Lack of vision, blighted business plan pulls PIA down

Govt does not buy revival plan; pressure on airline to deliver.

ISLAMABAD:

Thousands of employees who were sacked by the Nawaz Sharif government were reinstated in Pakistan International Airlines (PIA) by the Pakistan Peoples Party (PPP) government in 2008. They were given back their old jobs with back pay and promotions, with the result that the aircraft-to-employee record further worsened, adding to the ailing carrier’s woes.

Apart from corruption and mismanagement, the third biggest factor in running down the airline is political interference. The hiring and firing of employees as well as decisions taken on non-commercial considerations have led to missed opportunities and billions of rupees in losses. Instead of correcting this problem, successive managements of the airline have turned to the government to bail them out.

This year, too, the PIA management has once again tabled a “strategic restructuring plan”. The plan promises to reach break-even in 2013. However, for it to achieve that target, the airline seeks an amount of Rs60 billion from the Finance Ministry, including restructuring of Rs32 billion worth of debt and a Rs28 billion cash injection.

PIA wants Rs19.6 billion worth of its corporate bonds rolled over on deferred interest payments for five years, in addition to a rollover of about Rs12.6 billion in bank loans. The airline wants to get 35 aircraft on lease to expand its fleet. It plans to acquire ten A321 aircraft and ten A320 aircraft in 2012. In 2013, it plans to lease as many as four ATR-72 and five 777-300ER aircraft while in 2014 it wants to get six A321 planes.

This is an over ambitious plan and the government is not impressed. One cannot understand how the national airline continues to make losses despite the support it gets from the government and the heavy passenger loads from ethnic traffic overseas and a near monopoly situation on most domestic sectors. Analysts ask where the money is going.

Last year, the entity suffered Rs20.8 billion additional losses. Today, the national flag carrier is in deep trouble once again. It has already grounded 13 aircraft while facing problems in arranging fuel for its flights abroad due to its inability to clear arrears.

In his recent speech in Garhi Khuda Buksh, President Asif Ali Zardari hinted at two chances of reviving the airline. In an interview with The Express Tribune, former finance minister Shaukat Tarin explained further.  “Pakistan had to refuse the Boeing offer to sell the aircraft at 15% discount price as PIA did not have a business revival plan.”

President Zardari said he had asked Tarin to avail a Boeing offer but the former finance minister said that PIA did not have a business plan and till the time it prepared the plan, the aircraft had become expensive. President Zardari said the second opportunity was missed due to the PIA union’s opposition to sharing route codes with Turkish Airlines.

“I had replied that until the PIA management prepared its viable business plan, we would not compromise on $2 billion public funds for the sake of a 15% discount,” Tarin said, adding, “My apprehensions proved correct as PIA could not make money at a time when the crude oil prices fell to $45 per barrel.”

He said that at that time he had asked the PIA management when it would be in a position to become profitable and the reply he got was when the prices would fall as low as $70 per barrel. Tarin said he had no remorse for his decision, and even today, if he were asked to buy aircraft at a discounted rate, he would not go for it.

He said the Boeing had offered to sell aircraft at 54% discount of the listed price while the discount at normal price was 39%, a net 15% discount. Tarin said the total volume of the deal was $1.5 billion to $2 billion. Former PIA chief Ijaz Haroon was unavailable for comment.

PIA continues to run aground but lacks the vision to soar once again. And politics continues to rob the airline of good people and a plan to take it forward in times to come.

Published in The Express Tribune, January 7^th, 2012.