Can PIA Survive?

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?