Devising a Growth Strategy for Pakistan (3): What Would You Do With PIA?

Posted on February 10, 2011
Filed Under >Adil Najam, Economy & Development, Law & Justice
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Adil Najam

As we continue with our series on devising a new growth strategy for Pakistan, one cannot but think of the PIA fiasco being played out at airports all across Pakistan. Part of any growth strategy would be dealing with institutions like PIA, deciding what to do with and to them, and taking and implementing some tough decisions. Take a look at Pakistani airports today and you will realize that tough decisions are tough everywhere, but much tougher in Pakistan today. And, frankly, there are many good reasons why.

As everyone remains consumed in the politics of the moment around the PIA stoppage and strikes story, we wanted to invite you to look beyond the moment. What would YOU do if you had to manage PIA, reform PIA, and how would (and should) this figure into Pakistan’s new growth strategy?

In some ways PIA is a really good example because it effects so many of us in very real and immediate ways. Certainly, it does for me – I am supposed to fly PIA from New York to Lahore early next week and at this time wondering what is in store for me. But the problems are bigger than our immediate discomforts. Indeed, the deal with the Turkish airline and the reasons for the current management woes and strikes are all indicators of rather than the real cause of the malaise.

PIA is a storm that has been brewing up for a long time – chronically bad management, over-staffing, politicization, inefficiency, a culture of entitlement, creeping technical incompetence, infrastructure falling apart. None of this is new and none of this will go away even if the current strikes are “resolved.”As far back as November 2006, we at ATP were asking: ‘Can PIA Survive?’

So, what will it take to really and truly “resolve” the PIA crisis within the context of a national growth strategy?

Any ideas?

(Editor’s Note: This is the third in a series on Pakistan’s New Growth Strategy – see first two, here and here. The Planning Commission of Pakistan has invited ideas and suggestions on this and we invite and encourage our readers to please help in highlighting the best and most innovative ideas they can think of. Have your say.)

25 Comments on “Devising a Growth Strategy for Pakistan (3): What Would You Do With PIA?”

  1. USMAN says:
    February 10th, 2011 10:13 pm

    Take tough decisions and stick to them. Govt should not give in to strikers.

  2. Nadeem Ahsan says:
    February 10th, 2011 10:13 pm

    PIA should be shrunk into a smaller regional airline and the deal with Turkish Airlines should be consummated. After fixing the financial mess and cutting thousands of jobs, next step will be to hand it over to a private company to manage its affairs. After that, like in India, the airline industry in Pakistan should be open for private investment. Other airlines should be encouraged to compete with PIA. This is a good opportunity to privatize Pakistan’s civil aviation sector.

    Imagine, if living in America, you are told you have only one state owned airline to fly with and no other choice. Would that be acceptable to American passengers?

  3. IMTIAZ says:
    February 10th, 2011 10:23 pm

    The dreaded ‘P’ word. Privatization.

  4. Abdul Mateen says:
    February 10th, 2011 10:44 pm

    PIA should have been privatized years ago. Its like any other bloated, badly run and corrupt government department. I am sure that even after Asif bhai takes his cut, we can still have a leaner, efficient organization that serves its passengers and also makes money for a change.

  5. Nadeem Ahsan says:
    February 10th, 2011 10:51 pm

    PIA should be converted into a domestic airline and all international routes should be handed over to Turkish Airline for Western Europe and North America and to Singapore Airlines for MENA and APAC. The workforce should be reduced to 5000-6000 employees. The rest of the 10,000 employees should be immediately retired with a good compensation retirement package. The current CEO Capt Aijaz Haroon should be fired with immediate effect for corruption and inefficiency. A new leader should be installed at the helm and the airline should be mandated to return to profitability by 2013 or measures towards privatization should be initiated. Simultaneously, new licenses should be issued to new private operators to compete with PIA starting 2013 and both domestic and international routes should be offered to them.

    Their is no other way to solve this problem.

    Capt Aizaz Haroon should be fired, but deal to radically restructure the airline through code sharing should be followed through as planned by this Government.

