It seemed like a routine flight for Captain Athar Haroon and his crew as PK894 descended into Kuala Lumpur. He was flying one of the 12 Boeing 777s Pakistan International Airlines (PIA) has in its fleet. But this was not just any other aircraft. This particular plane was one of the two Boeing 777s that PIA has leased from a Dublin-based aircraft lessor. And PIA was also fighting a British court case over the jet’s lease.

While the plane was taxiing to the designated gate at Kuala Lumpur International Airport (KLIA), the captain and his crew were unaware of the flurry of activity happening behind the scenes at the airport. Inside the air traffic control tower, the controllers were instructed not to clear the flight back to Islamabad, which was supposed to fly within a few hours. The aircraft had landed in Kuala Lumpur on schedule, but it was not leaving on one.

Unaware of all this, PIA station manager Salman Wahab and his team loaded the plane for the return flight and boarded passengers as usual. But this was not going to be just another day at the job. Shortly before the plane was set to take off, bailiffs arrived with airport staff, and told Wahab to leave the aircraft and offload everything.

After a PIA plane was impounded in Kuala Lumpur over a lease dispute involving the aircraft, making headlines both nationally and internationally, a lot of finger-pointing followed. But how did we end up in this mess? And is there a way out?

Something was clearly not right. Soon, it would be clear to all that this plane was not going anywhere. But while the plane could not travel back to Pakistan, bad news travels fast. In an audio note sent to several pilots and aviation WhatsApp groups, a PIA crew member said, “Check out the level of PIA’s embarrassment… [The Malaysians] have impounded the plane and told us that it cannot go back. This is the situation…”

Within hours, the voice note was circulating on WhatsApp groups across Pakistan, with journalists and PIA officials still attempting to understand what actually had happened. The passengers, who were asked to disembark the aircraft shortly after boarding, were also confused. According to media reports, the passengers were initially kept in the dark and told that the plane had developed a ‘technical problem’. There was a technical problem, indeed. But it was not a mechanical issue in the aircraft. It was a problem pertaining to its lease.

Little did the passengers know that they would be unable to board the plane at all that day and would, eventually, be flown home via Dubai and Doha only two days later.

The stranded crew would finally fly back on January 18, three days after the plane was seized on January 15. They would return to a country dealing with the aftermath of the embarrassing incident, with many pointing fingers at the governments (either the previous or current government, depending on their party allegiances), the ministers and the national carrier’s management, which mostly comprises men in uniform and retired air force officers.

As we know by now, the impounded Boeing 777 — which is now back in Pakistan — was seized on the orders of a local court in Kuala Lumpur over a 14-million-dollar lease dispute. The Kuala Lumpur High Court ordered the release only after both sides — Peregrine Aviation Charlie Limited and Pakistan International Airlines Corp — reached an ‘amicable’ settlement of the dispute, involving the two planes leased to PIA.

The Kuala Lumpur fiasco has only shed light on an issue that has persisted at PIA for years. In December last year, the airline had decided to remove four ATR aircrafts from its fleet. Unsurprisingly, the reason here was also an ‘expensive lease’ arrangement.

But how did we end up in this mess in the first place? And what exactly happened?

BAD DEALS

Deciding to settle the matter out of court in the UK, PIA paid seven million dollars to Peregrine Aviation Charlie Limited. This settlement enabled PIA to bring back the plane, but many insiders say they hardly see this return as any kind of victory. The current management of the national carrier feels ‘stuck’ with the Boeing 777s. They reportedly did not want to keep these aircrafts, even before the Kuala Lumpur incident and the international bad press that came with it.

Those in the know allege that the current PIA management had been wanting to get rid of the Boeing 777s, along with four other ATR72-500s that had been leased from AerCap — the world’s largest aircraft leasing company, based in Dublin, Ireland. The two Boeing 777s, that were leased to PIA in 2015 by AerCap, are part of a fleet portfolio it sold to Peregrine Aviation in 2018 (the company that eventually took PIA to court).

