PIA's State of Affairs: From National Flag Carrier to National Liability
Pakistan International Airlines (PIA) was created out of the private airline Orient Airways in 1955, eight years after Pakistan became an independent nation. The carrier performed well until the 1970s, when corruption and overstaffing negatively impacted the company. In the 1980s, the carrier’s reputation was further hit due to poor maintenance practices. 1990 signalled further challenges for PIA with the liberalisation of market. Despite remaining the largest operator on Pakistan's international and domestic routes, the carrier is increasingly losing its share in the global market. Due to the management's constant negligence and massive corruption executed under the banner of aircraft replacement, inefficiencies have penetrated deeply into the entire system of the corporation.
Quite recently, Transparency International Pakistan (TIP) dispatched a letter to the Chief Justice of Pakistan to take suo motu notice against PIA for deliberate default in repair payments for 12 now-grounded aeroplanes and fabricating excuses to purchase 39 new aeroplanes at the estimated cost of $2.5 billion, in violation of Public Procurement Regulatory Authority Ordinance 2002 and Public Procurement Rules 2004. In a letter, TIP’s adviser Syed Adil Gilani drew Chief Justice Iftikhar Mohammad Chaudhry’s attention towards PIA, which he claimed was following Pakistan Railways’ footsteps.
The letter quoted contradictory statements given by Defence Minister Chaudhry Ahmed Mukhtar on behalf of PIA in the National Assembly (NA), giving the impression that nothing is in order at PIA.
On February 24, 2011, Ahmed Mukhtar informed the NA that PIA was operating in only 27 out of over 250 countries because it was not economically viable. He said that PIA had a current fleet of 40 aircrafts insured by the National Insurance Company Limited in operational condition. To the contrary, they were taken out of service for “routine” maintenance in very short durations.
On December 7, 2011, PIA issued a tender for leasing 39 aeroplanes, with 12 aeroplanes to be introduced in the next four months. This paradox triggered questions from PALPA, SAEP, ATAP and FENA who claimed the organisation had no funds to purchase or lease the planes nor was there a need, since Ahmed Mukhtar had declared all 40 aeroplanes to be operational.
In the letter, it was pointed out that “the allegations made against the PIA management cover the reasons for flight delay, flight cancellation and the non-payment of bills to firms repairing aircraft engines.”
The letter quoted former MD Aijaz Haroon telling the Public Accounts Committee on September 26, 2010, that PIA was suffering accumulative losses of Rs. 144 billion. Meanwhile, NA Standing Committee on defence was informed by incumbent MD Nadeem Yusafzai on December 9, 2011, that financial losses of PIA had swelled to approximately Rs. 100 billion.
What should have been the case, the letter did mention that such divergent and contradictory financial figures submitted by the two heads of the PIA needed to be seriously examined.
Such contradictions continued during the Hajj season as well. After massive hiccups in the Hajj Operation 2011, PIA has allegedly released incorrect figures to cover its poor performance. In an issued statement, PIA Public Affairs Department said that PIA had successfully completed the Hajj Operation 2011 by bringing back over 110,000 hajjis to Pakistan. The department said that PIA had taken 110,726 hajjis via 273 flights from Pakistan and brought back 96,200 hajjis via 266 special hajj flights from Jeddah. However, sources said 95,500 hajj pilgrims were brought back to the country via 270 haj flights and of these only 47 flights were on time. A PIA spokesperson said 10,884 hajjis were brought back to Karachi, 19,495 to Lahore, 19,766 to Islamabad, 18,600 to Peshawar, 16,058 to Quetta, 3,503 to Sialkot and 8,432 to Multan. However, others said 9,858 hajjis arrived in Karachi, 19,015 in Lahore, 19,015 in Islamabad, 19,876 in Peshawar, 16,386 in Quetta, 3,482 in Sialkot and 8,424 in Multan. These figures had a deviation of 9% for Karachi, 2% for Lahore, 4% for Islamabad, 7% for Peshawar, 2% for Quetta, 1% for Sialkot and and 0.1% for Multan. Sources said the actual figures were not confirmed and, instead, a press statement based on the schedule made for Hajj Operation 2011 was issued.
