ISLAMABAD, 2 July — The government and the management of Pakistan International Airlines are trying to raise Rs.20 billion to overcome the airlines’ severe cash problems, and avert grounding.
Ahmad Saeed, the new managing director of PIA has just told the president, Gen. Pervez Musharraf about PIA’s cash crunch, and the later has promised help. But, it will require quite an effort to put in some air into PIA’s wings. “The airlines, as of now, is almost grounded” says Saeed, a private sector industrialist, just appointed PIA’s Managing Director.
This is why “an emergency package of financial and administrative measures has been approved to keep it flying.” The government, as part of the package, has authorized PIA to raise Rs. 20 billion. All trade unions and staff associations, also, are banned through an amendment in the PIA Act 1984. But, there will be no retrenchment.
However, the question is: Can the airlines, which employs the largest number of persons per aircraft compared to all airlines in the world, survive without a massive downsizing and restructuring? PIA unions will definitely have a say. When the staff was cut down in 1980s during President Zia’s period, a study showed, it had some 8,000 employees per aircraft, and that included little Fokker F-27s and the still smaller flying planes. Thousands of those retrenched, later, sneaked back through political patronage or litigation.
But, things worsened and the airlines sank further into trouble, when Asif Zardari, the then Prime Minister Benazir Bhutto’s husband, got hundreds of his cronies and partymen inducted into PIA on non-existent jobs, and those appointed had no merit, education, experience or qualification. Most of them are still on the PIA payroll. Others in power too did the same, even though to a lesser degree.
“The gross mismanagement, propelled by political interference during the 1990s brought the airlines to its present critical stage,” Saeed informed Gen. Musharraf. After the briefing, an airlines statement said, “under the rescue package PIA will work with the Ministry of Finance (MoF) to raise Rs. 20 billion to meet its financial obligations and liabilities and maintain its operations at home and abroad.” But, highly placed Cabinet sources said “no government cash to PIA.” “We will provide only guarantees for bonds and loans that the airlines may raise.”
How to raise Rs. 20 billion within the next few days? Saeed gave the details for the first time recently. He says about Rs. 10 billion will be raised by PIA selling its 50 percent share in three hotels, The Roosevelt in New York, Scribe in Paris and another one in Saudi Arabia. The buyers have already been identified. The rest of Rs. 10 billion will be raised by issuing 10-year bonds. But the capital market and the banks currently are facing severe liquidity problems. PIA hopes, “institutions” will invest in the bonds.
“We need Rs. 20 billion immediately in order to prevent the airlines from being grounded,” the MD says.
PIA’s roster of employees is the principal cause of the airlines in such a plight. Its problems extend to faulty flight plans that mean low-profitability, unprofitable route networking, poor quality of product, absence of internal controls and performance indicators, aging fleet with aircraft some of which are 30 years or more, lack of linking domestic fares with fuel costs, inflation and the constantly depreciating rupee.
What is the rescue plan?
- The seat factor to rise 3 percent from the present 65 percent to 68 percent.
- “Cash leakage” will be stopped.
- Cost cutting in all areas to save Rs. 700 million a year.
- The large expenditure on implementing union-PIA agreements “some of which are most unreasonable,” will be stopped, to save between Rs. 2 to Rs. 3 billion a year.
- Readjustment of regional and international routes.
- Introduction of new flights.
- Rationalization of fares of some heavy loss-making domestic routes operated to and from under-developed areas.
- Linking domestic and international fares with fuel prices.
- Non-airlines functions like motor transport maintenance, flight kitchen, security services, and ground handling will be outsourced.
These measures, PIA hopes, will enable it to break even in 18 months. It expects a 2.6 percent profit on revenue in 2002, and a projected 6 percent or Rs. 3 to 4 billion profit annually in 2003 and 2004.
The airlines has suffered Rs. 2 billion looses in the first half of this year. It suffered a net loss of Rs. 5.155 billion in the year-ended Dec. 31, 2000. Its current liabilities, as of that date, exceeded its current assets by Rs. 16.755 billion. Its outstanding losses and debts to be paid are Rs. 11 billion. This in spite of the fact the PIA’s annual revenues are nearly Rs. 39 billion.
“These conditions, along with other matters indicate the existence of material uncertainty which may cast significant doubts about the corporation’s ability to continue as a going concern,” the audit report for 2000 read. Its cash flow is negative. Its equity is negative.
Can the new MD cope with all this even if he gets the Rs. 20 billion rescue package which he says is needed for “damage control “ alone? PIA has also asked the government to review its Open Skies policy that it says is eating into its revenues. “PIA’s problems are compounded by the foreign carrier-friendly aviation policy that has failed to safeguard the commercial interests of the national airlines,” Saeed informed Gen. Musharraf.
“International air transport policy is too liberal, resulting in several points of entry into Pakistan, including Karachi, Islamabad, Lahore and Peshawar, which favor foreign airlines in the Pakistani market in terms both of quantity and quality.
But, for how long PIA will continue to use “infant industry” argument, seeking protection from foreign competition, and not able to stand on its own feet? Saeed says, after the present damage control exercise is complete, efforts are needed on a wide front. It includes buying new aircraft, otherwise “we will go out of business, because the competitors are using state-of-the-art aircraft, and their service is very good.
Local fares will have to be raised. India’s fares, for instance, for Bombay-Delhi are 40 percent higher than Karachi-Lahore. The price of passenger tickets will be split. The passengers will have to pay the price of the ticket plus the fuel surcharge that will fluctuate with the fuel cost. PIA’s fuel cost in 2000 was Rs. 5 billion more compared to 1999.
Finances apart, it is the attitude of the PIA employees that will be the key. Will they help the airlines swing, swim, sink, or save it?
