PIA deal leaves many questions unanswered

Is the deal a Code Sharing Agreement or a decision to surrender its existing routes to USA and other points in Europe?

Flight operations of Pakistan International Airlines (PIA) have been seriously disrupted following a rare strike called by the Joint Action Committee comprising all employees. This is for the first time the employees are  not going on strike for better pay conditions. Much more seems to be at stake. They have called for annulment of any proposal, which in their opinion, amounts to selling out of key routes to USA and Europe. They have also demanded the removal of the managing director of the airline. They say that the PIA Act requires the approval of the Board of Directors before such a course like the Turkish Airlines deal is embarked.

PIA is not in great financial shape. Hence the justification to go ahead with the Turkish deal. A bid to cut losses. Half Yearly Accounts of PIA for January to June 2010 signed by their Auditors A.F. Ferguson and Yousuf Adil Saleem have declared that the corporation incurred a net loss of Rs6.90 Billion resulting in accumulated losses of Rs83.33 Billion as of June 30, 2010, and as of that date the corporation’s current liabilities exceed its current assets by Rs55.832 Billion.

This is not encouraging news.

What is ironic, however, is that PIA claims to have an average seat factor of 77.53% in accordance with reports available on the web for a 9 months period from January to September 2010 and an average load factor of 67.73 % during the same period. These statistics show that PIA passenger seat factor is well above the industry average and even more than Turk Hava Yollari (THY) which with a seat factor of 71% has declared a profit.

And yet the deal with THY is under a cloud. The details emerging clearly illustrate that this is not a Code Sharing Agreement in any sense but a decision to surrender its existing routes to USA and other points in Europe, by ceasing its own operations and instead only serving as a feeder airline for THY by transporting passengers from Pakistan to Istanbul for further travel after change of aircraft and onward travel by THY aircraft.

Chief Financial Officer and GM Budget have in their study very clearly stated that this arrangement if pursued would only further escalate the airline’s losses. This deal reduces PIA to the role of a GSA for THY and like other such agents it will get a commission for every passenger it provides to THY.

The study also highlights the danger that PIA passengers who chose to travel by it because of direct or one stop flights, without any change of aircraft would be lost, once this benefit is no longer available to them. These passengers will be lost to other airlines in the Gulf which offer more competitive fares and convenient connections to every conceivable destination in the world from their main hubs.

In spite of opposition by PIA’s own finance department and airline employees unions and association, the management is pressing on with plans to pursue the proposed deal as outlined in the “Record of Discussions” signed between PIA and Turkish Airlines.

The proposed Record of Discussion is also violative of the business plan submitted by PIA to EXIM Bank USA for financing the existing fleet of Boeing 777s. This business plan was based on utilization of Boeing 777s for 16.5 Hours per day, and higher revenue generation sufficient to pay back installments. The business plan extends to 2013.

Any change in the business plan would require consent of Exim Bank, otherwise they can exercise their option to invoke bankruptcy clauses.

This proposed deal with THY, if executed, would lower utilization of Boeing 777s and revenue generation drastically. The utilization reduction can be gauged from the fact that PIA has offered to post their pilots on rotation to Istanbul from where they will fly the Turkish Fleet. This offer has been turned down by PALPA. There are areas where the management needs to focus. The decision to terminate 8 pilots has ignited emotions and only further aggravated a volatile situation and should be withdrawn to begin with.

Also, PIA’s  financial situation demands that pilots and other highly paid executives offer voluntary pay cuts ranging from 5 to 10%.

Pilferages must also be eliminated and all procurements made in accordance with PPRA rules Another recommendation coming through is that strict financial and administrative discipline be enforced and the executives must restrain from abusing their powers of discretion  and all recent employments made on contract or on regular basis be re-evaluated so that merit is strictly enforced and a freeze be put on all further recruitment.

Published in The Express Tribune, February 10^th, 2011.