Too many cooks: How to turn around PIA prior to privatisation

Published: December 15, 2013
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Currently, barely two-thirds of the PIA aircraft fleet is airworthy. Engineering and maintenance needs to be transformed to maximise aircraft airworthiness. This can be done through appointing a result-oriented official – for whom setting and monitoring goals and measuring results is a way of life. PHOTO:FILE

Currently, barely two-thirds of the PIA aircraft fleet is airworthy. Engineering and maintenance needs to be transformed to maximise aircraft airworthiness. This can be done through appointing a result-oriented official – for whom setting and monitoring goals and measuring results is a way of life. PHOTO:FILE

KARACHI: 

Recently, several columnists and self-proclaimed analysts have highlighted a blindingly obvious status quo – the widening gap between the losses of State-owned Enterprises (SOE) such as PIA and the dwindling revenues of the national exchequer.

Sadly, none have attempted to address or remotely propose viable solutions. However, PIA represents an ideal and lucrative opportunity for a successful turnaround. For many years, the national carrier’s flight operations and load factor have been decreasing, while global passenger traffic has been on the rise. A transformational turnaround is not difficult in the presence of such a worthwhile opportunity.

It only requires a few simple actions.

For the sceptics of a turnaround prior to privatisation, allow me to put ‘a few simple actions’ into perspective by drawing on a few similarities between today’s PIA and British Airways of 1981.

The similarities

At the time, BA was a poorly managed SOE universally perceived as an unattractive, ‘wouldn’t touch it with a barge pole’ buy prospect for investors.

It was bleeding $1 billion a year in losses (300% more than PIA’s 2012 losses) and ‘controlled’ by a multitude of politicised trade unions.

The initials BA were said to signify ‘Bloody Awful’. At the time, PIA’s initials were, and still are today, said to signify ‘Perhaps I’ll Arrive’ or ‘Please Inform Allah’.

One particularly penetrating statement from a renowned frequent BA flyer summed up its service at the time. “The attitude was that the customer was an irritating part of the process”. This comment will ring alarm bells of in people like me who refuse to travel with any other airline but PIA.

Another similarity was BAs ‘crown jewels’, like PIA,  being its landing slots at Heathrow and other major international airports – some are today valued between $25-30 million each.

The BA turnaround only required a few simple actions. The first and most important step was the appointment of an international calibre, hands-on CEO or corporate turnaround ‘doctor’. In 1981, Margaret Thatcher appointed Sir John King with the single mission of preparing it for privatisation. King slashed operational costs, reduced aircraft-employee ratio, groomed up service, fine-tuned the route structure, and hired Saatchi & Saatchi to rebrand BA as “The World’s Favourite Airline.” The corporate turnaround was as rapid as it was profoundly transformational.

By 1987, BA was the most profitable airline in the world. When privatised in 1987 via a public share offering, demand exceeded supply by 11 times.

Similarly, immediate steps for any new CEO at PIA are simple and obvious.

Competent heads need to be appointed in each department. In addition, new country heads need to be placed, all superfluous staff posted overseas needs to be recalled and all offices where PIA does not have landing slots need to be shutdown.

The international and domestic routes need to be expanded to generate economies of scale and build a sustainable airline.

Contracts and purchasing policies need to be reviewed. Suffice to say that corruption needs to be reduced. The cost of financing needs to go down because, without it, a timely corporate turnaround will prove difficult.

PIA Investments Limited, incorporated in 1977, should be immediately dissolved and all its assets sold to finance the corporate turnaround. The Roosevelt and Scribe hotels alone have a net book value of $584.8 million, according to PIA’s 2012 annual report, but contribute nothing to profits.

Currently, barely two-thirds of the PIA aircraft fleet is airworthy. Engineering and Maintenance needs to be transformed to maximise aircraft airworthiness. This can be done through appointing a result-oriented official – for whom setting and monitoring goals and measuring results is a way of life.

Perhaps, one of our many retired PAF officers currently camouflaging themselves as ‘defence analysts’ may wish to volunteer their expertise.

Other medium-term goals

In addition, PIA’s aircraft-employee ratio stands at over 500. This needs to be reduced to near the international standard of 130-150. However, for obvious political sensitivities and to enable other changes to be implemented, this should be a low-priority, medium term goal. However, some of the immediate steps should include recalling all superfluous staff from overseas operations, removing all political appointees, getting rid of ‘ghost’ employees, and natural reduction through a holistic hiring-freeze.

A transformational turnaround only requires a few simple steps to rapidly deliver PIA to good health and profitability and a successful privatisation. It may seem a daunting task but for experienced corporate turnaround ‘doctors’, its child’s play.

The writer is a Sloan Fellow from the London Business School and a former Spanish representative on the $100+ billion Eurofighter

Published in The Express Tribune, December 16th, 2013.

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Reader Comments (16)

  • Tulla
    Dec 15, 2013 - 11:58PM

    Everybody knows how to turnaround PIA. As you say ‘its child’s play’. However, there are no children but crooks at play. So it will remain the same.