  6. Humaira says:
    February 10th, 2011 11:12 pm

    Since you link this to the growth strategy, there are two aspects here. The first is to plug the losses and ineffeceincy at PIA. The solution there is privatization and breakup and better management. The other issue is thinking about transportation needs. And the strategy question there is connectivity to world. That will not happen with PIA alone. That needs larger air transport capacity adn strategy.

  7. Ijaz Raja says:
    February 10th, 2011 11:12 pm

    I think PIA should be sold ASAP even at RS 1.00(token money). Talk of PIA getting back to good old days of glory ?? I think i will bet Military Generals giving back looted billions to Pakistan more chance. Pakistan Zindabad

  8. Asim says:
    February 11th, 2011 12:55 am

    It should be privatized so that civil servants and politicians stop considering it as their private property/bank account.

  9. February 11th, 2011 1:46 am

    Absolutely agree with Mr. Nadeem Ahsan!

  10. Naan Haleem says:
    February 11th, 2011 4:25 am

    Four years ago, one of my close friends managed to get a middle level manager post in the HR wing of PIA. The way he was “welcomed” by his seniors and colleagues was very disappointing for him as they could not believe a person being inducted in PIA purely on merit.For them, he had “captured” a seat which only a relative or other endorsee of any big gun deserved.

    Suggestions of privatization are appropriate but lack financial depth. As the MD of PIA himself stated in mid 2010, that, technically, PIA has defaulted. Selling the airline in its present undervalued state would bring in nothing. Former finance minister Shaukat Tareen was appointed the president of Habib Bank who brought drastic reforms and then made the bank a marketable property. The same must be followed here.

    Emploee to Aircraft ratio of PIA is among the highest in the world, making it one of the most inefficient airlines. So over staffing needs to be addressed seriously and urgently. I have seen over age parkinson ridden male stewards on local flights many a time. Obviously, they were hired for the job thats why they were aboard such flights. Are they actually meant to be there?

    A new wholly owned subsidiary should be formed to operate less profitable and less travelled routes. In this way, we can easily identify the true worth of good and bad assets. The new subsidiary can later be considered for possible subsidies or competitive privatization.

    As the formal and informal trade with china is increasing rapidly, I know many traders who frequently travel to cities other than Beijing and Shanghai. Business community can asked for suggestions in this regard and appropriate route may be formed which may or may not include multi-stop flights.

    Budget airlines are on the rise around the world. Realistically speaking less profitable routes would have to be run on the same pattern, i.e. extra charges for meals, baggage and seat preference. Diverse ticketing plan can be offered on prime routes as well.

    Previously, it was key to success; in present times, Marketing is the key to survival. Opening up sales offices in foreign cities and publishing occasional print ads is not enough. Thanks to internet and social networking sites, relatively cheap marketing options are available with greater impact ratio.

    Lastly, Pakistan will have to disassociate itself from War OF Terror to make its name acceptable to passengers and potential buyer of PIA.

  11. Idealist says:
    February 11th, 2011 8:05 am

    PIA deal leaves many questions unanswered
    By Tariq Ali
    Published: February 10, 2011

    Employees of the flagship Pakistan International Airlines (PIA) chant slogans against the management at the airport in Karachi on February 8, 2011. PHOTO: AFP

    Flight operations of Pakistan International Airlines (PIA) have been seriously disrupted following a rare strike called by the Joint Action Committee comprising all employees. This is for the first time the employees are not going on strike for better pay conditions. Much more seems to be at stake. They have called for annulment of any proposal, which in their opinion, amounts to selling out of key routes to USA and Europe. They have also demanded the removal of the managing director of the airline. They say that the PIA Act requires the approval of the Board of Directors before such a course like the Turkish Airlines deal is embarked.

    PIA is not in great financial shape. Hence the justification to go ahead with the Turkish deal. A bid to cut losses. Half Yearly Accounts of PIA for January to June 2010 signed by their Auditors A.F. Ferguson and Yousuf Adil Saleem have declared that the corporation incurred a net loss of Rs6.90 Billion resulting in accumulated losses of Rs83.33 Billion as of June 30, 2010, and as of that date the corporation’s current liabilities exceed its current assets by Rs55.832 Billion.

    This is not encouraging news.