Reportedly, the PIA management is currently embroiled in a behind-the-scenes battle with the lessor to sort out the mess it has landed in. Some, including Aviation Minister Ghulam Sarwar Khan, argue that the airline finds itself in this position mostly due to overly expensive and unfeasible lease agreements on some of its dry-leased (leases without crew) aircrafts.

The two Boeing 777s are leased at 580,000 dollars per month, per plane. Both the planes cost PIA a hefty 1.1 million dollars a month on lease payments alone. So, if we take the 9-million-dollar claim by Peregrine Aviation in the UK, that is around 9 months of lease payments.

Airlines make payments through a very complex system, which is dictated by lease agreements that can vary from plane to plane and deal to deal. The payments are sometimes made every three months while, in other cases, they are made after even longer intervals, depending on the cash flow situation of the airline. Leasing companies are mostly very accommodating about these matters.

But these are unprecedented times.

The PIA management is stuck in a quagmire with their flights to Europe being banned. The other main lifelines of the airline, Haj and Umra, were also cancelled due to the coronavirus last year, impacting the airline’s income significantly, and only adding to the losses caused by limited air travel during the pandemic. All this has left PIA with half of its fleet sitting idle.

The airline has nine of its own Boeing 777s and has three 777s on lease, including the one that was impounded in Kuala Lumpur. (Two are leased from AerCap and one from another lessor Macquarie AirFinance). PIA has to pay for the dry-leased planes even if they are not in use, unless a deal is struck ensuring some relaxation during such idle times. A senior PIA official says that the lease agreement with AerCap doesn’t provide that kind of flexibility, so PIA is stuck.

The situation is not unique to PIA. According to Fitch Ratings, an American credit rating agency, aircraft leasing companies report that nearly 90 percent of airlines have been unable to make lease payments and have had to request rent deferrals. Lessors are also dealing with increased lease defaults and lower lease renewals since July 2020.

Seeing all this, the severity of the actions in Kuala Lumpur was unexpected to say the least.

The current management of the national carrier feels ‘stuck’ with the Boeing 777s. They reportedly did not want to keep these aircrafts, even before the Kuala Lumpur incident and the international bad press that came with it.

PIA recently issued a tender for almost eight narrow body aircrafts. PIA will be replacing almost 15 aircraft since their dry-lease agreements are coming to an end. The two Boeing 777s leases will expire this year. One wonders why the leasing company is getting into such a messy situation in the middle of all this. Only a few months ago, an Irish diplomat in Islamabad reportedly approached the Pakistani finance ministers as well as foreign office officials to urge them to keep AerCap aircraft in the PIA fleet.

A LONG TIME COMING

So how exactly did we get stuck with these ‘expensive’ deals? To answer this question we have to understand how Civil Aviation and PIA functioned back in 2015, when the deals were first made.

In 2015, PIA and Civil Aviation worked under the leadership of retired Captain Shujaat Azeem, who had been appointed as aviation adviser to Prime Minister Nawaz Sharif in 2013. It is believed that Azeem was the blue-eyed boy of Sharif. Reportedly, when the Ministry of Defence, which had PIA and Civil Aviation under it, objected to Azeem’s appointment, a separate Aviation Division was created under the Cabinet Secretariat to facilitate the retired captain and his ambitious plans. An entire floor of the PIA office building in Islamabad’s Blue Area was given to the Aviation Division, and its adviser directly reported to the then prime minister.

PM Sharif took a keen interest in aviation and, if Azeem’s opponents in the aviation industry are to be believed, the then aviation adviser utilised this fact to bring dramatic changes to the national carrier. He went on a fleet replacement spree unlike any other the airline had seen before. It is important to note that the PIA board of directors approved a fleet renewal plan in 2012. According to the plan, PIA decided to phase out the aged planes in its fleet. But Azeem went on to initiate the process, which meant retiring all old PIA planes, including its iconic Boeing 747s and its workhorses Airbus A310s.

At the time, PIA had eight of its own Boeing 777s and seven ATR42-500s that it had received directly from the manufacturers. To fill the void left by the retired aircrafts, Shujaat Azeem initially wanted to dry-lease Airbus A330s. But this proved to be a controversial decision with the PIA establishment, which was predominantly pro-Boeing.

