Corporate results: PIA gets no relief from plunge in price of crude oil

Posts loss of Rs20.55b in nine months of 2015.

KARACHI: The financial haemorrhage of Pakistan International Airlines (PIA) continued in the second and third quarters of 2015 as the stubborn expense of maintaining huge infrastructure ate up on revenue.

The national flag carrier on Monday announced an after-tax loss of Rs20.55 billion for the first nine months of calendar year 2015 (Jan-Sep), marginally lower than the Rs22 billion loss incurred in same period of the previous year.

The loss occurred despite a 42.7% decline in the airline’s fuel bill, which came down to Rs21.68 billion from previous year’s Rs37.84 billion on the back of plunge in global oil market.

While it helped the airline post a gross profit of Rs4.4 billion against a gross loss of Rs1.95 billion in the same period of 2014, it was not enough to cover fixed costs like lease payments, interest charge, salaries and expense related to spares and maintenance of aircraft.

“Yes, fuel price surely came down but our competition (Gulf-based airlines) also cut fares by around 35%,” says PIA Chairman Nasser Jaffer, about the continuing poor financial performance of the airline.

In the last couple of months, PIA has leased Airbus 320s and ATR-72s to augment short-haul operation but the impact of added capacity and efficient aircraft would be seen from last quarter onwards when most of the planes were inducted, he said. After a devastating year - 2014 - when the airline recorded its third highest single-year loss, the new management led by Jaffer was hoping to leverage the global oil slump to plug financial losses.

The airline has tried to curtail unnecessary fixed costs by suspending flights on some loss-making European routes and recalling staff from those areas. But at the same time, government opened up more cities in the northern parts of the country like Sialkot to foreign carriers, adding to the woes of the cash-strapped PIA.

Mismatch between cash coming into the airline from sale of tickets and what it has to pay for running the jets can be gauged from the run-down position of its cash flows.

In the nine-month period, the airline made net cash of Rs6.67 billion from its operation while just the interest payment of Rs10 billion was enough to vaporise all that.

It means that the airline was forced to borrow more from banks to run its day-to-day business and pay old liabilities.

On the other hand, government is also in process of selling a minority stake in the airline. It wants to hand over management control to any private investor that could turnaround the airline’s financials.

But if the majority stake continues to remain with the government, it would largely be responsible to drip-feed the airline in the shape of cash against equity and guarantees for commercial loans, just like it has been doing since 2001.

Published in The Express Tribune, January 19^th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.