    What is ironic, however, is that PIA claims to have an average seat factor of 77.53% in accordance with reports available on the web for a 9 months period from January to September 2010 and an average load factor of 67.73 % during the same period. These statistics show that PIA passenger seat factor is well above the industry average and even more than Turk Hava Yollari (THY) which with a seat factor of 71% has declared a profit.

    And yet the deal with THY is under a cloud. The details emerging clearly illustrate that this is not a Code Sharing Agreement in any sense but a decision to surrender its existing routes to USA and other points in Europe, by ceasing its own operations and instead only serving as a feeder airline for THY by transporting passengers from Pakistan to Istanbul for further travel after change of aircraft and onward travel by THY aircraft.

    Chief Financial Officer and GM Budget have in their study very clearly stated that this arrangement if pursued would only further escalate the airline’s losses. This deal reduces PIA to the role of a GSA for THY and like other such agents it will get a commission for every passenger it provides to THY.

    The study also highlights the danger that PIA passengers who chose to travel by it because of direct or one stop flights, without any change of aircraft would be lost, once this benefit is no longer available to them. These passengers will be lost to other airlines in the Gulf which offer more competitive fares and convenient connections to every conceivable destination in the world from their main hubs.

    In spite of opposition by PIA’s own finance department and airline employees unions and association, the management is pressing on with plans to pursue the proposed deal as outlined in the “Record of Discussions” signed between PIA and Turkish Airlines.

    The proposed Record of Discussion is also violative of the business plan submitted by PIA to EXIM Bank USA for financing the existing fleet of Boeing 777s. This business plan was based on utilization of Boeing 777s for 16.5 Hours per day, and higher revenue generation sufficient to pay back installments. The business plan extends to 2013.

    Any change in the business plan would require consent of Exim Bank, otherwise they can exercise their option to invoke bankruptcy clauses.

    This proposed deal with THY, if executed, would lower utilization of Boeing 777s and revenue generation drastically. The utilization reduction can be gauged from the fact that PIA has offered to post their pilots on rotation to Istanbul from where they will fly the Turkish Fleet. This offer has been turned down by PALPA. There are areas where the management needs to focus. The decision to terminate 8 pilots has ignited emotions and only further aggravated a volatile situation and should be withdrawn to begin with.

    Also, PIA’s financial situation demands that pilots and other highly paid executives offer voluntary pay cuts ranging from 5 to 10%.

    Pilferages must also be eliminated and all procurements made in accordance with PPRA rules Another recommendation coming through is that strict financial and administrative discipline be enforced and the executives must restrain from abusing their powers of discretion and all recent employments made on contract or on regular basis be re-evaluated so that merit is strictly enforced and a freeze be put on all further recruitment.

    Published in The Express Tribune, February 10th, 2011.

    Tariq Ali thank you for evaluating the deal. I agree with your analysis and that of PIA’s Accounts department. PIA staff are as patriotic as anyone else in Pakistan. What they are against are looters who have come in the guise of saviors among which Haroon is one.

    I have briefly looked at PIA’s and AMR 6 monthly financials on a line-by-line basis, from details accessed from websites given below.

    http://www.piac.com.pk/piaabout/profiles/2010/PIA-Half-Yearly-Report-201021092010.pdf
    http://aa.mediaroom.com/index.php?s=43&item=2972
    http://www.airlinefinancials.com/uploads/2002-2009AAmainline.pdf
    http://www.airlinefinancials.com/airlinedatacomparisons.html

    Taking AMR, parent of American Airlines (AA), as a one of the best in tbe industry the results are as follows:

    **For AMR (American Airlines) Total Rev $10,742 million for 6 months 2010
    Fuel constituted 29% of operating revenues, $5.6 million per jet aircraft (608 jet fleet)
    Wages & benefits 32% of Ope Rev. $51,000 per employee. Total Employees 66,519
    Employees per aircraft 66519/608 = 109 employees per jet aircraft

    For PIA Total Rev $577 million for 6 months 2010
    Fuel constituted 39% of Operating Rev, $7.1 million per jet (32 jet fleet), $5.8m incl.7 ATRs
    Wages & benefits 13% of Operating Rev, $11,400 per employee, Tot. Employees 20,000
    Employees per aircraft 20000/32 = 625 per aircraft, or 512 empl. per aircraft incl. 7 ATRs

    For PIA to reach eff. standards of AA it needs 109 empl/aircraft x 32 = 3,488 Total Empl
    Or 109 x 39 aircraft (incl. ATRs) = 4,251 Total employees.**

    That is the challenge that PIA faces. It needs to get rid of 5,000 PPP jiyalas and to redeploy its staff on basis of merit, invest and train in all employees in systems technology for each product, revenue and expense line. Give career goals and career path to each employee to reach to their respective goals to best of their ability and for senior positions, including CEO\Directors. They must have a reason to succeed. Not being bullied around by Politicians.

