Rising from the ashes

The airline has been bleeding more because of bad management decisions

Kamal Siddiqi November 20, 2017

We are told that the new PIA management has drawn up a plan to hand over some of its key assets such as Roosevelt Hotel in New York and Scribe in Paris to creditors in an effort to pay off liabilities of Rs352 billion and make the carrier financially viable.

The CEO has sent a business plan for review of the federal government, highlighting two options for changing the fortunes of the national flag carrier. In the first option PIA’s liabilities worth Rs352 billion out of Rs406 billion could be cleared by transferring assets, including Roosevelt Hotel in New York and Scribe Hotel in Paris, to the government. After an expected turnaround by 2022, PIA’s capitalisation will reach the level where the government would be able to recover its investment.

In the second option, the government may pick debt servicing costs of Rs59.334 billion and Rs49.98 billion for 2018 and 2019, respectively, in order to provide fiscal space in the two years. In the following years from 2020 to 2022, PIA would be able to bear the debt servicing cost. The management says that the airline’s fleet would expand from the present 36 aircraft to 44 planes by 2022.

It’s a bad idea. Let us put things into context. The airline has been bleeding more because of bad management decisions. The intention is also questionable. We want to sell the hotels only because someone wants to make money.

Take the closure of the New York flight, after 55 years of operation. Was it the right decision? In January-July 2017, PIA’s total revenue on the PAK-NYC-PAK sector was Rs1,074 million while the direct operating cost was Rs1,764 million - a shortfall of Rs690 million. Was it enough for the airline to shut down such an important route? Possibly not.

Let us look at where else PIA lost money. The loss incurred on the much-publicised Premium Service that PIA launched in 2016 was Rs1.7 billion from August 2016 to February 2017. And yet there is no talk on how to recoup that money. It is clear that certain quarters have made money from the closure of PIA’s New York service and we are not talking about competing airlines.

The problem is how the airline is run. PIA’s share of the approximately 13 million annual ethnic Pakistani traffic originating from Pakistan was over 8 million in the early-‘90s but by 2008 it had dropped to 5.6 million and in 2015 it further reduced to 4.3 million passengers. This is the main reason for PIA’s loss in revenues.

Its decline started in 1992 when the Nawaz Sharif government introduced the Open Skies Policy which replaced the Bilateral Traffic Rights Agreements. This one-sided grant of traffic rights gave advantage to the Gulf-based airlines.

Look at the irony: PIA today is competing with all state-owned airlines: whether those in the Gulf or Turkish airlines. These airlines are giving a tough time to the world’s leading carriers, let alone PIA. And we want to run PIA on purely commercial lines but with maximum government interference. This is confusing.

In 1972, PIA faced a similar proposal following the birth of Bangladesh. Former MD AVM Zafar Chaudhry and DMD Khaqan Abbasi recommended that the airline sell half its fleet as well as close down routes based on the argument that  half the country was lost and business would suffer. But credit goes to prime minister Zulfikar Ali Bhutto who refused to do so and appointed a Lahore-based businessman, Rafiq Saigol, to run the airline. In the one year he was given, Saigol steered the airline back to the right path, restored its credibility and most importantly handed the baton to the other no-nonsense and honest administrator, Air Marshal Nur Khan.

Nur Khan continued the policy of not allowing any interference in the airline. Under his leadership, PIA expanded its routes, successfully inducted the DC-10 and B-747 (latest aircraft of that time) and transformed the airline into a top carrier of the region. This was only done not only because he was given a free hand by the government with assurances of no political interference but the fact that he knew his limitations and handed the running of different sections of the carrier to experts in their fields.

It is time to do the same. Hand over PIA to a professional management and stop political interference. The PM cannot commandeer aircraft at will and neither can party faithful milk the airline dry. It is a simple formula.

Published in The Express Tribune, November 20th, 2017.

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Malik Tariq | 6 years ago | Reply An indepth excellent analysis of PIA
numbersnumbers | 6 years ago | Reply No mention by author of ridiculous employee-to-aircraft ratio that PIA must be proud of! Profitable airlines manage to run with around 100 employees per aircraft, unlike PIA’s near 500 plus employees per aircraft!
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