As a result, a great spark of mistrust erupted in the hearts of PIA’s employees which spread like wild fire. In February 2011, PIA was rocked by a bout of strike action of its employees. The strike action, which occurred over four days and ended on February 12, 2011, resulted in a loss of more than Rs. 2 billion ($24 million) for the carrier and the cancellation of 500 services. The strike left more than 50,000 passengers and 250 aircraft stranded at various airports across the country.
The strike ended after the Pakistani government accepted the demands of Pakistan Airline Pilots Association (PALPA). As a part of this, the government announced plans to remove MD Mohammad Aijaz Haroon, halt plans for codeshare services with Turkish Airlines and reinstate sacked employees. Nadeem Khan Yousufzai, a former director general of the Civil Aviation Authority, was subsequently appointed as the carrier's new MD on February 14, 2011.
The most critical part of the strike action was the carrier's agreement for Turkish Airlines to be no longer on the table. Under the agreement, 21 weekly services were decided between Pakistan and Turkey, out of which PIA would operate 17 services while Turkey received the remaining 4. A Record of Discussions (RoD) was signed between PIA and Turkish Airlines on December 29, 2010, covering the proposed codeshare, although the RoD did not have any binding status. According to some, the codeshare agreement would have covered services to Europe and North America with Turkish Airlines and make the company a member of the star alliance. However, some even greater interests were gathered by the corrupt management which triggered such a protest by the employees. Another corruption saga also came into limelight in February 2012. Pakistan Tehreek-e-Insaaf (PTI) Information Secretary Shafqat Mehmood alleged that PIA signed an agreement to purchase five 777 Boeing aeroplanes for $1.5 billion. This process, according to the secretary, was rightfully questioned by Transparency International which believed that $500 million kickbacks were taken in the deal. Further doubts regarding the corruption saga were also removed by the fact that this deal was never advertised and PPRA rules were not followed.
Moreover, the inordinate hurry in finalising the purchase was also visible: the deal was finalised in 21 short days, something that never happened before in aviation history, Shafqat Mehmood added. He pointed out that purchase of new aeroplanes has to go through a lengthy process of approvals, including working out details of configuration, testing under extreme weather conditions, particularly summers, and compatibility with the existing repair and maintenance along with special attention to issues such as conformity with the existing fleet to minimise overhead costs. However, none of this was done, which in itself was a testimony to corruption. Thereby, the deal was rushed through to take huge kickbacks, Mehmood said.
Along with such a huge scale of on-going corruption in the airline, PIA's coughing of heavy losses can also be attributed to the no-win situation prevailing in the country. As the oil prices keep on rising (with a forecast of $115/barrel in 2012) and the economic and political scenario of the country keeps deteriorating, PIA keeps bleeding heavy losses for the current fiscal year as well – Rs. 19.25 billion until September 2011. Talk of bankruptcy has continued to surround the carrier with former PIA MD Captain Aijaz Haroon stating the carrier has been “technically bankrupt since 2000”.
Reviewing PIA’s profit/loss picture over a period of last 30 years, it can be observed that until the year 2001, the airline accumulated losses of 11 billion and had three profitable years with a new management. The rotting started when Shaukat Aziz, the then Prime Minister, appointed his friends, Tariq Kirmani and Zafar Khan, to head the airline. The debacle did not stop there until Aijaz Haroon brought it to the point of bankruptcy.
The most glaring fact is that during the three year tenure of Captain Aijaz Haroon, the Managing Director, the airline incurred a phenomenal loss of over Rs. 62 Billion – twice the accumulated loss of its 55 years history! Another interesting fact is that PIA has an average manpower of 450 employees per aero plane as compared to 225 in the other airlines. The recruitment criterion is more political than professional.
