PIA must undertake reforms, regain competitiveness: IPR

Published: February 20, 2016
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Think tank says airline not being run as a business is major reason for its woes
 PHOTO: FILE

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

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.

Don’t privatise PIA, improve its governance

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.”

PIA to expand fleet by end of 2015

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 20th,  2016.

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Reader Comments (4)

  • Sodomite
    Feb 20, 2016 - 8:36AM

    What PIA needs is GOP’s hands off. Most importantly end “Open Skies” and put rationality in flights on bilateral basis. GOP treats PIA like a servant. Even servants have rights but PIA none when it comes to hiring and giving plumb jobs to cronies who know nothing. Recommend

  • Brainy Bhaijan
    Feb 20, 2016 - 10:36AM

    Amazing…IPR reminds me of Captain Hindsight from South Park. They are the champions of “Woulda-Couldas.”
    The bottom line is that any commercial company that is in the business of making a profit, cannot be efficiently run by the government.
    All first world countries have their airports and airlines privatized, and that is why they are thriving.
    For example, the Emirates airlines is owned by Mohammad Al Maktoum, and it runs just like a private enterprise. Pakistanis working for emirates airlines cannot dare talk of setting up employee unions. Not only they would be fired, but imprisoned (possibly lashed if it were saudi arabia) and then deported.Recommend

  • Sodomite
    Feb 20, 2016 - 12:27PM

    @Brainy Bhaijan:
    Says a lot about our Arab breathern running their show with lashes and what not. Even in the developed countries they have Unions representing workers. Recommend

  • Parvez
    Feb 20, 2016 - 12:54PM

    Reform means more corruption, nepotism and further decay………its like repeatedly doing the same thing, expecting a different result every time…….a sign of idiocy or calculated cunning, both ways the nation suffers. Recommend

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