PIA must undertake reforms, regain competitiveness: IPR

Think tank says airline not being run as a business is major reason for its woes

LAHORE: The Institute of Policy Reforms (IPR) on Friday released a set of recommendations for the revival of Pakistan International Airlines (PIA).

It suggested that rather than debating on whether ‘to sell or not’, all parties or stakeholders must help PIA undertake reforms and regain competitiveness.



The report stated that PIA’s finances are in disarray and as of September 2015, it had a negative equity of Rs167 billion and a long-term debt of Rs109 billion. Additionally, its current assets stood at Rs24 billion, a mere 12% of current liabilities of Rs197 billion, payable within 12 months.

“PIA’s payroll cost is 19% of the total cost (17% if we include the finance cost) and at the same time Emirates, another public sector airline, has a cost of 14.3%,” said the report.

According to PIA’s annual report of 2014, its average number of employees is 16,243 and each employee contributed Rs6.1 million to the revenue.

The report added that PIA does not do well in the critical indicator of capacity utilisation. “Its passenger seat factor is an acceptable 72%, but overall capacity utilisation is a sub-par 59%.”

However, the IPR cautioned that holding the PIA workforce responsible for its weak performance is misplaced. “The key to PIA’s woes is that it is not run as a business.”



Government’s fault

According to the report, the government plays a major role in many operational decisions. Additionally, the government also appoints senior management and often intervenes in appointment of operational and support staff.

It suggested that PIA needs reforms and a new business model. It is for the government to decide whether reforms are best achieved by keeping it in the public sector or by finding a strategic partner.

The fact sheet states that even a strategic investor for 26% equity would expect the government to clean the balance sheet and assume over Rs190 billion worth of long and short-term debt.

“As the majority owner, the government must bear this liability whether PIA remains in the public sector or not.”

Solution

To revive the financial health, PIA needs a robust business model and must have the ability to increase revenue, the report stated.

PIA looking to steer itself upwards

According to the IPR, there is no indication of the value of PIA so it is difficult to say if the 26% new equity will be enough to upgrade the equipment and enable the airline to compete on quality and safety.

In addition to capital injection, the management must have full say in operational decisions.

Published in The Express Tribune, February 20^th,  2016.

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