An airline observer remarked that IATA airlines had one of the best years in 2010 and many airlines had overcome their financial problems in particular due to reasonable fuel prices. Yet, PIA drifted into deeper financial crisis due to its high cost per available kilometre.
The report by PIA External Auditors stated that the corporation incurred a loss of more than Rs. 20 billion during 2010. The total outstanding liabilities and obligations of the corporation were Rs. 183 billion as on December 31, 2010, with its net worth being minus Rs. 62 billion. In a meeting of the Public Accounts Committee (PAC), the director general commercial audit noted that PIA has Rs. 140 billion in debt, half of which was obtained for purchasing aircraft and servicing a constant burden on the entity, Defence Secretary Syed Athar Ali said.
PIA remains in a precarious situation with its streak of losses continuing in 2011 (Rs. 19.25 billion until September) whilst its survival solely based on significant government support and protection. Express Tribune published an article on January 21, 2012, revealing that PIA is suffering a loss of Rs. 70.7 million per day. The worrying figures suggest the airline has already lost Rs. 110 billion over the past three years. According to the PIA Report, the government has agreed to grant additional sovereign guarantees as well as extend the current guarantees on the basis of a Turnaround Plan which in June 2011 stated that PIA was seeking an injection of billions of rupees to acquire 16 new aircraft and overcome losses under a five-year revival plan.
PIA Managing Director Captain Nadeem Yousufzai said that the airline’s five-year revival plan for 2010-14 is pending with the finance ministry, as the entity needs significant financial support for debt restructuring and to acquire new aircraft. Under the plan, PIA would increase its annual revenue from Rs. 94 billion ($1.1 billion) in 2009 to Rs. 217 billion ($2.5 billion) by December 2014.
He, however, said this would not be possible without adding 16 new aeroplanes to its fleet of 40 aeroplanes and restructuring the debt stock of Rs. 140 billion ($1.6 billion). According to him, this would also depend on a 21% depreciation of the rupee against the US dollar in the next four years. For rationalisation of the workforce, PIA intends to transfer 4339 employees on deputation to other allied departments, which would ensure Rs. 3.8 billion savings in five years, Mr. Yousufzai said.
Defence Minister and PIA Chairman, Mr. Mukhtar in June 2011 stated the carrier’s ageing B737 and B747 aircraft need to be replaced. The carrier’s B737 fleet has an average age of more than 24 years, with its B747s having a fleet age of more than 25 years.
The same news of Express Tribune stated that at a senate meeting in January 2012, Defence Minister Ahmed Mukhtar informed lawmakers that “PIA suffered Rs. 19 billion losses over the last 273 days.” When asked why that was so, he pointed towards the rising fuel prices. Despite the crippling losses, PIA’s employees – both retired and serving – still enjoy free travel in Pakistan as well as abroad, observed Senator Najma Hameed. Former directors and other board members are entitled to 12 tickets in economy and business class, including other facilities, the written reply stated.
Earlier, Ministry of Defence revealed that over the past three years, 2,171 people were recruited by PIA. The number of people hired by the incumbent government is highest in the history of the national flag carrier, with 1,179 employed in 2010 alone.
“A paradigm shift is needed in PIA,” wrote Mr. Mukhtar in reply to this point. However, he maintained that there would be no reduction of manpower in operational staff such as pilots, aircraft engineers and specialised professionals.
The defence minister also disclosed that a budget of over Rs. 2.16 billion have been allocated for the Pakistan Space and Upper Atmosphere Research Commission (SUPARCO) in the fiscal year 2011-12. The highest amount summing Rs. 1.5 billion will be spent on the Pakistan Communication Satellite System, he said. A memorandum of understanding has been signed between SUPARCO and the Institute of Remote Sensing Applications for Scientific Cooperation on the operational use of remote sensing technology in the fields of agriculture, water resources and disaster risk assessment.
