A closer look at PIA affairs

Poised to recapture the market

By AMANULLAH BASHAR
Sep 04 - 10, 2000

Sher Afgan Malik, the Managing Director of Pakistan International Airlines (PIA) has taken over the reins of the national airline in a situation which poses formidable challenges and piled up backlogs which have to be cleaned by the new broom.

He has accepted this responsibility at a time when these factors have adversely affected the performance of the national carrier in the past years, which continued to cast their shadows. The growth in revenue stood restricted from the full impact of yield dilutions, which took place a year back. The high prices of fuel are also putting acute pressure on the cost structure and therefore a source of considerable concern.

The airline fuel bill in the first half has almost doubled and additional cost absorbed is approximately Rs2.7 billion as compared with the corresponding period of last year, as per the half yearly un-audited financial results ended June 30, 2000. According to these financial results, this enhanced cost due to rise in fuel prices remained un-recovered, which alone is the reason for the loss of Rs1, 172 million being reported for the period. A summarized view of PIA's un-audited financial results for the half year ended June 30, 2000, the Operating Revenue was estimated at Rs18,945 million as compared to Rs17,332 million for the corresponding period last year, Operating Expenditures Rs19,032 million compared to Rs16,587 million previous year and an Operating loss of Rs87 million during the said period. The overall liabilities have jumped to Rs33 billion.

The operating losses have aggravated the liquidity problem but the management has devised a strategy to overcome this. The airline is vigorously pursuing with PIA-IL for return of its US$ 90 million borrowed in 1997. The funds are expected to be available to PIA before December 2000 for which PIA-IL is arranging necessary financing. Besides, restructuring of some of the short-term debt, management is also working on disposal of non- productive assets to generate cash.

Malik said that the grounded aircraft, which are 5 in numbers, would be disposed of while the 11 Fokker would also be replaced with new aircraft. Replying to a question, he said that the new management would prefer to induct brand new aircraft into its fleet instead of going for the second-hand stuff. "I don't like the impression that PIA is an airline of used aircraft."

Brushing aside the allegations that PIA was being asked to suffer a loss of over Rs200 crores in the division of proceeds from the proposed sale of Roosevelt Hotel, the PIA Managing Director remarked that nothing of the sort is going to happen. Rather PIA is going to earn handsomely against the sale of Roosevelt owing to a general improvement of real estate prices in New York. Against the sale proceeds of Roosevelt PIA would not only get back its advances worth US$ 90 million but also be able to get US$ 120 million against that deal. Hopefully, the deal would be finalized early next year. Similarly other two hotels i.e. Hotel Riyadh and Scribe Hotel in Paris would also be disposed of in due course of time, he said.

Sher Afgan was firm in his tone to put the national carrier back on track leading to a sound financial position by June 30, 2001. In a brief interview to PAGE at his office, he outlined his programme about reforming the system in PIA. The focus of all these reforms being introduced in PIA is on improvement of the product. A better service in the real sense has the cutting edge and is the key to solving all problems, he observed. To achieve this target, concerted efforts are being made to improve customer services on board, quality of food has been improved with wider choice of menu, special care is taken for ground handling, extensive training programmes for cabin crew are going on, all aircraft are being fitted with new interior decor and latest technologies are being introduced in all areas. Remedial steps focusing attention on revenue growth and reduction in costs have already been initiated. As a part of the new marketing strategy, operations have been restructured by discontinuing services to unprofitable routes and by deploying extra capacity in some of the key markets to exploit the available growth. The strategy has started showing results as passenger traffic has enhanced since early part of the year and continues to grow at a rate of 10 to 11 per cent compared to last year. The growth has further accelerated from the month of June, despite excess capacity induction by competitors, the airline has not only been able to retrieve its loss of market share but is now poised in making inroads into the competitors' share in some of the key markets. A continued recovery in traffic growth has provided airline an opportunity to review tariff structure also. Consequently, the issue of low yield is now being seriously addressed. Fare increases on international sectors have already been implemented and domestic tariff has also been revised from the middle of August.

