The Pakistan government argues that privatization is the only way to save Pakistan International Airlines (PIA). In doing so what it is really doing is acknowledging its own incompetence.
PIA was once a highly rated international airline and used to make Pakistanis proud. That was before successive governments started to use it as a captive employment agency for bestowing political favors.
The privatization argument is at best disingenuous and at worst patently false. Some of the most successful airlines in the world are government owned. The UAE carrier Emirates is a shining example of how a government-owned airline has taken on established global carriers and won. The same can be said for Etihad and Qatar Airways.
Emirates and the other airlines have flourished because they have held to an important principle of corporate governance: Owners should not be managers. So while the UAE government owns Emirates it does not interfere in the management of the company and allows it to be run by professionals.
The airline has an independent board. Its CEO, Tim Clark, is a career airline industry executive. He started at British Caledonian and worked his way up the ranks gaining experience as managing director of Sri Lankan Airlines before moving on to the top job at Emirates.
The airline he runs has, since the second year of its formation, always made a profit. What’s more it has doubled in size roughly every four years.
There is a certain bitter irony in realizing that Emirates was set up by PIA. Staff was provided and airplanes were leased from PIA. In fact PIA pilots flew the first Emirates flights.
And today as Emirates flies high, sadly all of PIA’s planes sit idly on tarmacs across the country grounded by a crippling strike to protest privatization. It does not have to be so. PIA can fly high again. But tough medicine must have to be administered.
The government must realize the prime importance of the set of principles that are now universally known as corporate governance — CG. This is how Investopedia defines the concept: “The system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company — these include its shareholders, management, customers, suppliers, financiers, government and the community.”
Indeed many of the world’s largest and most successful corporations — private and public — are now governed by these principles. The CG principles are globally supported by international organizations such as the OECD and the IMF.
It is interesting to note that the IMF program office for CG in the Middle East and Africa is based in Islamabad. The IMF also supports the Pakistan Institute of Corporate Governance (PIGC). This is a non-profit group run by highly qualified Pakistani executives who run courses on corporate governance for directors and senior managers of Pakistani companies.
Given the IMF’s strong support for CG it is somewhat of a conundrum that they have not pushed for these principles to be applied to PIA. And have instead pressured the government to privatize the airline outright.
Whatever the IMF agenda is, the government must do what is good for the country not its bankers. These are the specific steps that the government needs to take to save PIA: Subscribe unreservedly to the CG principles. This involves appointing a board of largely independent professional directors, and a chief executive with specific airline experience. Once this is done walk away. Let the professionals do their job.
This does not mean that the government has no role in bringing PIA back to life. They need to fix a fundamental imbalance in the competitive environment. The “open skies” regime allows international carriers to operate any number of flights to any destination in Pakistan. This has allowed many international carriers to get the lion’s share of traffic in and out of Pakistan. We need to go back to a more regulated regime in which a regulator allocates traffic between Pakistani and foreign airlines based on bilateral country agreements. This used to be the arrangement in the past and PIA flourished.
And finally the airline’s balance sheet needs to be cleared of years of accumulated loss-based debts. This money is not coming back. So may as well recognize that it is gone, write it off, and let PIA get a new start.
For a nation that can build a nuclear weapon, surely running an airline efficiently and profitably is not rocket science. What is needed is common sense, sincerity, commitment to corporate governance and of course an enabling environment. Let’s put new life in the claim that once we proudly held to be true: “Great people to fly with.”
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The writer is Chairman of Mustaqbil Pakistan.
