ECC told: PIA losses still in the billions

Report says air carrier undertaking steps to improve financial health.

Our Correspondent November 10, 2014
ECC told: PIA losses still in the billions

ISLAMABAD: The financial position of national flag carrier Pakistan International Airlines (PIA) remains precarious as it continues to suffer an annual loss of billions of rupees despite hiring aircraft on lease to improve efficiency and service.

In 2013, when the Pakistan Muslim League-Nawaz (PML-N) government came to power in June, losses of PIA exceeded those recorded in previous years, standing at Rs44.531 billion. For six months of the current calendar year, the losses were Rs10.131 billion.

According to a report submitted to the Economic Coordination Committee (ECC) in its meeting on October 30, from 2011 to June 2014 the air carrier had suffered a loss of Rs207.69 billion. Before that, the figure stood at Rs74.89 billion.

The breakdown of figures showed that the loss was Rs20.785 billion in 2010, Rs26.767 billion in 2011 and Rs30.586 billion in 2012 – the period when Pakistan Peoples Party (PPP) was in power. However, the yearly loss rose to Rs44.531 billion in 2013.

The report said PIA had been spending heavily on maintenance of aircraft for the last many years because of the ageing fleet. The losses forced the airline to borrow heavily from banks at high interest rates, which further hurt its financial health.

However, it said, the PIA management had taken various steps to improve the conditions including hiring of four narrow-body aircraft on wet lease and introduction of cost-cutting measures like route and manpower rationalisation at foreign stations.

PIA has also prepared a business development plan for the period 2014 to 2017 that revolves around induction of new-generation fuel-efficient aircraft on dry and wet lease.

The ECC was told that PIA was in desperate need of government’s cash support to bridge the deficit of Rs20 billion in its cash flow in the fourth quarter of this year. In the absence of the cushion, the air carrier’s working capital would further erode, leading to suspension of operations as critical suppliers had already started holding back supplies and further borrowing was not possible.

Moreover, PIA would not be able to add to the capacity as projected in the business development plan for 2015 and onwards.

It was suggested that the Ministry of Finance may be authorised to issue government guarantees for a Burj Bank loan amounting to Rs2 billion having a two-year grace period. Terms and conditions would be finalised by the ministry.

It was also requested that the Ministry of Finance may give fresh guarantees to the tune of Rs10.50 billion to arrange loans for the airline.

PIA loans with guarantees stood at Rs141 billion in September 2013 and were at Rs129 billion a year later in September 2014.

It was proposed that the finance ministry may be allowed to issue replacement guarantees in place of vacated ones.

Later, the ECC approved sovereign guarantees to facilitate PIA in acquiring loans of Rs12 billion to enable the airline to meet critical requirements. It also agreed that terms and conditions of the loans would be determined in consultation with the finance ministry.

Published in The Express Tribune, November 11th, 2014.

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Asim Khan | 9 years ago | Reply

Mustafa is right that the condition of PIA is due to our successive governments. I would like to add further to his comments. There are a few facts which need to be considered while looking at the prevailing circumstances of the Airline. 1) It is often said that PIA is overstaffed. No doubt about that, but then who inducted so many un-necessary people in the airline, is it the airline or the govts. Every Govt that comes into power inducts thousands of people in PIA. Moreover it is to be kept in mind that there are thousands of employees belonging to PEC, Speedex etc who are also counted as employees of the airline, although they are not contributing anything towards the airline directly or indirectly. Another aspect of the over staffing issue is the cost impact in terms of salaries. Great Airlines in the world are paying much more in salaries as a percentage of there total expenses as compared to PIA, So over staffing is not the that big an issue cost wise or the actual issue, Its just eye wash to cover up corruption and mis-management which are the core issues. 2) Whenever a new government comes in, it appoints a new team of top management and hires consultants at mind blowing salaries. These people just like there bosses in the government know that they have limited time at the helm, so make haste while the sun shines. they are least interested in improving the airline, neither do they have the capacity.The only thing they excel in is corruption and in-competence. These people are the biggest contributor to corruption and losses. 3) Union activities in PIA or any government organisation are a big hurdle in the way of good governance and performance. These unions are so strong that they literally dictate the middle and lower management generally and at times even the higher management can't do anything about them. Unions are the second largest contributor to corruption and mis-management. 4) The open sky policy of Pak Govt is ridiculous. It is totally one sided, Also needs to be addressed.

In view of the above mentioned facts in my opinion if we want the airline to excel, we need to take a few simple steps in the right direction and privatization is not one of them. 1) No government interference in airline management and activities. 2) Unions activities to be kept in check. It does not mean no unions at all. But unions should work withing there defined limits. 3) No un-necessary inductions in the airline on the basis of political affiliations. PIA should hire people only when it needs them. 4) PM should stop taking planes with him on international tours and if he has to do so, then government should pay for it. No more free rides. 5) All the PM's,CM's,MNA's,MPA's and other VIP's they consider it as there birthright to travel in PIA for free. These things are to be stopped. 6) On all PIA flights a certain number of seals is reserved for VVIP's which PIA can not sell. In this lieu every year more than 50k seats worth of revenue is lost by the airline. This is to be stopped. 7) Moreover all the commercial airlines in the world or in Pakistan only operate on routes from where they can earn profit. However PIA being a National Flag Carrier has to operate a large number of routes where the airline is loosing big money. 8) The private airlines launched in Pakistan have acquired all the profitable routes from PIA through political influence. It is place to mention here that these private airlines are even worse then PIA. Let the airlines acquire routes on merit and not by influence. 9) It can be seen that a silent campaign is going on against the National Flag Carrier by its opponents in Media. The private airlines stake holders know full well that if PIA starts performing , they will be history. So lets not let it function properly. For this they are using all their influence and resources (including the Government). Some of them are sitting in current government, some were in the previous. Needs to be stopped, but who will do it, perhaps someday the people of Pakistan.

In these circumstances if PIA is still surviving, its a miracle.

Blithe | 9 years ago | Reply

Hopefully numbers will improve significantly with the fall of oil prices

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