Hence, the revenue performance will be recording an improved growth enabling the airline to overcome the operating losses and put it on the profitable path. The airline is also embarking on additional revenue enhancement and cost reduction measures whose results will be visible by December.

SABRE

Sher Afgan Malik was however not happy over what he described uncalled for gossips over PIA-Sabre disputes by the media. It may be mentioned that Sabre was appointed Information Technology consultants to PIA by the then Chairman Shahid Khaqan Abbasi. They left the country without any formal intimation due to change of government in Pakistan. Explaining the actual position, Khalid Butt, Advisor to the Managing Director PIA said that formal talks took place between representatives of PIA and Sabre on August 26 and 27 in Karachi. The talks concerned the disputes between PIA and Sabre. Contrary to various media reports, PIA and Sabre did not meet in London in July.

Representatives of PIA were in London in late July for the purpose of finalizing PIAs Defence and Counter-claim in the International Chamber of Commerce (ICC) Arbitration currently proceeding in London. The PIA representatives included the Managing Director, the purpose of whose visit was also to attend the Farnborough Air Show.

Further, contrary to some recent reports in national newspapers, PIA has not settled the disputes with Sabre. In the event of any settlement, PIA would of course let this fact known in the appropriate and proper manner. Unofficial reports of settlement are therefore no more than rumour based upon misinformation. Likewise, recent extraordinary claims as to the sums which an Arbitral Tribunal might find Sabre owe to PIA are without factual or legal basis, and are a complete nonsense.

The talks which took place on August 26-27, 2000 were conducted in the manner to be expected of two commercial organizations. They were amicable; the representatives of PIA and Sabre discussed their differences at length and sought in good faith, to find a resolution to the disputes. The differences between PIA and Sabre are substantial, and could not be resolved in the present round of discussions. It is however not decided but further talks may take place in future.

Commenting on another related news item, the Managing Director categorically denied any talks with Amadeus for PIA's future IT plans. He said, "Nor PIA has asked and neither Amadeus has sent any proposal, therefore, considering their offer does not arise at all."

It is important that it be understood and known that PIA is embarking upon a serious and urgent process of regeneration. It is imperative that the fortunes of PIA be turned around. To achieve this goal, PIA plans to invest in the Information Technology so that it can keep pace with its competitors in the 21st Century. To this end, PIA is considering a range of different IT solutions from different suppliers around the world.

As Pakistan's national carrier, PIA sees itself as a flagship for the country and the Management of PIA feels committed and determined to put PIA back on the road of recovery.

Sher Afgan Malik, Managing Director PIA

Sher Afgan Malik, has taken over as Managing Director of PIA since 11th May 2000.

A Management Accountant by profession, Mr. Malik has an extensive and diversified work experience in re-organizing and financially turning around large industrial and trading companies. Mr. Malik has worked in Saudi Arabia, USA and UAE, where under his leadership, large sick industrial units employing thousands of employees from various European and Asian nationalities, were revived and put onto a course of profitability through proper planning and organizational changes.

Mr. Malik, has served as Chief Executive of large business groups in Saudi Arabia, and transformed them into prestigious and financially sound entities. He has also been instrumental in spearheading joint venture agreements with giants like Mitsubishi Corp. and Marubeni Corp. of Japan, Ssangyong Group of South Korea, Goodyear Corp. of USA, and other European and regional conglomerates. His innovative ideas, identifying and promoting entrepreneurial initiatives and introducing contemporary management practices, earned him a prominent place among major financial institutions and business community in the region. The national carrier's new Managing Director had also created the best managed heavy transport fleet in the Middle East by inducting appropriate expertise, exercising financial discipline and encouraging a spirit of cohesiveness.

Earlier, as Vice President of a U.S Corporation, Mr. Malik supervised Financing, Accounting, Auditing, Contracting Pricing with clients including U.S. Air Force, Navy, Army, The Royal Saudi Armed Forces, Northrop Corp, Page Communications Inc., among others.

The new Managing Director is keen to instill a new sense of professionalism in PIA, so that it can meet the challenges of the new Millennium in this fast changing industry, where survival of any airline rests with hardwork, adoption of new ideas and technologies and by providing better customer services.