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The state of affairs at Pakistan International Airlines (PIA) is akin to the resounding warning signals — “pull-up, pull-up” — from the enhanced ground proximity warning system that most modern aircraft have on board.
With Shaheen Air International shrouded in rumours galore and Serene and Airblue sailing through minimal competition, PIA is struggling to stay airborne.
New players are facing multiple barriers to entry and general aviation is deteriorating by every passing day. In the aviation lingo, the flight path of the industry is said to be approaching CFIT (pronounced seeFIT), a controlled flight into terrain.
We are all accustomed to hearing about PIA’s doom-and-gloom scenario. A recent report by the Auditor General of Pakistan (AGP) puts the blame on PIA’s faulty business model. Similar audits were also carried out officially and unofficially in the past, but little or no action was taken to avert the descending flight path.
Can PIA be turned around? Can the newly appointed air marshal yank back to pull the airline up from the disastrous descent? Operating near the stalling speed, piloting the airline certainly demands nimble handling, failing which a stall and possibly a graveyard spin are imminent.
Also interesting to note are the remarks from the so-called industry gurus and stalwarts that the National Aviation Policy 2015 (NAP) is the culprit.
NAP 2015 was designed to bring about a dramatic boost in overall aviation activities. Although piecemeal implementation of some aspects of NAP 2015 did take place, its wholehearted implementation did not happen. Poor internal and external stakeholder buy-in of the policy continues to mar the expectations of the industry’s stability, growth and prosperity.
The first claim is that foreign airlines receive an unfair advantage and the domestic market share that should have been picked up by the national air carrier is given away in the name of Open Skies Policy to Emirates and other foreign airlines. Little do we comprehend that all routings, passenger traffic, frequency of flights, pricing restrictions and other pertinent limitations and access fall in the domain of bilateral agreements, and not the policy.
One possible way out is to declare PIA bankrupt and raise another airline with a similar brand name. Good assets of PIA may be transferred to the new airline along with the minimum required human resource
Without bilateral (or multilateral) agreements, market access liberalisation simply cannot take place. Furthermore, the agreements are always based on the principle of reciprocity.
More interesting is the fact that more than 90 bilateral agreements were signed before the policy came into existence while none was signed after the promulgation of the policy. How can the policy be termed unfair to national airlines as no bilateral agreements were signed after NAP 2015?
Another complaint is that the paid-up capital requirement has been increased to Rs500 million for a regular public transport license, which may form a barrier to entry.
For example, depending on its age, maintenance condition and demand at the time, the ballpark figure for the operating lease on a popular aircraft like Boeing 737-800 would be $150,000–$350,000 per month. Assuming the average cost of $250,000 per month, the annual cost comes to $3 million per aircraft per year.
A new airline needs to have at least three aircraft so that it can provide adequate, reliable and timely service. The cost of the operating lease of the aircraft fleet will then be $9m per year. It takes at least a year before an airline reaches breakeven. It must have the financial strength to bear the ensuing losses. With the current conversion rate of Rs130-plus, paid-up capital of Rs500m as per the policy is only $3.85m, significantly lower than the lease payment.
With the operating cost being $5,000 per hour per aircraft, the total figure for three aircraft flying around 1,000 hours each per year will exceed $15m. Paid-up capital must be high enough to bear the shock of the initial losses, including sunk costs. Therefore, the complaint about paid-up capital being high is unreasonable.
Some non-aviation pseudo-specialists also criticise the wet-lease limitation. They ask for a limitless wet-leasing option in their fleet. Wet-lease means giving jobs to foreigners at the cost of increasing the specific unemployment rate of our cabin and cockpit crew. Therefore, such an option must be restrictive to protect the trained and skilled human capital. However, this clause was relaxed in NAP 2015.
The maximum number of wet-leased aircraft was increased from 25 per cent to 50pc of the fleet capacity and from 90 days to 180 days. This has given operators greater flexibility to enhance capacity during the high season and shed the same during the lean season. Almost all countries use the restrictive wet-lease option. Thus, criticism of wet-lease is baseless.
It is beyond doubt that the policy is not the cause of aviation’s decline. Not implementing the laws and regulations in line with the policy could have hastened the downfall.
With almost $3 billion in the red, takers for PIA are few. Therefore, privatisation is not an option. However, a turn-around is not easy with such deep-rooted problem areas and ingrained inefficiencies.
One possible way out is to declare PIA bankrupt and raise another airline with a similar brand name, but as an entirely new entity. Good assets of PIA may be transferred to the new airline along with the minimum required human resource.
But that should be done on a contractual basis. This will keep unions and associations at bay. It will let PIA start afresh with thorough professionals and an honest managerial hierarchy.
There is a management saying that states, “If you cannot measure it, you cannot control it.” A performance audit instead of an accounting audit is required for PIA and Civil Aviation Authority (CAA) to identify bleeding areas that need to be plugged.
With appropriate terms of reference, a think tank of strategic and operational planners specifically in the realm of aviation, along with internationally renowned airline turn-around specialists, should be constituted to carry out a detailed and thorough performance audit of both organisations.
This audit must be followed by a clearly stated course of action for the implementation of a sound strategy to turn around PIA, CAA and the aviation industry.
After all, within the same environment, Shaheen Air made decent money in the past, and Airblue and Serene are now comfortably afloat. Their load factors and revenue streams are certainly positive.
While a number of pitfalls, some obvious and some subtle, still persist, overall aviation has the potential to bounce back and grow.
Lessons from the brink-of-bankruptcy Malaysian Airlines’ dramatic turnaround by Indris Jala and 100pc government-owned Ethiopian Airlines’ sustained success and growth are just a few cases in point. The turn-around specialists are not only wary of deficiencies and frailties in the system, but also know how to plug the holes and stop the bleeding.
The we-know-it-all attitude, with an ego higher than the aircraft’s absolute ceiling, is a sure recipe for disaster: leaders and strategists must decide to leave their egos behind and team up with reputable, internationally known specialists to carry out a professionally sound performance audit, identify weak areas and implement a turn-around action plan for PIA and the aviation industry.
A note of advice for the decision-makers: time is of the essence, and a bold action based on scientifically persuasive cogent arguments/recommendations is in order.
The writer is a Top Gun fighter pilot and has a PhD specialising in aviation management.
Published in Dawn, The Business and Finance Weekly, October 22nd, 2018