The situation is not unique to PIA. According to Fitch Ratings, an American credit rating agency, aircraft leasing companies report that nearly 90 percent of airlines have been unable to make lease payments and have had to request rent deferrals. Lessors are also dealing with increased lease defaults and lower lease renewals since July 2020.

At one point, PIA had 15 Boeing 747s and nine Boeing 737s. The idea of getting Airbus A330s was not acceptable to the powerful pilots’ association and other stakeholders in the airline, who considered this ‘too much of a shift’ in PIA. One senior official recalls that there were fights and bitter arguments in PIA among senior management.

Boeing 777s were suggested instead, apparently against the wishes of Azeem at that time, who had initially (and rightly) recommended that PIA needed medium-sized planes. He later ended up rejecting the A330s, which have a lower seating capacity than the 777s, himself. This is how PIA has functioned for decades. Decisions do not appear to be made after considering economic sense or commercial suitability, but are rather based on political manoeuvring and strategising.

HOW PIA ENDED UP WITH THE LEASED 777S

In January 2015, a tender notice was issued to acquire up to four narrow-body aircrafts (Airbus A320s or Boeing 737s) and three wide-body aircrafts (Boeing 777s, Airbus A330s, A340s etc). But, in March 2015, a new search tender was issued, clearly tailored to Boeing 777s. Eventually, AerCap was awarded the contract and the planes, one of which was recently seized in Kuala Lumpur, made their way to Pakistan.

Later, the Auditor General of Pakistan noted that some specifications were added “keeping in view the offer of AerCap in the earlier tender (31st January, 2015) bidding.” Commenting on the process, the auditors had explicitly stated that there was a “lack of impartiality in the whole tendering process.”

Another offer that was made by Dubai Aerospace Enterprise Ltd (DAE) — an aerospace corporation and one of the largest aircraft leasing companies in the world — was for A330-200s at the rate of 540,000 dollars a month. The 777-200ERs, on the other hand, were initially offered at 670,000 dollars, and were eventually brought down to 580,000 dollars. One cannot help but think that if PIA had decided to opt for the Airbus A330s instead, it could have been in a very different situation today.

The auditors had observed the same all those years ago stating that, “...PIAC could have availed the best option of leasing the aircrafts at best competitive/economical rates but the same was not done and the management failed to make prudent decisions, rather the amendments were made to favour the contractor of their choice which caused loss to the corporation. The responsibility for the subject losses lie on [the] PIA Board of Directors, Managing Director or CEO of PIAC of respective period.”

AN OLD PATTERN

The Kuala Lumpur fiasco has only shed light on an issue that has persisted at PIA for years. In December last year, the airline had decided to remove four ATR aircrafts from its fleet. Unsurprisingly, the reason here was also an ‘expensive lease’ arrangement.

A PIA spokesperson had then issued a statement, saying that the management, on the instructions of PIA CEO retired Air Marshal Arshad Malik, had reviewed the lease agreement thoroughly and got benefit of a clause in the document during the suspension of flights due to the Covid-19 pandemic.

“The ATR-72 planes on lease to PIA were costing rentals whilst on ground,” the spokesperson had said. “PIA officials negotiated a deal to return the aircraft to the leasing company with no cash penalty.”

“It’s beyond the norms of leasing business,” the spokesperson had said, patting the airline officials on the back. But this negotiation savvy clearly did not pan out when it came to the Boeing 777s leased from AerCap.

In a presser, held before the return of the impounded Boeing 777, Federal Minister for Aviation Ghulam Sarwar Khan also blamed the previous government for acquiring the planes on an ‘expensive’ lease that the national carrier failed to pay on time due to the pandemic.

He maintained that the financial problems the airline was facing were due to “poor policies” of the previous Pakistan Muslim League-Nawaz (PML-N) government. He claimed that they made “unnecessary political appointments even on fake degrees that ruined the organisation.”

