Can PIA Survive?

Posted on November 4, 2006
Filed Under >Adil Najam, Economy & Development
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Adil Najam

According to a story in Dawn today (4 November, 2006) “Pakistan International Airlines (PIA) is in such dire financial straits that it may be threatened with liquidation because of its monthly losses of more than Rs1 billion and its current liabilities which exceed its assets by more than Rs20 billion.” The report goes on to say:

The corporation’s chartered accounts Anjum Asim Shahid Rahman and Ford Rhodes Sidat Hyder & Co wrote in their note to the half-yearly report that the corporation has incurred a gross loss of Rs74 million and a net loss of Rs6.144 billion during the half year ended June 30, resulting in accumulated losses of Rs17.944 billion on the balance sheet date. According to the auditors, the corporation’s current liabilities on June 30 this year exceeded its current assets by Rs. 20.326 billion

The auditors were not satisfied with the PIA’s methodology to evaluate costs of inventories and were not ready to give audit certificate for Rs6.2 billion accounted for as capital spares and consumable stores.
The PIA management said the net loss of Rs6.144 billion was due to increase in international fuel prices. The fuel cost for the half year ended June 30, 2006, amounted to Rs16.442 billion. PIA spokesman Imran Ghaznavi said the corporation’s liabilities had surpassed its assets by Rs22 billion by September 30 because of higher fuel prices. He said the company had asked the government for financial restructuring and they are examining our proposals”.

The airline is currently considering operational restructuring measures, including disinvestment of its holding in PIA Investment Limited or dispose of its properties to improve cash flows. The national flag carrier’s cash flows have already been hit by the European Union regulators’ decision to curtail some of its flights on the lucrative European sectors, particularly United Kingdom, on account of safety concerns due to inadequate maintenance.

Already, as part of the financial package an amount of Rs6.575 billion has been provided to the corporation up to June 30, 2006, against which 543 million A-class ordinary shares of Rs10 each were issued to the GOP. Another Rs114 million shares are expected to be issued during the current financial year. The federal government has already provided Rs8.8 billion as equity and guarantees to the PIA for the purchase of eight new Boeing 777 aircrafts out of which five have been acquired to date.

I have hazy memories of a time when PIA was considered to be an exciting international and were exported to the Middle East and elsewhere to help launch other airlines that have since become award winners. One had thought for a while that the purchase of new airplanes and cosmetic changes in the staff as well as on the tailfins (here) might signify a shift towards better times. Of course, the recent Fokker crash (here)and the subsequent decision to stop using Fokkers could also not have helped (here). Yet, it seems that the troubles are even deeper than one might have imagined.

As a very frequent traveler on PIA, I have long wondered how it could be operating at a loss. The flights are always full and brimming, and especially on the most lucrative routes it is always difficult to get a ticket. The prices are competitive and sometimes even greater than other airlines. Theoretically, all of this should mean that the airline should be making money. Obviously, theory does not work in this case. Nor does, it seems, PIA.

Will the airline survive? I certainly hope so. But for how long and in what shape?

23 Comments on “Can PIA Survive?”

  1. Daktar says:
    November 4th, 2006 12:53 pm

    Rumors of the airline’s death are as old as the airline itself….. and hopefully they are exagerated. It can and should be saved.

  2. Samdani says:
    November 4th, 2006 11:46 pm

    Since everything else is being privatised, why not PIA?

  3. November 5th, 2006 12:55 am

    lol, the first cartoon is awesome ;-). Where did you get this from?

    On a serious note, I would prefer PIA over SAUDI airlines while going to saudia. I’m serious.

  4. Eidee Man says:
    November 5th, 2006 7:01 am

    The reason PIA’s so unsuccessful is that it’s managed by people involved in politics. Even though PIA has some of the best trained staff in the world (they get recruited to other airlines all the time and Emirates was practically built by PIA staff in the late 80′s) and they have other unique advantages, they are having all of these problems.

    A point that PIA employees bring up all the time is that PIA pays them VERY little compared to other airlines such as Emirates and yet their airfares are about the same as other airlines.