According to news of Pakistan Today published on March 22, 2012, in a meeting of the National Assembly Standing Committee on Defence, it was revealed that PIA needs a Rs. 58 billion bailout package, which includes Rs. 45 billion for debt services and Rs. 13 billion for immediate liabilities.
According to resources, the government has concluded that the prevailing crisis in the national carrier is because of mismanagement and bad governance, not financial shortcomings.The government spurned Rs. 20 billion immediate bailout package requested by the management to help it come out of a “financial crisis”.
Taking a global perspective with a forecast of average global GDP of 2%, the aviation industry is expected to return to the prerecession level in 2012. Overall capacity (passenger and cargo combined) is expected to grow by 3.2% in 2012 which is behind the 3.6% expected expansion in demand. In January 2012, the passenger load factor (actual capacity utilisation/maximum available capacity) stood at 76.6%.
The International Air Transport Association (IATA) expects airlines to turn a global profit of $3.0 billion in 2012 for a 0.5% margin. IATA's estimated profits for 2011 were $7.9 billion. A major driver of reduced profitability is rising oil prices. The forecast for 2012 stands at $115 per barrel. However, Middle East and the Gulf Region are expected to remain profitable due to the ever increasing passenger demand growth especially during the hajj season. PIA is the largest carrier by seats in the Pakistan-Middle East market with a 31% share of capacity. Thus, provided the flight delays, mismanagement of employees, passengers and other such inefficiencies are eradicated, PIA can surely tap revenues from its international market to an even greater extent.
Moreover, despite the tremendous inadequacies and corruption in the airline, it still had 74% domestic and 40% international market share in 2010 which shows that if corrective measures are taken in time, the airline can succeed in achieving an even greater share of the market.
With forecasted GDP growth of Pakistan going up from 2.8% to 4% in 2012, as well as the ever increasing number of passengers especially during the hajj season, the prospect for PIA does not even seem that oblique, provided it goes for the radical redesign of its operations, eradicates its corruption and immediately embarks on a well devised turnaround plan. A quantum leap forward to its turnaround strategy will be an end to government and political forces’ interference in PIA. This will greatly aid in removing poison from PIA. The company’s revenues would otherwise always be used to fill the bellies of corrupt politicians.
Flight delays and cancellations have offered their aberrance against acquiescence to the norm. Naturally, this situation cannot be tolerated for an indefinite period. PIA will have to overpower its weaknesses. It has failed to resolve issues of its organisation. It is overpopulated and needs to cut its coat according to its cloth. Hard decisions need to be made by the administration to run the system smoothly. No decision is objectively drastic – all such resolutions are subjective. In fact, PIA should also give importance to the safety of the passengers, as several untoward incidents have occurred.
The selection criterion is driven by political motives: right from top to bottom, positions should be awarded on merit, solely. This should not be debatable! As mentioned earlier, there are 450 employees per aircraft whilst this figure is 250 for other airlines. This is directly associated with the intercession culture of Pakistan that has given rise to network driven by a hidden and unidentified mafia right from the start of younger generations to the top. This has to be eradicated at all costs. The Civil Aviation Authority and the Director Heads of the Carriers should hold meetings and open discussions to cater the problems faced by PIA with issues to be addressed face-on, even if they forego personal interests, maintaining that loyalty to the airline industry and ultimately to the country has to be prioritised, as should be the case and legacy. This address should include air traffic regulation flexibility, acquisition of aeroplanes, regulations on meeting the standards of services, efficient management of passengers as well as employees, route expansion and safety issues.
To reinforce Mr. Mukhtar’s statement, it will be only after drastic improvements, radical redesigning of processes, redefining the goals and mission of the company and unifying laws and rules that the airline will be able to excel in its true meaning and generate better revenues, taking a step forward to improving the situation of Pakistan in general.