Emergency brakes: PIA unions set eyes on employee buyout

Labour leaders say buyout preferable to all-out privatisation.

Saad Hasan September 14, 2013
Labour leaders say buyout preferable to all-out privatisation. CREATIVE COMMONS


Pakistan International Airlines’ (PIA) strongest union has thrown its weight behind an employee buyout of the cash-strapped carrier, which has become a burden for the current government.

“The government should give us the first right of refusal of whatever market prices the shares get,” stated the Joint Action Committee of PIA Employees (JACPIAE).”Even if the employees have to beg from door-to-door, we won’t allow a national asset to be gifted to someone.” They added.

JACPIAE has already approached local and foreign investors to back its bid, and PIA’s Collective Bargaining Agent, which is controlled by Pakistan People’s Party-backed labour union, agrees with them.

Earlier this week, the government announced its decision to privatise 26% of the total shares of PIA along with management control. The airline and officials of the Privatisation Commission are working on a detailed plan.

“Our foremost priority is to stop this (privatisation). But then we already own part of the airline. We have an advantage.” stated President of Society of Aircraft Engineers Shaukat Jamshed, and insisted that workers first try to stop privatisation before considering the buyout option.

The last government had distributed 12% of PIA’s shares among the staff under the Benazir Employees Stock Option Scheme.

Pakistan has previously witnessed two successful employee-buyouts. First in 1991, when Exxon decided to exit the market, its employees arranged financers and bought 75% equity in what later became Engro Corporation.

And consecutively a year later, employees collectively bought out Millat Tractors, which is now one of the most competitive companies in the country.

“Letting the employees have a stake is preferable to a private investor taking control. A private investor would fire people and that create no economic value” said Asad Umar, who was among the workers of Exxon who opted for the buyout.

At the moment, analysts and industry officials can only guess the terms which will be offered to the investor.

“Accumulated losses is not the big issue, it’s the long term debt that matters. And if the government picks that up then this transaction does not make much sense,” said Umar.

PIA has a negative equity of over Rs125 billion. Its long term debt exceeds Rs80 billion. Starting from the first quarter to March 2013, PIA’s loss increased 10% to Rs8.62 billion.

Investor Arif Habib, who is also on the board of directors at PIA, said “It is yet to be decided how the government proceeds with the privatisation but it’s possible that the government will take ownership of the liabilities. It is not unusual, it has happened before.”

PIA saw a decline of 10,000 flights to 45,000 in 2012. The number of revenue passengers - who pay for their seats - declined to a six-year low of 5.2 million, and available seat kilometres at 19.84 million remains at a four year low.

“Selling just 26% shares won’t absolve the government from bearing the airline’s liabilities but it’s needed to make the transaction seem attractive to the investor,” stated an analyst.

Former CEOs including Tariq Kirmani and Zafar A Khan have argued that PIA is in dire need of a layoff. PIA is over staffed with 19,000 employees, placing it at the bottom in the league of all airlines when it comes to worker-to-aircraft ratio.

Salaries, wages, allowances, welfare, social security cost, retirement benefit and compensated absences amounted to over Rs25 billion in 2012.

On the other hand, the money spent on repairing the flying machines, cost of replacing spare parts including expensive engine parts, the overhauls, all put together amount to approximately Rs8.9 billion. Fuel cost which make up 35% of operational cost of an average airlines, is over 47% in the case of PIA.

Published in The Express Tribune, September 15th, 2013.

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Junaid | 10 years ago | Reply

They should be allowed to participate in the privatization process (my fingers are crossed that they don't obtain control). Using "Millat Tractors" as an example of a successful employee-buyout is inappropriate as Millat Tractors is in the manufacturing sector while PIA is in the services sector. Without internationally competitive experience, I don't see how PIA will improve its services. Management privitisation is the only recourse. Refer to Srilankan Airlines.

Ch. Allah Daad | 10 years ago | Reply

PIA employees are rude, incompetent and dishonest. Now they are just employees, God forbids if they become owners, they will treat passengers like the Karachi wagon drivers and conductors treat passengers. You will hear quite often at airports and in planes, "Yeh Hamara Hawai Jahaz hai, Tumharay Baap ka nahin, Utro Neechay".

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