AGP finds fault with PIA business model

Says national flag carrier’s BoD, CEO lack industry experience

ISLAMABAD: The Pakistan International Airlines (PIA) has been run like a non-business entity, governed by an unprofessional  Board of Directors (BoD) managed by a chief executive office (CEO) lacking industry specific experience, says a special audit report on the 10-year performance of the flag carrier.

The report has been submitted by the Auditor General of Pakistan (AGP), who was directed by the Supreme Court on June 30 to conduct a special audit of the PIA to ascertain the causes of accumulated losses sustained by it during the last ten years.

The special audit was conducted from the month of July to September. It revealed that the accumulated loss as of Dec 31, 2008 was Rs72.353 billion which increased to Rs360.117 billion by Dec 31, 2017.

The report points out absence of prudence, due diligence and best industry practice in the airline’s policymaking and also highlights ad-hocism in decision making, poor practices in human resource, procurement, marketing, contract, fleet, fuel, inventory and financial management.

Giving seven recommendations, AGP suggests that the National Aviation Policy and the ASAs with Gulf and Turkish Airline be reviewed on the basis of bilateral commercial interests.



“Likewise, an efficient BoD be constituted to turn around the airline. CEOs/MDs be appointed on merit. Unnecessary interference from the government be stopped. Interference of various staff/officers association be stopped forthwith. Policy on merit based appointment/transfer/postings be adopted and strong internal control be adopted,” it adds.

The report says so far 44 BoDs of the PIA were nominated by the government from 2008-17. None of them had experience of aviation industry and majority of the members were serving or retired civil or military bureaucrats, politicians and businessmen.

Due to lack of relevant experience, the successive BoDs neither efficiently formulated any strategic business plans or policies. Likewise, absence of secretary finance in most of the BoD meetings was also a serious concern.

The auditor also observes violation of the prevailing rules and regulations in the appointment of MDs and CEOs. Exorbitant pay and allowances were granted to the MDs and CEOs in violation of standing instructions of the Finance Ministry causing extra burden of Rs98.111 million to the corporation.



“Likewise, the appointments of CEOs and MDs were not transparent,” it says.

The report reveals that almost 457 employees including 16 pilots had fake degrees. Seven of these employees are still working on stay order. The management misused the policy of regularisation of the contract employees.

It says the flying-grounding rights accorded to Gulf and Turkish airlines especially after Aviation Policy 2015 were beyond any justification and were given without considering bilateral commercial interests.

During 2008-17, the international airline market growth of Pakistan was 54 per cent whereas capacity granted to foreign carriers by government of Pakistan was more than 300 per cent.

In 2017, 4.72 million passengers from Pakistan travelled to third countries through Gulf & Turkish carriers, depriving the national airlines of their potential share in revenue of Rs117 billion.

The report also reveals that rate analysis proved that the management acquired aircraft on the dry lease at exorbitant rates in comparison to other airlines. The audit points out losses and irregularities in dry and wet leases, having financial impact of Rs56 billion.

It says due to unprofessional way of fuel hedging, the PIA sustained loss of Rs4 billion. The management wasted Rs26 .5 million in 2015 on the appointment of fuel hedging consultant without achieving objectives of the consultancy services.

The audit also observes an increase in litigation. “Out-of-court settlement cases at the UK stations were highly objectionable involving billions of rupees,” it adds.