He recently repeated the same at a press conference, and then, reportedly, upped the ante. According to a Dawn report, answering questions of reporters in Taxila, the minister claimed that an Indian lobby conspiracy was behind the seizure of the PIA passenger plane in Malaysia last month. The Aviation Division issued an official rebuttal the following day, calling the statement “totally baseless”.

Nonetheless, the aviation minister, and many others, back the argument about the expensive lease agreements.

The current PIA management and the government need to find a way out of this situation. Repeatedly placing blame on those no longer in office achieves precious little. The airline has accumulated nearly four billion dollars in losses. The ‘fake licences’ issue, which was arguably mishandled and blown out of proportion by the aviation minister, continues to haunt the national carrier. And every time there is a news flash about PIA, one fears that it will be bad news — unfortunately, more often than not, it is.

People who follow the aviation industry have maintained that these planes were acquired on expensive leases, at rates that Pakistan could not afford even before the devastating economic impact of the global pandemic. But the culture that led to these deals being made still persists at the airline.

The impounding of the Boeing 777 should not just be used for political mudslinging. It should serve as a wake-up call for all the stakeholders.

Tahir Imran Mian is an award-winning journalist. He was social media editor at BBC Urdu. He is currently a consulting editor for Pakistan Aviation, an aviation news website. He tweets @TahirImran

HOW THE CASE UNFOLDED

On January 12, Peregrine Aviation Charlie Limited, moved the Malaysian Court, knowing PIA’s updated flight schedule, which showed the Boeing 777 scheduled to fly to Kuala Lumpur on January 15.

The Judicial Commissioner Atan Mustaffa Yussof Ahmad heard this case via video conference and later ordered the officials of Malaysian Airport Authority to impound either or both of the aircrafts that PIA has leased from AerCap once they landed at the Kuala Lumpur International Airport. To make the order airtight, the court named 11 directors and officials of Malaysia Airports Holdings Berhad — a Malaysian airport company that manages most of the airports in Malaysia — and made them liable to execute the order.

The airport authorities followed this order and PIA paid the cost of this application as per court order.

On January 15, the plane was impounded in Kuala Lumpur.

One question that was raised in Pakistan after the plane’s impounding was, why Malaysia? The answer to the question is very simple. Since the fake licences issue in Pakistan and PIA being barred from operating in Europe, the national carrier has only a few long haul destinations where its Boeing 777s can fly.

A cursory look at the past few weeks’ flight data of this plane shows that it has only flown to Saudi Arabia, and flown once to China, apart from the impounded flight to Kuala Lumpur. Its future flights are also scheduled for Saudi Arabia. So, clearly, there were limited options and Kuala Lumpur won out.

The payment dispute between the airline and Peregrine had been filed in the UK courts about six months ago, PIA spokesperson Abdullah Hafeez Khan said in a video statement.

“It is an unacceptable situation and PIA has engaged the support from the Government of Pakistan to take up this matter using diplomatic channels,” PIA’s official account initially tweeted after the plane was held back. The airline had called it a “one-sided decision pertaining to a legal dispute between PIA and another part pending in a UK court.”

On January 17, 118 passengers arrived back in Pakistan by an Emirates Airlines flight and 54 passengers arrived by a Qatar Airways flight.

On January 18, the stranded crew flew back to Pakistan.

On January 22, at the High Court in London, PIA’s lawyers objected to the impounding of the aircraft in Kuala Lumpur. But, according to a Dawn report, the court did not pay heed to this, as it was the result of a court order in another jurisdiction.

During the hearing, PIA’s lawyer informed the judge that the airline had paid seven million dollars to Peregrine as part of the lease agreement, but a dispute for the remaining 2 million dollars persisted.

On January 27, Federal Minister for Aviation Ghulam Sarwar Khan told the media that the PIA and the Peregrine Aviation Charlie Limited leasing firm had agreed on an out-of-court settlement for the PIA plane seized at the Kuala Lumpur Airport.

The Malaysian court also ordered the immediate release of the plane, nearly two weeks after it was seized.

On January 29, the plane finally flew back to Pakistan, two weeks after it was first seized.

Published in Dawn, EOS, February 7th, 2021