HUGE POTENTIAL POOR PERFORMANCE

SHAMSUL GHANI
(feedback@pgeconomist.com)
June 21 - 27, 20
10

A 2007 study by Hafeezud Den of PAF KIET and Saleem Arshad summed up the future of Pakistan's Aviation Industry in the following words:

"It must also be stated that Pakistan's National Aviation Policy has been reviewed and revised several times in bits and pieces, mostly by unprofessional bureaucrats and people with vested agendas. It is now a moth-eaten document, which is perceived as protective and somewhat tilted towards the national carrier. Nevertheless, neither the national carrier nor the airlines in the private sector of Pakistan find the current aviation policy acceptable.....Those who have played their cards right are reaping the fruits of their forward-looking policies. The pace of growth in the region is now so rapid that within the next five years it would become next to impossible to catch up with the market leaders simply because of high investment costs, and lack of professional human resources."

PIA, the only flag carrier, first demonstrated huge innovational and operational excellence and then crashed down to the earth with gravest kind of financial mismanagement.

The Rs161 billion airliner has posted huge operational losses-the losses for the year 2008 alone being Rs36 billion plus-placing itself at the mercy of state financial bailouts on a regular basis.

We could neither benefit from the open skies policy when the foreign airlines gave us tough time nor from the policy of opening up the industry to domestic competition when a number of investors with the earthily motive of making quick gains entered the market with minimal investment in the shape of worn-out technology and junk-fleet. The government overt and covert supports to the national carrier also contributed to the quick exit of the new investors: Aero Asia, Bhoja, Hajvairy being some of them which suffered huge losses in the process.

Aviation industry has crucial linkages with the economic development of a country. The bustling-with-life national and international airports reflect the economic march of a nation. Like other industries, aviation too needs a strong infrastructure and a sustained flow of investment. Open market economy demands efficient domestic resource management to ensure survival of domestic industry in the face of open competition. Unfortunately, we put too much reliance on national transport industry by unnecessarily pampering them. The result is the (now) unmanageable monsters of Pakistan Railway and PIAC.

With the technical and managerial acumen demonstrated in the eras of Air Marshals Nur Khan and Asghar Khan, PIA rose to the heights of professional excellence. After them, the carrier started setting for a nosedive. In the absence of a zero competition and a visionary leadership, the vested interests set their eyes on this prime national asset by hugely overstaffing it through political appointments. Since political parties in Pakistan are generally short on talent, their appointees for top slots failed to deliver and put the PIA in all sorts of messes.

For an aviation industry to succeed, the downstream industries, hotels, tourism etc. also need to be developed. In the war-on-terrorism scenario, these industries, tourism in particular, have been greatly affected. The highly restricted flow of international tourist traffic has dealt a severe below to the aviation and tourism industry. The tourist spots and the related infrastructure in the war zones stand completely destroyed. The persistent high inflation and the resultant cut in disposable incomes coupled with the ever-rising air fares have also hit the industry as people are forced to cut back on their domestic air travels by opting for some cheaper mode of transport.

AIR TRAFFIC (CIVIL AVIATION AUTHORITY)

DESCRIPTION 2004 2005 2006 2007 2008
Route/(over-flying) 90031 105279 118797 134431 161222
% change 27 17 13 13 12
Domestic landing 44431 47644 47246 43256 43044
% change 11 7 (1) (8) (0)
International landing 19608 21926 24482 24901 24856
% change 15 12 12 2 (0)
Total 154070 174848 190524 202587 219121
% change 20 13 9 6 8

The rate of movement of domestic as well as international flights is one of the important measures that determine the state of an aviation industry. Judging on this point, it will be observed that Pakistan's aviation industry has taken a downturn. Global recession may be one of the reasons, but security conditions and lack of professional management are significant contributors to the falling growth after 2004.

Civil Aviation Authority, a government organization responsible for developing aviation infrastructure and providing operational support to the industry airlines, is a financially solvent entity having persistently reported operational profits. It earned net profits of Rs2.4 billion in 2005, Rs4.9 billion in 2006, Rs6.3 billion in 2007, and Rs7.1 billion in 2008. CAA has been active in undertaking new and up-gradation airport projects on an ongoing basis. Its recent undertakings include a self-financed Rs37 billion project of New Benazir Bhutto International Airport at Islamabad, and Rs7.5 billion PSDP project with the name New Gwadar International Airport. Up-gradation of Multan International Airport and expansion of Peshawar International Airport are also their recent commitments.

With the opening up of newer trade possibilities in Afghan and Central Asian markets, the role of CAA becomes still more important as additional infrastructure and aviation support facilities will have to be developed to keep pace with the changing times. Private investment needs to be attracted through genuine concessions and incentives. Government will also have to take swift decision either to professionally overhaul the loss-making PIA into a real national asset or to arrange for its sell-off. Aviation is the backbone of services sector and thus the economy. Like so many other industries, it has great potential but its performance continues to belie this claim.