PIA ON ROAD TO PROFITABILITY

GAINS OWNERSHIP OF SIX LEASED A310 AIRCRAFTS

AMANULLAH BASHAR
(feedback@pgeconomist.com)

Feb 20 - 26, 20
12

Disciplined financial management helped Pakistan International Airlines (PIA) to come on road to profitability by bringing six A310 leased aircrafts into the airline's ownership, which would be saving it a rental payment of two million dollars every month.

In this respect, PIA and Airbus signed an agreement at a simple ceremony last week for transfer of the ownership of six A310 aircrafts acquired by the airline on lease in year 2004.

The transfer of the title of ownership of six aircrafts to the national flag carrier is a step forward for implementation of its business plan emphasizing induction of at least 24 new aircrafts to take the size of the fleet to 67 by 2020.

Under the 2020 vision, PIA has chalked out an ambitious expansion plan for its fleet and flight destinations to regain the glory that claims great people to fly with.

Brushing aside the rumors that PIA would be hiring new pilots and engineers after induction of new technology aircrafts in its fleet, Nadeem Khan Yousufzai, Managing Director PIA assured the operational staff that every possible step would be taken for the training of the existing staff for operational handling of both narrow and wide bodied aircrafts which are in the pipeline.

The agreement was signed by the Managing Director PIA and Director Asset Management Airbus, Patrice De Puymorin. The signing ceremony was attended by Deputy Managing Director PIA, Salim Sayani, Director Corporate Planning, Irshad Ghani, Othman Ghedira, Sales Director Airbus Middle East, Pascal Lesaulnier Vice President - International Development Middle East EADS and other senior officials of PIA.

Speaking on the occasion, MD PIA appreciated efforts of Salim Sayani and his team as well Airbus team in finalizing the agreement. He said that PIA and EADS have a long relationship that was developed on firm footings with the induction of A300-B4 in early 80's and was strengthened further by the purchase of A310 aircraft in 1991. ATR42-500, another product of sister concern of Airbus, both working under the umbrella of EADS added another knot to the ties.

The purchase of these aircrafts is an important step towards accomplishment of Business Plan 2020. As part of its fleet replacement plan, PIA will be acquiring new narrow body aircraft in the coming months to replace its aging fleet.

It is worth mentioning that the airline has also signed another agreement in Islamabad on February 14 for the purchase of five fuel efficient Boeing Model 777-340ER with deliveries starting from 2015.

The combination of both wide and narrow-bodied aircraft would help PIA flight operations on diversified routes to the satisfaction of the growing traffic on domestic and international corridors. The airline had nine Boeing 777 aircrafts in its fleet and with the induction of five additional fuel-efficient aircrafts, the airline would be catering to the traveling needs of the rising air traffic more efficiently.

According to the MD PIA, the induction of new aircraft is part of PIA's fleet expansion program to make it a young and fuel-efficient fleet to make the national carrier a profit making organization operating on the concept of economy of the scale. It may be recalled that the Boeing Company had offered sale of five aircrafts to PIA for which an MOU was signed on the occasion of Dubai Air Show held in November 2011.

PROFITABILITY

Overall, profitability of the airline suffered due to sharp increase in fuel cost during last four years. The average oil price during 2011 was estimated at $111.89 per barrel as compared to $77.19 per barrel in 2010. This translated into a substantial hike of almost 48 percent in the fuel expenses of the airline. According to the airline sources, the fuel cost stands at 54.28 percent as compared to 41.22 percent in the previous year 2010 of the total revenue.

Generally speaking, the volatile fuel price is one of the major challenges to the entire aviation industry around the world. However, those airlines having new technology and fuel efficient aircrafts are better off as compared to those operating with the old aircrafts which are not naturally cost-effective compared to new ones. Although the economics of running an airline looks quite simple, to move according to the need of the time requires timely decisions.

In this backdrop, PIA has two major issues: one flying with old aircrafts as some of them are even 39 years of age; while overstaffing is yet another issue which weighs heavily on the airline's profitability. In order to address the issue of old aircrafts, the present management has taken up the matter seriously and under its vision 2020, things are moving in the direction to replace the old stuff with the new ones.

Actually, the decision regarding replacement of old aircrafts with the new ones should have been taken much earlier to avert huge financial losses incurred to the airline in the past.

However, the oil situation especially in the wake of US sanctions on Iran oil is potentially dangerous to the economic viability of the aviation industry elsewhere in the world. Hence, PIA too has no option but to be quick to get rid of excessive fuel consuming aircrafts as early as possible. According to the MD PIA, the top leadership of the country including minister for defense and the President Asif Ali Zardari is also keen to see the national carrier coming out of the crisis as early as possible.

However, the rightsizing of the airline's staff is a hard nut to break, and which is certainly a challenge for the management to afford overheads incurred due to overstaffing in the national airline. However, the present management is confident and alive to addressing the prevailing issues to stabilize the national flag carrier.