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?
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:
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….
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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€
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!
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.
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.