive governments followed by leading airlines across the globe among the major factors responsible for this state of affairs. Just last year, the airline staff had resisted efforts to privatize the airline. The staff asked the administration to work with it to overhaul the airline but it seems that no progress has since been made to start the process. All it needs is a plan to keep the organization financially viable and a will to execute the plan in collaboration with the airline staff that remains a crucial stakeholder in its operations. Poor management is the problem spreading most of our public-sector enterprises. Privatization is not necessarily a solution to that problem. Private sector can also suffer from poor management practices.

THE PRESENT STATUS

The downfall of the Pakistan International Airlines (PIA) was noticed when it flew its last flight to New York when it reportedly left behind two coffins it was supposed to bring back to Pakistan. This reminds us of the airline that was once one of the world’s leading carriers. PIA in the good old days had the potential to be what Emirates and Etihad Airlines have become now. For the last 30 years, there has been planned disinvestment in the airline with a view to privatization, which has left it facing growing losses. PIA suffered Rs45 billion in losses in the last year alone. These are up 36 percent from the 2015-16 financial years.

With such a bleak picture the chances of PIA finding a private investor are not realistic. The constant bailout packages, does little to resolve the structural problems that exist within the airline.

The bailout focus seems to be on paying off the interest on maturing loans and liabilities without getting rid of the larger liabilities. This is okay as a short-term strategy, but there is a need for a workable business plan to improve its performance.

The rate at which losses are increasing in PIA makes no sense. The fact is that serious commitment is needed to bring PIA back from the brink, and commitment is precisely where we have failed over the past 30 years.

Pakistan International Airlines (PIA) said it aims to lease up to eight new aircraft in a move to upgrade its ageing fleet as the government seeks to turn around the loss-making flag carrier.

A company spokesman said PIA had placed advertisements in domestic newspapers seeking to secure both short and long-term leases for wide-body aircraft.

The former prime minister Nawaz Sharif had made the privatization of Pakistan International Airlines (PIA) a top goal when he came to power in 2013. However, those plans were abandoned earlier this year after crippling strikes by staff protesting against privatization, and a new turnaround strategy drawn up.

The government now plans to convert PIA into a limited company and list a 49 percent stake on the local stock exchange, meaning it will retain control of the business for at least two years.

The Federal cabinet trashed a ‘turnaround plan’ for Pakistan International Airlines Corporation (PI­AC).

A recent cabinet meeting chaired by Prime Minister Shahid Khaqan Abbasi held a detailed discussion on how the national flag carrier can stand on its own feet. A comprehensive turnaround plan for the national flag carrier, came up in the meeting with a 40-page plan that took three months for completion.

The Prime Minister and his cabinet rejected the plan and gave a tough time to the PIAC team by raising objections on the plan. The Prime Minister refused to grant any financial package to the PIAC in future unless its management comes up with a clear and effective plan. The meeting decided to form a special committee to fine-tune the turnaround plan prepared by the PIAC management.

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