  5. Kamal I. says:
    November 5th, 2006 1:48 pm

    This is very serious thing. As you say, the LIABILITIES are now GREATER than the ASSETS. So what they owe is mroe than what they have. That is disaster. A case for breaking it up and divesting it. Maybe turn it into two different airlines, a local and an international one. Since I believe the international actually makes money.

  6. Trekker says:
    November 5th, 2006 9:07 am

    This poses a very immediate concern for me — we were planning to fly IAD-LHR-LHE around Christmas and have confirmed seats but if 747s are not allowed as the equipment, what becomes of the confirmed passengers?

  7. Daktar says:
    November 5th, 2006 12:36 pm

    AGain, I do not think the airline is about to disappear. It needs a serious management overhail and a lot of epople who politically got jobs in it should be kicked out. It has too much staff and needs to be lean to compete. I think there is no reason whyit should not be making a project if it is made really independent from politics. Every govt has filled it with its own people who cannot be kicked out. So you see a PPP wing and Jamaat wing a PML wing and all sorts of other wings. It should be run like an independent company.

  8. Eidee Man says:
    November 6th, 2006 2:14 am

    Actually, financial trouble is nothing new for PIA. The government has bailed it out every time…I’d be surprised if they don’t do the same this time. It’s extremely unlikely that they’ll let it collapse.

    As badly run as it is, PIA’s role is too critical to let “the market” take care of it.

  9. pindiwalla says:
    November 6th, 2006 7:44 am

    Also please remember that PIA aircraft and assets are part of Pakistan’s National Security Infrastructure (like roads, rail lines) and get figured into all war planning.

    Hence – any liquidation will mean more Pk Rs. to the defense budget to make up for loss of critical assets.

  10. samdani says:
    November 6th, 2006 12:27 pm

    I like Kamal’s idea of breaking up PIA into two airlines, an international and a domestic one. Happens elsewhere and will make management stremalined and hopefully service better in both.

  11. binish says:
    November 6th, 2006 3:57 pm

    Will PIA survive?
    Of course it will and the governments will keep pumping in heaps of taxpayers money into it as those in power need a means of free travel not too mention free board and lodging at it’s subsidiaries such as the Roosevelt Hotel in New York and similar hotels in Paris etc

  12. Kabir says:
    November 6th, 2006 4:28 pm

    It posses a very serious concern for me too but not cause I have a flight booked on it but cause it is a matter of national pride. PIA is a national icon and has facilitated in spreading Pakistan’s correct image to a certain extent in the past. It MUST resurrect as the best airline in the world, whatever that may take.

    I agree with strategic segmenting of Domestic & International in order to streamline organizational mechanism and processes within.

  13. samdani says:
    November 6th, 2006 5:01 pm

    Binish, I think the Roosevelt was divested and sold offf by PIA sometime back… during an earlier cash crunch… not sure if it still owns that or any other hotels… nor, I think, do people get to stay there for free… it costs them (us) a lot.

  14. November 7th, 2006 6:30 am

    I doubt PIA will die if it will then why they bought 8 planes from EADS? “PIA takes delivery of its first ATR 42-500 aircraft”, dated 2006-09-28. (for details check EADS as webite).

  15. MQ says:
    November 7th, 2006 6:58 am

    [quote ]” I think the Roosevelt was divested and sold offf by PIA sometime back… do people get to stay there for free… it costs them (us) a lot.[/quote]

    Samdani,

    Roosevelt is very much a PIA property even today. That is where the President and Prime Minister stay along with their very large entourage whenever they visit the US. And they visit too often. (In fact, Shaukat Aziz is cheking in today or tomorrow.)

    Incidentally, according to a recent Daily Times report the President’s stay in New York in September this year (in the line of fire) cost Pakistan $500,000. Half a million dollars!

  16. Samdani says:
    November 7th, 2006 10:46 am

    Did some digging on the Roosevelt; turns out it is (or was) to be sold…. but now may or may not be:
    http://www.jang.com.pk/thenews/jan2006-daily/03-01-2006/business/b2.htm
    http://www.dawn.com/2003/10/01/nat15.htm
    However, it ws partically divested some years ago and has been co-owned the last many years.

    I do hope they sell it. It will bring good money and PIA has no reason to be running this too.

