PIA NEEDS ATTENTION NOT PRIVATIZATION

SHAMIM AHMED RIZVI
Apr 20 - 26, 2009

The National Airline-PIA-has landed itself in to a big financial crisis. Accumulated financial losses of Pakistan International Airlines have reached to a whopping amount of Rs72billion due to its poor performance during the last few years. Talking informally to the newsmen at a public function in Islamabad last week, Shaukat Tarin adviser to the Prime Minister on Finance revealed that the Government was considering the privatization of PIA in view of its continued losses. However, a final decision in this regards would be taken after the close of current financial year, he added.

President Asif Ali Zardari, who presided over a meeting to discuss PIA affairs in Islamabad about two months back, however, did not make any such indication. On the other hand he advised the government to consider making strategic investment to help extricate PIA out of its financial woes. This he said after receiving a briefing on PIA affairs inside President House where PM was also present.

The meeting was attended by Ahmed Mukhtar, Minister for Defense, Aseff Ahmed Ali, Deputy Chairman, Planning Commission, and Captain Muhammad Ijaz Haroon, Managing Director, PIA, and officials of relevant ministries. The President said that the government could consider hiring the services of consultants to suggest workable plans for strategic investment in PIA through public-private partnership. He said that fund-raising efforts for PIA required innovative and non-traditional solutions as the problem was too big for normal bureaucratic procedures and periodic dole-outs.

The President advised the government to also consider developing the Roosevelt Hotel property in New York owned by the PIA as a source of permanent income without actually selling the property, and with retaining PIA's ownership of it. He said that the government may revisit the earlier decision to place Roosevelt Hotel under the Privatization Commission so as to examine the possibility of developing the property for regular income. The President said that PIA could be salvaged through out-of-box solution, and advised the government to have separate smaller meetings of experts on evolving a workable business plan.

While giving briefs, PIA Managing Director Captain Muhammad Ijaz Haroon said PIA has 40 airplanes in its fleet, operating on 23 domestic and 35 international destinations, and employing over 17,000 employees. He said the average age of an aircraft is 13 years, but more than half of PIA fleet is over 23 years old. The PIA MD said that the airline industry worldwide had suffered huge setbacks due to volatility in fuel prices. The projected profit of $9.6 billion of the industry in June 2007 turned into loss of over $6 billion by June 2008, he said.

The meeting was informed that although fuel prices had come down, PIA faced a difficult situation due to many other challenges. Poor governance in the past ignoring best industry practices, aging aircraft, capacity glut, rupee depreciation, and geopolitical situation were factors that posed challenges to the airline. He said that the airline had focused to improve the equation between revenues and costs during 2009. He said that marketing had been geared to maximize revenue and thereby restore profitability. The overall seat factor was also planned to be higher this year than in 2008. The meeting was informed that a 14 percent increase in capacity had been planned, which would also improve revenue growth considerably.

About improvement in services, the MD told the meeting that the facility of online booking has been extended to more destinations and the list would be expanded further. The reservation system has also been streamlined, besides introducing courtesy and customer care training for the frontline staff, he added. The meeting was told that PIA was finally set to make profit in 2009 after four years of substantial losses which had marred airline growth. Sinking fuel prices had emboldened the management to hope for some profit during the current year.

PAC TAKES SERIOUS NOTICE OF FINANCIAL IRREGULARITIES

Meanwhile, the Public Accounts Committee (PAC) of the National Assembly in its meeting last month took serious notice of financial irregularities of over Rs13 billion in PIA during a period of only one year. The meeting which was held under the Chairmanship of Chuadhry Nisar Ali Khan directed the administration of national airlines to improve its financial affairs.

Managing Director PIA told the committee that during last one year, the profit of the corporation has been reduced to 64%. But expenditures kept on rise. He said surge in the prices of oil in the international market was the main reason of increase in the expenditure and during last year the annual revenue touched the record figure of Rs55 billion. PAC Chairman said India made 70% reduction in the fares of airlines due to low oil prices in the international market, but fares were not reduced in Pakistan. Ijaz Haroon argued that PIA did not increase the fares despite high oil prices form 2004 to 2007 and faced Rs6.3 billion losses, adding that there is no suggestion under consideration regarding reduction of airlines fares. Secretary Defense informed the committee that after 9/11, ban was imposed on PIA flights over refusal of demand of the United States and European countries regarding provision of details of Pakistani passengers.

Later talking to newsmen, Ijaz Haroon claimed that the financial position of the national airline has improved during recent months and the management is expecting after tax profit of Rs600million during the current year. "PIA could have posted profit in the last quarter (October-December) of 2008 had it not been for the pension issues settled out of airline's accounts," he said. We cannot do much about carryover losses but we will reverse the trend this year."

Despite a decent growth in revenues, financial losses climbed to a record high of Rs38bn between January-September 2008 as surge in fuel cost took its toll. Full-year results are still awaited. Haroon stressed government's support will be imperative for the national airline's comeback. We need to stop the Gulf carriers from taking away our market." The incumbent MD, who is also a pilot of Boeing-777, has been vocal about the onslaught of Gulf carriers on the Pakistani market.

He has even proposed some bold steps to discourage Pakistani transit passengers from using those airlines. "Aviation authorities should at least stop giving them more capacity," he said, adding that the national airline needs some protection similar to the anti-dumping duty imposed on goods which harm the nation's industry. But besides this and high expenditure related problems, PIA has seen severe management crisis in the last few years as managing directors succumbed to political interference and employees' revolt one after another.

Corruption and dilapidated condition of most of PIA's 42 fuel-guzzling aircrafts have made any recovery all the more challenging. Haroon, who was appointed by the Pakistan People's Party (PPP) government last year, has played a key role in soothing the grievances of employees who were not happy with contractual status of their jobs and pay scale. Around 4,000 contractual workers have been regularized since his takeover. "Issues pertaining to basic pension of the employees had been resolved," he said. "Now minimum pension will be Rs2,000 and widows of our employees could avail it all their lives." While he has already indicated that PIA will be inducting 10 new aircraft into its fleet by 2010, the present management's failure to profitably manage the routes has time and again surfaced.

"This year we will target high-yielding routes and cut down unprofitable ones," Haroon informed about his recovery plan. "Bigger aircrafts will be used for destinations in Middle East region while new destinations like Barcelona will be added to the network." PIA's overall revenue increased by Rs 18.7 billion (26.6%) to Rs 89.2 billion due to what was described as an increase in passenger revenue by Rs 17.8 billion, Rs 0.6 billion in cargo revenue, and Rs 0.22 billion in Engineering revenue. Passenger revenue increased by Rs 17.8 billion (28.7%) to Rs 79.8 billion, due to higher passenger yields on scheduled services on overall basis by 28.9%.

The Board was apprised of PIA's financial and operational performance during the year 2008 and told that despite rising inflation rate throughout the year, the Corporation achieved success in its cost cutting measures and as a result the management was able to contain the increase in non-fuel expenses, excluding depreciation. PIA enhanced its product between New York to Pakistan by introducing non-stop flights with efficient, long range aircraft 777 which considerably reduced the travel time for incoming passengers and as a cumulative result of endeavors. PIA's traffic performance in the last quarter of 2008 remained quite promising. The outgoing year was termed exceptionally difficult as PIA was affected by extraordinary increase in fuel cost. The weaker Pakistani rupee also severely affected the airlines financial position and PIA had to book huge loss.