PAK AVIATION - HORIZON NEEDS TO BE BROADENED
Mar 7 - 13, 2011
The logistics and infrastructure in an economy determine the pace of economic development. Pakistan, enjoying a strategically important geographic location, can not afford to be oblivious of this critical reality. Just take a glance at the map and you find your country surrounded by such important world economies as Iran, Russia, China, India and Afghanistan, with the Arabian Sea sitting in the south holding unlimited economic possibilities, and the stretch of water known as Persian Gulf affording access to the oil-rich Gulf states. The 880 km coastline stares in our faces with the question: how long it is going to take us to become a maritime nation.
In this scenario of huge opportunities, the state of our logistics and infrastructure is simply dismal, to make an understatement. The concept of a global village warrants highly efficient land, sea, and air communication systems.
On landside, we have a road network ñ comprising both high type and low type ñ with a cumulative length of 0.26 million kilometers translating into a road density (road network length divided by country area) of 0.32. This factor in case of Japan, France, UK, India, and USA is 3.07, 1.62, 1.62, 1.00, and 0.62, respectively. Unfortunately, we have not seen any significant increase in total road length during the last three years. Pakistan Railway's inefficient operations have given boost to the private coach and truck transport systems that have taken away a major chunk of railway passenger and inland cargo business. The inland passenger and cargo transport systems are operated in informal sectors but are certainly more efficient than the state-run railways.
On seaside, cargo-handling activities at Karachi Port and Port Qasim, where more than 90 percent of country's cargo handling business is carried out, have started to pick up during the current financial year. The most strategic seaport at Gwadar awaits full capacity utilization which is dependent on completion of certain supporting infrastructure projects and a consensus among global vested interests. The national shipping monopoly, PNSC has a checkered history of shipping and financial performance. The unstable pattern of its operational revenues betrays the lack of modernization and timely replacement of ageing fleet. To sum up, the overall seaborne logistics are quite inadequate in relation to country's position of regional gateway to global trade and commerce.
On airside, the national airliner PIAC has dominated the horizon. A number of private operators ventured into the airline business, but subsequently had to quit due partly to the competition pressure from PIA and partly to inefficient management and disregard of international aviation standards. Aero Asia, Hajvairy, and Bhoja are the few names that called it a day. Air blue and Shaheen Air are still providing competition to the national flag airliner. The industry, highly capital intensive, demands exquisite management skills and frequent injection of investment funds to keep pace with the changing trends in airline technology and customer demand for enhanced comfort. PIA's journey of excellence to mediocrity is an example of systematic destruction through corrupt political influence. The Nur Khan era is often described as 'golden years' of PIA. The 1965 Indo-Pak war brought the best out of the national airliner, which provided crucial logistical support during the war effort. PIA replicated its performance during the 1971 war, but the country having ended up on the losing side, PIA went through operational and financial hemorrhage. That was a turning point in the history of PIA.
The national airliner used to thrive on its competent engineers, immaculate flight crews, skilled technicians, and white-collar hardworking employees who rightly took pride in being the part of a fast growing national organization. The subsequent years, however, saw a steady decline in the performance standards of PIA. There were a number of factors responsible for this slide. PIA known for offering prestigious employment opportunities to the right type of persons, caught the eye of politicians and parochial forces who burdened it with low quality, merit-less appointments on political and parochial basis. The quota system, as it proved harmful to the entire country, also plagued PIA. Overstaffing, inefficiency, corruption, and unprofessional decision making at the top hamstrung PIA. The army and the politicians kept vying for the PIA top slots during their respective rules. The entry of sincere administrators like Nur Khan and Asghar Khan was blocked. Independent professional decision-making was compromised to give way to the whims and fancies of the non-professionals. The trend of placing non-professionals at the top continues till date.
Under the changed circumstances, PIA became a huge burden on public exchequer. Intermittently, with the help of government injection of funds, it showed signs of recovery but under the prevalent culture that was never intended to be changed, it chalked its way back to the crisis it had temporarily managed to surmount. It is really hard to imagine a near-monopoly, with overt and covert government support, failing to dominate the market and operate profitably. In 2008, it recorded a pre-tax loss of Rs39.9 billion and blamed it on the unusually high costs of fuel. The argument, on the face of it, would appear plausible, but one would like to know if the PIA think tanks made timely use of the available market tools like forward trading, options etc. to minimize on the fuel-based losses. Airline business today calls for dynamic decision making by those having in-depth knowledge of the modern day financial engineering.
FINANCIAL INDICATORS OF PIAC (IN MILLION RS)
FINANCIAL INDICATORS (BALANCE SHEET) JUNE 2010 DECEMBER 2009 Total Assets 158,139 160,013 Current Assets 17,103 16,881 Current Liabilities 72,935 68,818 Non-Current Liabilities 111,709 111,968 Share Capital 23,280 23,280 Accumulated Profit / (Loss) (79,031) (72,335) Financial Indicators (Profit / Loss Account) June 2010 June 2009 Revenue (Net) 49,306 41,921 Cost of Services 43,051 33,959 Administrative & Other Expenses 8,006 9,016 Financial Costs 4,651 4,784 After tax Profit / (Loss) (6,901) (5,395)
The formidable trio of PIA, Pakistan Railways and Pakistan Steel is a huge drag on Pakistan's economy. Market based competition and not government pampering is what the doctor orders for the cure of public sector enterprises. Airline business horizon needs to be broadened with more private sector airlines coming with sufficient investment funds and a will to make their business a financial and economic success.