    I too had seen the half million bill news, right here on this blog which is why I thought it had been sold; since they were charged a bill.

  17. zamanov says:
    November 7th, 2006 2:44 pm

    The only fix for PIA is to be privatized through a properly vetted bidding process and to a consortium which has experience running an airline. It is naive to think that the Government of Pakistan in its present state can run a world-class organization (do we have any other example of the GOP running a world class organization of ANY nature?) let alone a competitive airline.

    The inefficient staffing, the political postings, the inept maintenance (as observed by the EU and other mishaps internationally), the Multan Fokker crash, and the never-ending massive bail-outs at tax-payer expense all point to a failing (or failed) airline.

    The proposal to split it into two airlines international and domestic would be unfair to the private domestic players already in the market. The only way to make it even for the domestic players is to privatize PIA completely and offer some formula for subsidizing the strategic yet unprofitable domestic routes, though even those can be taken care of with an open skies policy and letting smaller aviation companies compete with each other using smaller airplanes. If the government wants to pay for its officers or parliamenterians air travel then let is purchase their tickets like any other customer. No VIP or VVIP lines at airport check-in or preferred seating, no VVIP plane rides, no illegal political postings. Period.

    Letting the government of Pakistan influence, bail-out and operate an airline is a recipe for disaster. The days of Asghar Khan and Nur Khan are long gone and will never come back. The aviation industry world wide is cut-throat and complex to operate, requiring world class management and engineering talent. Any one who believes that the government of Pakistan can run it on international standards and competently satisfy all its stakeholders is living in a fool’s paradise.

  18. binish says:
    November 7th, 2006 5:51 pm

    Hi agin,
    During my visit to Houston I met a man who boasted that he is on a long paid holiday and spends all his time travelling and doing nothing.
    After a few glasses of …. he further revealed that he is employed as a flight engineer in our national airline PIA and since the grounding of the the Airbus model airplanes two years back is getting full salary which he said was more than one hundred and fifty thousand rupees per month.
    Not believing this I asked around and a PIA pilot told me that he was telling the truth and that he is not alone, there are about fifty others like him who were at one time flying the Airbus airplanes but for the last two years are sitting at home getting their pay checks every month.
    I still however believe that even with this kind of expenditure on its books PIA will still continue to survive as those depending on its freebees will not let it sink.
    And privatization, who will take on such employees and other similar expenses that we don’t know of on its books!

  19. Razi says:
    November 8th, 2006 4:50 pm

    A far scarier picture is the one painted in a recent article in DAWN about the apparent negligent attitude of those responsible for Aircraft Maintenance and Engineering. I have taken liberty of copying extracts from that article

    Next time I fly home from New York, I may chose a different carrier for obvious reasons. Read on….

    ========================================================
    PIA to incur huge revenue losses: Suspension of Boeing 747 flights

    By Tahir Siddiqui

    KARACHI, Nov 2: The Pakistan International Airlines is likely to incur massive revenue losses as it has temporarily suspended Boeing 747 operations to Europe and switched to smaller Airbus A310 and Boeing 777s in the aftermath of concerns expressed by European aviation authorities.

    Sources said that over 80 flight schedules were disrupted and 38 cancellations or changes in itinerary, involving Boeing 747, Boeing 777, Boeing 737 and Airbus A310, were made as a result of issues raised by the European Commission following inspections.

    The sources said the EU had restricted only two particular aircraft from operation to Europe. They said that a PIA Boeing 747 (registration number AP-BFV) was declared as a potential fire hazard for loose wire harness of IFE (inflight entertainment equipment) at Heathrow airport.

    The sources said that during the inspection of the PIA Boeing 747, two over-wing emergency escape exit lights were not found serviceable.

    They said the other aircraft, an A310 with registration number AP-BEB, was barred from EU after inspection at Birmingham, where inspectors found tail horizontal stabliiser repair had come off and could have restricted flight controls as per their assessment.

    The sources recalled that early this year a PIA A310 flight was impounded at Oslo, when its civil aviation medical inspectors caught the PIA co-pilot in a highly intoxicated state just prior to departure. The man was arrested and sentenced to six-month imprisonment.

