Analysis: PIA ripe for a restructuring

With losses in tens of billions every year, PIA is effectively bankrupt and in desperate need of restructuring.

LAHORE: With losses in the tens of billions every year, Pakistan International Airlines (PIA), the nation’s flag-carrier, is effectively bankrupt and in desperate need of restructuring. Yet political pressures, ineffective management and poor strategy have hampered the ability of PIA to serve its function as the national airline.

Despite being a highly bloated, inefficient enterprise, PIA still serves a vital function in Pakistan’s transportation infrastructure, a fact that was made glaringly evident last week by the four-day strike by its employees that left the airline’s entire fleet grounded, forcing passengers to scramble to other airlines. Many discovered that PIA was the only airline that served their destination, leaving them without a means of travelling altogether.

Yet despite a virtual monopoly over several domestic  routes, PIA is in serious trouble. The airline has made a net loss every year since 2005 and its liabilities exceed its assets by Rs58 billion, according to the latest available financial statements. This year has not been any better with losses exceeding Rs11.6 billion in the first nine months of 2010 alone. In effect, the company is less than worthless.

The airline’s woes started in 1985, when it was forced to sell off its new Boeing DC-10-30 for non-commercial reasons. Since then, poor management decisions and a decision by the federal government to grant foreign airlines access to Pakistani airspace without seeking reciprocal access for PIA, began the process of the airline’s decay.

Allegations of corruption and political pressure in most buying decisions suggested that the company’s financial decision-making process left much to be desired.

A lack of accountability for senior management and political interference from Islamabad only further hampered PIA’s ability to compete with the new, better financed airlines from the Persian Gulf region.

PIA once had a near-monopoly over routes most frequently travelled by the Pakistani diaspora. That monopoly vanished with the advent of Emirates Airlines, the new “super carrier airline” based out of Dubai, which has three times as many international flights out of Pakistani airports as PIA. The share of international flights in the company’s revenues fell from a peak of 20 per cent to a meagre 1.5 per cent.

PIA could also control its expenses by reviewing and revising the outsourcing agreements it has with repair and overhauling contractors. Many experts believe these contracts only add to the company’s expense rather than reducing them.

Yet in order to move towards the painful path towards profitability, the airline needs a professional management team that is allowed to work without political interference, both from civilian politicians in Islamabad as well as the legal majority shareholders – the Ministry of Defence – in Rawalpindi. Nepotism in appointments of senior management will do nobody any good and instead rob the nation of both money as well as the only means of air travel that most Pakistani cities have.

Published in The Express Tribune, February 21^st, 2011.