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.)
I will be allocating international to PIA, and domestic routes must be sold to the local airlines so that they can operate with profits.
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.
PIA is crying
one and only solution for pia: get rid of aijaz haroon!
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/2002-2009 AAmainline.pdf
http://www.airlinefinancials.com/airlinedatacompar isons.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.
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