Flying in two different directions

Amid privatisation plan, PIA MD says airline would make it on its own.

KARACHI:

The Pakistan International Airlines (PIA) will not seek financial aid or a bailout from the government this year as induction of fuel-efficient aircraft and their proper utilisation has increased revenue, said Managing Director Junaid Yunus.

However, Yunus did not speak on the subject of PIA’s privatisation or the reported frustration of Privatisation Commission’s chairman that the airline is taking important decisions, even knowing that the selloff is imminent — the deadline for which has been set for December 2014.

“I have been tasked to run the management efficiently and that’s exactly what I am doing,” he said in an interview with The Express Tribune. “After spending day and night, we have prepared a five-year business plan. Now, it doesn’t matter who is at the helm. If the strategy is followed, PIA will become a profitable entity.”

However, the statement on a ‘five-year business plan’ is in stark contrast to the government’s plan to privatise the national carrier, but Yunus insisted that PIA was looking to make it.

Plans to raise money on its own is also a reversal from past practice when the national carrier pleaded to the government for funds that would enable it to pay salaries, bills and lease aircraft as well.

“We will use some of the money given to us last year but that’s all. Other than that, we will manage it all on our own.”

This means PIA will look to raise finance for the proposed lease of over a dozen planes on its own from financial institutions on basis of revenue streams.

In recent weeks, the management has taken drastic steps to fix its problems. It has advertised tenders for 18 aircraft, asked potential candidates to apply for the post of CFO and started a crackdown against corruption at breakneck speed.

“Results have started to show. We recorded Rs9.5 billion revenue in January 2014. That is unprecedented for the month. Our last Umrah season was very profitable as well.”

PIA has not released financial statements for last year but it posted a loss of Rs31.9 billion in the nine months ended September 2013. Its highest year-end loss was Rs35.8 billion recorded in 2008.

“We couldn’t do anything about it because we didn’t have the aircraft. The first tender to lease the plane was given in February 2013 but it lapsed because of the change in government.”

Last year, the airline even operated with only 17 aircraft at one time, often flying Boeing-777s, which were bought for international flights, on domestic routes, he said.

“Then rupee depreciated sharply and we booked losses. Previous Umrah operation suffered massively as over a million passports were held up. These factors were beyond us.”

Flying forward

PIA has 19,300 employees, with 8,000 workers falling in the lowest grade of 1 to 4. There are 550 pilots, 2,300 cabin crew and 700 aircraft engineers. It has the world’s highest employees-to-aircraft ratio.

“Around 3,000 workers will retire in a few years,” said Yunus, who is also a senior pilot. “Since there is a moratorium on new appointments we expect the ratio to go down.”

He also believes that the airline has to separate all non-core businesses from that of booking passengers. “Speedex, maintenance, repair and overhaul facility, training centres, flight kitchen and ground handling department should be run independently.”

As strategic business units, these sections will have their own profit and loss accounts, not dependent on the airline’s main income, he said.

The management is also open to the idea of selling some of its spare assets but that would depend on the direction of the government.

PIA has accumulated losses of Rs179 billion and long-term debt of over Rs75 billion. A large part of the debt includes the remaining cost of nine B-777s, which were leased between 2004 and 2007.

“That’s a major drain on our finances but it will ease as we pay off the debt in a few years. Things will be better for us,” he said.

A difficult takeoff

Domestic and international carriers have also eaten into PIA’s market share, which dropped to 39% in 2012-13 from 43% in 2007-08. A bitter price war with domestic airlines complicated the situation.

“Ultimately everything depends on the service. We already have a big captive market but now we are offering things like movies, WiFi, phone service to make sure they travel with us,” Yunus said.

Other officials justified the high number of employees. They point out the fact that PIA caters to traffic, which does not always generates from metropolitan cities.

For instance, a worker hailing from Gwadar and travelling back home from Oslo would only prefer PIA if he gets a discount on a domestic ticket and knows there is a connection to his city.

“And for that we need to have a station officer in small cities. Catering service should be available as well. Ground handling staff is also needed. Staff to check the aircraft would be there as well. Tell me the way we can get rid of all these people without affecting our business?” asked a dejected executive. 

Published in The Express Tribune, February 19^th, 2014.

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