PIA privatisation not the only option

Solution to challenges lies in emulating PSEs featuring in Fortune 500

ISLAMABAD:

PIA, with cumulative losses of Rs750 billion, is finally on its death bed. What else better reflects our approach than the fact that an ex-bureaucrat has been tasked to supervise its last rites as the privatisation minister.

This is despite the fact that it has reached this stage mostly because of the non-professional boards and the bureaucrats permeating them, though external alibis are frequently presented for its decline as if PIA is an exception and balance sheets of other public sector enterprises (PSEs) such as Pakistan Steel Mills, Pakistan Railways, PMDC, etc are glittering medals to be flaunted.

We first take a look at the brief history. Orient Airways was started in 1944 from Calcutta on the request of Quaid-e-Azam by two Bengali textile tycoons. Pakistan’s government created PIA in 1951 and later merged Orient with PIA in 1953. Nur Khan took over as its CEO in 1959 at the age of 36.

Under him within less than five years, PIA developed into a modern business unit on a global scale. When he took charge, it had continually been accumulating losses, however, since the first year he was able to reverse the trend and cause manifold increment in its profit during his tenure.

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The airline continued to maintain the given standards of excellence even after his departure in 1965 for a long time. By 1969, Dhaka airport was daily handling 140 takeoffs and landings.

On the fall of Dhaka and the associated sudden loss of market, a business tycoon Rafique Saigol was brought in 1972 to manage the challenge and he played a mercurial inning. In less than five months, most of the spare planes were leased out or provided to others for charter and cargo services and excess pilots and cabin crews were outsourced to other airlines.

Nur Khan was again appointed as the chairman in 1973. His second term proved no different. PIA’s passenger traffic increased by three times along with the corresponding increase in its profits between 1972 and 1979 because it was able to effectively respond to the growing need of transporting workers to the Gulf.

Though the fuel bill rose by 20 times from 1973 till 1980, a study in 1975, comprising a sample including British Airways and KLM, concluded that PIA had the lowest operating cost.

Even while leaving PIA in the late 70s, he created an invaluable asset, ie, Roosevelt Hotel. It was then worth over $300 million. He convinced the owners for a 20-year lease and a buyout option at $36.5 million at the end.

Twenty years later, the owner demanded $59.5 million. PIA paid the money, got the title transferred and then recovered the overpayment through litigation.

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The hotel was recently assessed at $0.63 billion. This use of considered discretion, commercial creativity and capacity to negotiate is the hallmark of all development of business, commerce and industry in history.

It would be interesting to see Nur Khan coming alive and attempting to make a PSE’s non-professional board understand his concept and the members, while understanding nothing, staring at him with assumed sobriety to look interested and ultimately quashing the concept under the load of frivolity and lack of capacity.

I am aware of a case where an excellent project proposal was similarly sabotaged a few years ago by a PSE board.

Till the late 1970s, globally the aviation business was highly insulated from competition. However, since the introduction of the US Airline Deregulation Act in 1978, the voices for letting market forces take charge became quite vocal.

Ultimately, cowing down under the said pressure, we adopted the open skies policy in 1992 and issued licences to new private airlines and granted more rights to foreign ones. That was further augmented in 1998 by permitting access to Islamabad, Lahore and Peshawar as well to foreign airlines, although 70% of PIA’s revenue was coming from international traffic.

Resultantly, from 60% in the 1990s, its share in the said traffic dropped to 19% only by 2015 along with reduction in its international destinations from 60 to 30.

In the past 23 years, PIA posted some profits only since 2002 till 2004 and that too by virtue of a bailout package of Rs20 billion. However, the abnormal oil price hike over the subsequent few years in conjunction with an extended EU ban due to safety concerns, on most of our planes for flying to Europe in 2007, caused a major dent upon its profitability.

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By 2012, primarily driven by an aging fleet, PIA’s annual spend on fuel had increased to 54% of the total vis-a-vis 24% in 2003. Continuing the trend by 2017, its accumulated losses had risen to Rs356 billion.

Later, in lieu of the so-called fake degrees’ scandal and associated safety concerns, in 2020 PIA was debarred from the EU, UK, USA and Canada, which further affected its revenues.

Dismal governance

The number of PSEs in the global Fortune 500 list had increased from 62 in 2005 to 141 by 2020. Hence, the solution to our challenges lies in emulating the above PSEs with respect to their governance structures and practices.

As to PIA on this yardstick, a Senate committee in 2016 had aptly identified poor governance, cronyism and non-professional boards as the main causes of its failure. Also, a special audit ordered by the Supreme Court in 2018 reiterated the Senate’s inference while highlighting that out of 44 directors nominated, during the pertaining 10-year period, majority had irrelevant profiles.

Similarly, stability at the top and continuity of leadership serves as the cornerstone for the success of any corporate entity and PIA’s pertaining record has been quite dismal in this regard too. For instance, it has already seen more than 30 CEOs with 15 for around a year or lesser, each. Tenures of six fall in the range of one to two years, while 4 could serve for around three years each.

In the given classification, terms of only five qualify for the category of three to six years. On the other hand, Emirates’ CEO has not been changed since 1985, while their president is also carrying the position for the last 20 years.

Qatar Airways replaced its CEO only two months ago after 26 years, while the CEO of Singapore Airlines is carrying the charge for the last 12 years.

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What is to be done

Thus, the composite failure of the public sector in Pakistan is primarily a failure of those holding the reins, ie, the bureaucracy. Therefore, the entire existing PSEs’ governance model needs to be replaced with professional leadership equipped with required knowledge and skills and corresponding supervisory and monitoring institutions.

This exercise for PIA, of course, needs genuine introspection instead of externalising our inherent incompetence by blaming open skies policy. We were simply not equipped with required professional capacity, systemic ductility and fiscal depth when the challenge arose, though it came very gradually.

Also, we never changed our ways even subsequently. Therefore, the fall was inevitable and the policy only served as a catalyst.

Hence, instead of its privatisation, we rather need to follow the path of merit and professionalism like China, Singapore, Norway, GCC countries, etc for managing PIA.

The writer is a petroleum engineer and an oil and gas management professional

 

 

Published in The Express Tribune, January 1^st, 2024.

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