    A PIA insider said the incident gave PIA a bad press and led to subsequent inspections of its aircraft, pinpointing to technical defects and documentation lapses. “The national carrier, however, did not fare well during the course of various random inspections carried out at various airports in Europe, where PIA operates Boeing 777s, Boeing 747s and A310s,â€

  20. December 17th, 2006 11:37 pm

    By way of update, there was an op-ed in today’s The News from PIA’s general manager for public affairs, Hassan Jaffery. Some excerpts:

    At the outset, let me clarify some facts about the impact of fuel and the financial numbers. The impact of fuel cost has been crippling, for there was a 74 per cent hike in fuel prices since 2004, the cost per barrel going up to an unprecedented and unanticipated USD 78. If the fuel prices are taken to be constant at the 2004 level, then PIA would have posted a profit of PKR 3.3 billion in 2005. Similarly, in 2006 PIA would have posted a profit of PKR 2 billion rupees net, after including increased interest rates and financing cost. This is so because all the indicators critical to evaluating an airline’s performance showed an increase, whether it was yield or aircraft utilisation, seat factor, market share, revenue growth or the number of passengers carried and indeed, some of these figures have been mentioned by the writer himself. Thus, fuel was the main killer and has stunted the airline’s turnaround that would have been much speeded up, were it not so. In short, industry wide average of fuel cost as a part of total revenues of an airline is 31 per cent, whereas the fuel cost of PIA as part of its total revenue was a whopping 49 per cent.

    …Our chairman is well aware of the fact that a new fleet plan and efficient management has to be rapidly implemented which is where all the energy is directed. A new human resources department has been created that is following the latest recruitment and placement procedures, and modern change management techniques are being applied. By May 2007, it is hoped that the average life of PIA’s fleet that currently stands at 21 years will be reduced to 11 years, with the induction of eight brand new Boeing 777s and 7 new ATR airplanes to the fleet.

    …The aircraft to employee ratio in PIA is indeed very large, and this has affected PIA’s efficiency greatly. For instance, the worldwide employee to aircraft ratio is 130 employees per aircraft, but PIA has a huge ratio of 410 people per aircraft… downsizing is being done in a rational manner and in due course of time will be completed. As for foreign airhostesses, it is more an issue of safety directly correlated with language. For example, we have a flight from Dubai to Moscow that has a very high seat factor and nearly all the passengers are Russians who speak hardly any other language except Russian, and therefore Russian cabin crew have been hired, especially keeping in mind emergencies. It is not right to say that foreign airhostesses hired by PIA are getting exorbitant salaries. Their salary has a range and is related to their country of origin, reflecting the wage structure prevalent in that country. It should be remembered that PIA used to have foreign cabin crew in the past also and many airlines of the world follow this practice. This is therefore neither unique nor is it new to PIA.

    … PIA employees are as old as the PIA aircraft and fresh inductions are required to bring new blood and younger, vibrant minds into the airline. This is being done in a logical manner to coincide with the attrition and superannuation rate of the airline. Nothing revolutionary is being done but everything evolutionary is being enacted. If we stop new inductions completely, like it was done in the past for pilots and engineers and other operational employees for instance, PIA is likely to get into a bottle neck as it is experiencing now, what with the salary packages and incentives being currently offered in all areas by Gulf based “oil-richâ€

  21. Alamdar Hussain says:
    February 14th, 2008 9:50 am

    I am working in Base Maintainence as A/C Technician ,I would say only that i am worried to see all whats happening ….But HOpe for best …Hope things will get better inshaAllah

  22. Rafay Kashmiri says:
    July 23rd, 2008 5:02 am

    @Political orientation, corruption, nepotism,
    fictive jobs and loot-maar is the problem of PIA TODAY.
    Fuel prices up since last 2 months thats it ! ok, and before ?

    the rest of 23.000 arguments are nearly a bullshit.
    PIA, like other Govt.’s admins is not working honestly now.

  23. Watan Aziz says:
    November 3rd, 2010 11:59 pm

    Will the airline survive? I certainly hope so. But for how long and in what shape?

    Pakistani love to idle gossip.

    Gossip.

    Gossip.

    Gossip!

    There, I did it too.

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