    PIA needs to concentrate on business and ethnic Pakistani routes. Stop flying to destinations where on annual basis it does not meet break-even load factor.

    PIA should Maintain its slots at restricted airports, i.e., London Heathrow (Deliotte A/C firm calculates – see BAA website for slot allocation rules) peak hour landing slot at Pounds 31 each and Pounds 20 million for off-peak landing slot at LHR. For PIA an average of 10 landing slots at Heathrow are worth between Pounds 200 million to Pounds 310 million. This is how Zardari and CEO Haroon are going to make a killing by stopping PIA flying to European airports. This is for just one airport, LHR. British Authorities allocate landing/take off slots on legacy basis at LHR. They are no longer available to any airline other than BA or BMU. If you don’t use them you lose them. BMI, which has approx 17% of Heathrow slots used to fly near empty planes so as not to lose them, were they to suspend flight.

    Now add all slot restricted airports to which PIA operates, FRA, CDG, JFK, CPH, MIL etc., and calculate the value of these slots by using PIA schedule and it would come to Billions of Dollars. That’s where by deception PIA’s CEO and Zardari are going to make the loot.

    If I was running PIA and there was no Government/Politician interference I can turn PIA into one of the highest earners and expand it to beyond what Emirates is. Pakistan has 180 million people all wishing to travel into the future. There are 8-10 million expatriate Pakistanis who use PIA as a carrier of choice. I know I do wherever PIA flies. Please for Allah’s sake stop destroying what is left of PIA and of Pakistan. Turks are business minded people. They do not even allow PIA 5th Freedom Rights at Istanbul and to pick Turkish ethnic traffic. Ask Zardari and Haroon to get Turks to do a reverse deal, that they allow PIA traffic rights out of Istanbul and beyond to EU and USA and I challenge anyone to go and get them.

    @feroze:
    You must be a PPP man waiting to line up your pockets on PIA’s demise. You don’t know what you are talking about. I was an Aviation Analyst on Wall Street and now I am an Aviation Consultant in the US and UK. Tariq Ali did a good job and you should applaud his effort rather than denigrate him.
    Recommended5

  12. Najam says:
    February 11th, 2011 9:45 am

    one and only solution for pia: get rid of aijaz haroon!

  13. waleed ejaz says:
    February 11th, 2011 10:54 am

    PIA is crying

  14. February 11th, 2011 12:24 pm

    The first key to resolve or revive any public sector organization is to commit to meritocracy and next is to bench mark to some other enviable organization of same type in the world, take stock of the current position and then formulate a business plan to achieve the desired results.

    Some tough decisions may be required but then without surgery you cannot eliminate the poisonous part of the body that is pushing towards death and surgery means some loss of blood.

  15. financial news says:
    February 11th, 2011 2:58 pm

    I will be allocating international to PIA, and domestic routes must be sold to the local airlines so that they can operate with profits.

  16. Ally says:
    February 11th, 2011 5:42 pm

    It needs to be privatised… it is a burden on the Quomi Khazana and now they ask to be baled out US$1.7 Billion…. Thats just ridiculous why on earth should that amount of money be spent on only 40,000 Pak citizens?

    How many schools and hospitals can we get with that much? how many kids can we lift out of poverty? How much can we improve the ground realities of our country with that much money, instead of giving it to them!

    It really angers me, not just PIA but all the other money guzzling big corporations that take from the average person (through the national exchequor).

    If no one wants to buy them then just give them away, do whatever it takes to stop them being a major drain on Pakistan’s dwindling money supply.