    Recommend

  • Roughcheck
    Dec 16, 2013 - 12:04AM

    What if the foodie PIA pilot delays an International flight by hours because he wants to take hot snacks and un delivering means ‘no flight today’
    How about teaching them ethics, professionalism and humanity?. I suggest that their salaries and bonuses should be cut down by 2/3 of gross
    Hope you’d see it ahead of all those ‘CEO’ and ‘Engineering manufacturing’ things…

    Recommend

  • Ahmad
    Dec 16, 2013 - 12:24AM

    I totally agree with the author.
    Unfortunately, the unnecessary role of politics is very strong in PIA and many other state-run organizations.
    We do need to take solid, perhaps un-popular steps to improve the efficiencies of these organizations..
    Other things we as all Pakistanis need to learn: strong work ethics, honesty, and contentment.

    Recommend

  • abcd
    Dec 16, 2013 - 12:37AM

    Fire all jiyalas and disband all unions.

    Recommend

  • just_someone
    Dec 16, 2013 - 1:17AM

    Its funny you say they are simple actions (and hence everyone knows them and has mentioned them before) and then you proceed to lay them out anyway.

    Makes the article kind of worthless.

    As one of the commenters said, turning around PIA doesnt take a management genius. My dog can do it as long as the subordinates do their jobs and carry out direction.

    Privatization will result in all these worthless people being fired. This can not happen while PIA is govt owned since our Islamabad suo motu buddies will spring into action to gain political traction (which is not their job).

    Recommend

  • unbelievable
    Dec 16, 2013 - 1:23AM

    Ridiculous argument – PIA is a chronic loser because of the govt and asking the govt to make it profitable before divesting isn’t going to happen. PIA has a lousy reputation, generates enormous losses, most of the planes aren’t even flyable and everything is fully leveraged. There is no equity or intangible asset that makes this a worthwhile purchase. Buyer would be better off starting from scratch – bring in his own modern airplanes – selectively hire people rather than inherit overstaffed unionized workforce that has lousy attitude.

    Recommend

  • Istaburg
    Dec 16, 2013 - 4:08AM

    The author talks about self proclaimed experts suggesting turn around strategies….people not qualified to talk about such things.

    May I ask , what exactly is his/her qualification to pontificate on the matter….besides blinding common sense.

    Every body is an expert in Pakistan…of all things except what their job is !!,

    Recommend

  • Roger
    Dec 16, 2013 - 8:26AM

    Can someone find a John King for the PIA?

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  • HH
    Dec 16, 2013 - 10:04AM

    Pretty logical solution. However the problem is that, practically speaking, this solution is less feasible when viewed in the backdrop of Pakistani politics and an inherently weak governance structure of civil bureaucracy. Unless things improve at the top, this is (again, practically speaking) almost impossible to turnaround PSEs.

    Recommend

  • Baloo
    Dec 16, 2013 - 10:49AM

    PIA can be turned around, provided there is a political will to do so. Mere statements cannot turn it around. It needs to be restored to a service oriented industry, instead of an employee welfare organization dedicated to providing jobs to favorites, instead of on merit. Which airline would give 70 Hours guaranteed Flying Allowance to crew of B747-300, when their actual utilization is just 11 hours per month. The same goes for B737 crew and others. While PIA losses tripled, salaries have doubled and most recent salary raise was in April 2013, with surplus employees in every cadre. Just look at qualification of top executives, with some even holding fake degrees, domiciles and age declarations. The present Chairman has added to problems by having an inter pass relative appointed as a Director, with another High School dropout as a GM. Without a total change of management no turnaround is possible.

    Recommend

  • Baloo
    Dec 16, 2013 - 10:51AM

    @HH:
    If government seems incapable to turnaround PIA, it must shut it down.Recommend

  • 747
    Dec 16, 2013 - 12:11PM

    Finally some one talks sense…

    Recommend

  • Dec 16, 2013 - 12:19PM

    I know PIA is going to be sold like MCB Bank, despite I second the decision to privatize. Atleast it would turn around and will generate some economic goods in the country. So Mansha is coming to rescue!

    Recommend

  • Taha
    Dec 16, 2013 - 3:22PM

    Get your facts about the plane ratio straight. PIA has other subsidiaries such as catering, ground handling which also attend to other airlines like Saudia.

    Recommend

  • A. Khan
    Dec 16, 2013 - 3:59PM

    I am a firm believer that government should not be in business of anything, whether it is making steel, flying planes, employing peope but rather it should be creating the conditions through incentives for private investment to come in. PIA was set up by the Government at a time when the economy was very small and setting up an airline required state funding/guarantees. Now that is no longer the case. Instead of throwing good money after bad, PIA should be divested and let the new owners fix it.Recommend

  • Dec 17, 2013 - 3:53PM

    PIA can be turned around and restructured it depends on the resolve of the Government and stakeholders involved. Do they really want it to get turned around. Politically, this organization is holds prime position due to its ability to absorb political hirings and inefficiencies.

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