    Our country can afford these companies, we need to sell them off and put that money into educating ALL of our kids. Having a coherent national education policy and training teachers. That money can also be used for more health centres and training nurses and doctors in the rural areas.

    I can’t believe our govt. and their priorities… education should be the number one priority for our country as well as a massive adult literacy campaign so that EVERYONE can read and write and knows the benefits of educating their children.

    Let a proper airline executive run PIA while our government does what its supposed to i.e. Govern!

  17. Ally says:
    February 11th, 2011 5:44 pm

    Sorry that should read

    our country can’t afford these…

  18. February 11th, 2011 7:32 pm

    Privatisation and Benchmarking. My two cents.

  19. ASLAM QAYUUM says:
    February 11th, 2011 7:54 pm

    This is not about PIA as much about this government. They have lost so much trust with people that even when they do right things, like cutting PIA staff, there is resentment against them.

  20. sheepoo says:
    February 11th, 2011 9:44 pm

    PIA is an extremely inefficient organization: just look at the employee/aircraft ratio. The World standard is somewhere between 90 to 100 whereas the figure for PIA is in excess of 400.

    I suggest that the PIA Unions be banned with immediate effect and PIA be privatized. There are a lot of nikammay employees in PIA who have been hired for political reasons. They need to be fired at once. This, I think,is the only viable option for PIA.

    Just my 2 cents!

  21. banjara286 says:
    February 12th, 2011 3:52 am

    conceivably, privatization could offer one way out, but it is a dicey affair in a political set up such as ours.

    in order for any privatized organization to turn the corner and become profitable, the new management would have to drastically cut the number of useless employees and hire fewer more competent professionals instead. understanding why this must be so brings us face to face with the real reasons for why these organizations turn into white elephants and become financial disasters.

    the biggest single reason why this bloated over staffing happens is political patronage. crown corporations (like pia) are used by the governments of the day to grant massive political favors (in the form of unnecessary jobs) to their supporters irrespective of their ability (any kind of a job) or the needs of the organization. i honestly believe that not only pia, but pakistan railways, steel mills, wapda and any number of other public corporations under govt control, have at least three times the number of employees than are actually needed to run them profitably.

    this real problem of political patronage will not disappear by somehow trying to find a magic solution for pia. the rot prevades through and through, and a massive overhaul of the political culture is necessary.

    however, for political parties to privatize means taking a major hit in support from their vote banks, not to mention the street violence that any efforts to streamline the corporations generate. we saw this happen recently when kesc cut down staff, and it is now happening much more forcefully with the pia saga.

    next to no taxation revenue plus bloated payrolls in the public sector is a sure fire recipe for disaster, don’t u think?

  22. February 12th, 2011 11:06 am

    Some comments from the ATP Facebook page:

    - “PIA has been the hatchery for some of the world top class airlines (EMIRATES, ETIHAD etc)! And now the hatchery itself has more hens, cocks and doodles then it needs!! All I can do for PIA now is PRAY!”
    - “The PIA called the mother of airlines and now what our people trying to do with PIA??? Who is behind all this??? never understand the people of Pakistan…………”
    - “just i can do pray for PIA.because in Pakistan day by day problems are increasing ,,”
    - “I think a certain BREAK DOWN IN COMMUNICATION might be behind all the mess at PIA. PIA should be managed like a proper corporation and not a charity organisation that hires for the sake of hiring,for instance.”

  23. Asad Mansoor says:
    February 12th, 2011 11:34 pm

    PIA should be shutdown now as it no more “great people to fly with” it is not a honor to fly with. She is just a white elephant now. It is just snatching money from its natives only as compared to other air line’s facilities

  24. nhmukhtar says:
    February 14th, 2011 3:47 pm

    Privatize. The government has failed to turn this loss-making enterprise around; let the private sector have a shot.

  25. Salman Javed says:
    March 1st, 2011 12:21 am

    Privatise it for up to 51% and let the government keep the rest. With the private having the controlling share they will work for profits. The only trouble is there might me people losing jobs. Which in all fairness I think is needed to a certain extent. Also, perks for the employees will have to be slashed, no more free tickets, etc. The perks are mind blowing I dont know any airline in europe offering that many and so exotic.

Have Your Say (Bol, magar piyar say)