It’s an age-old dilemma: the national flag carrier can only be sold if it shows some sign of recovery but why sell if it is improving?

Grounded

by Abid Hussain

Despite lower oil prices, PIA continues to plummet. While the government seeks buyers, insiders point to weak leadership. Can the status quo continue for much longer?

When the government of Pakistan promulgated Presidential Ordinance no. XVII late evening on December 4, 2015, it is remarkable in hindsight how it did not envisage the ordinance to become an annoying, frustrating fish-bone which will get stuck in its throat.

Sneakily drawn up and called “The Pakistan International Airlines Corporation (Conversion) Ordinance, 2015”, it was meant for “setting up of the Pakistan International Airlines Corporation into a public limited company”. Instead, all the ordinance has done thus far is to earn severe rebuke from the members of opposition in the two houses, vociferous protests by the Pakistan International Airlines (PIA) employees and outright ridicule in the media. Roundly embarrassed, the government was forced to convert the ordinance into a bill after a resolution was passed by the Senate on the last day of 2015.

Finance Minister Ishaq Dar called it an attempt by the opposition to sabotage government’s plan. Alleging that the resolution had been passed in haste due to opposition’s numerical advantage, the minister said it was “merely political point-scoring” and accused the opposition of “setting wrong traditions”.

The government, Dar explained a few days later in the National Assembly, is only aiming to sell 26 per cent shares to a strategic partner. “National flag carriers are run as corporate entities. We are making efforts to make PIAC a vibrant and profit-earning corporate entity in which all matters will remain as they are,” he told the a meeting of the National Assembly’s Special Committee on PIA, promising that not a single PIA employee would be laid off.

Contrarily, Muhammad Zubair, Chairman Privatisation Commission has been on record saying that the government will privatise PIA by July 2016. “We are planning to privatise PIA in view of its heavy and recurring financial losses,” he told an international news agency.

If this back and forth wasn’t enough to confuse whether the government is looking for a strategic partner or an outright buyer, add in news reports which claimed that Special Assistant to Prime Minister on Aviation, Shujaat Azeem is keen on only restructuring the national air carrier. Azeem had tendered his resignation in December after the Supreme Court ordered him to not participate in the PIA’s sales process, only for the PM Nawaz Sharif to reject it.

Not all former officials are completely against privatisation but qualified their support with caveats. One former director who recently retired after 35 years in service believes that the government’s plan can only succeed if the buyer is a Pakistani. Citing the example of Indian Airlines, he says they have a strict law that shares will not be bought by an individual or an entity which owns or operates an airlines since that will be a conflict of interest.

The chaos surrounding the PIA leaves one wondering if the state of affairs of the national flag carrier is handled by a confederation of dunces. It would have been funny if it wasn’t so tragic. An airline which was once the pride of the country, every year in the last decade has been one ‘annus horribilis’ after another for the PIA.

When the PML-N government came to power in May 2013, one of the first steps they took was to create an Aviation Division, led by Azeem, primarily to look after the matters of the PIA. However, with balance sheets soaked in red, 2013 ended with PIA’s worst fiscal performance in its hallowed history: loss of 44 billion rupees in one year. This left the government with no option but to agree to the International Monetary Fund (IMF) conditions under their $6.7-billion loan programme which bound the government to sell 26 per cent shares of the PIA by December 2014. Twelve months and multiple lapsed deadlines later, PIA’s free fall from the heady heights of the 70s and 80s continues unabated.

What ails the PIA? This is a question that has been asked countless times over the last 10 years. From National Assembly halls to PIA corridors; from the aisles of Boeing 777 to drawing rooms; from television screens to newspaper columns, the definitive answer continues to remain elusive.

But for Aijaz Haroon, a former managing director (MD) of the PIA and a career pilot who retired only few months ago, privatisation is not the solution. Haroon remains adamant that despite the floundering situation, the airline can be saved. “PIA can be saved from within the system. All it needs is sincere leadership and authority to execute decisions,” he says.

Haroon has experience to back his claims. Appointed in May 2008 after the PPP government won election three months earlier, he took over the airline in a year which is widely considered to be the most disastrous for aviation industry globally. With stock markets crashing around the world and rapidly surging fuel prices, the year also saw Pakistani rupee value plummeting majorly against dollar. When the year ended, PIA posted a record loss of 39 billion rupees.

While the 2015 figures haven’t been officially finalised, they have shown a relative decline in loss ledger as the tentative figure has been given as 30 billion rupees in the red. What is important to highlight here is that operating revenue this year has decreased compared to 2014, despite lowest-ever fuel prices, with per barrel costing less than 40 dollars and an exchange rate which has hovered close to hundred rupees.

“While I took over mid-year, rest of the six months saw situation spiral out of control due to exorbitant raise in fuel prices which shot up to 147 dollars per barrel as well as exchange rate as dollar rate increased from 60 rupees to 70 rupees. The losses were inevitable,” he says. What does reflect in Haroon’s credit ledger is the turnaround seen in the PIA in year 2010 when the carrier made annual operating profit of 720 million rupees, a first in five years. Haroon, however, had to quit the post after the pilots’ association protested against his proposed codesharing program with the Turkish Airlines and went on a go-slow in January 2011.

The subsequent five years saw PIA return to its profligate ways. Losses have continued to pile up and the year 2014 ended with organisation posting a loss of 32 billion rupees, despite decreasing fuel prices as well as exchange rate.

While the 2015 figures haven’t been officially finalised, they have shown a relative decline in loss ledger as the tentative figure has been given as 30 billion rupees in the red. What is important to highlight here is that operating revenue this year has decreased compared to 2014, despite lowest-ever fuel prices, with per barrel costing less than 40 dollars and an exchange rate which has hovered close to hundred rupees.

While on some fronts PIA can claim to have shown improvement, such as increasing number of serviceable planes back to 38, reducing average fleet age from 17 years in 2013 to 10 years in 2015 and reducing number of permanent employees from 15,700 to 14,850 in 2015, all of this has come at a cost.

Their current liability bill has soared to 216 billion rupees for the year 2014. Additionally, the government has extended loan to the airline as well as constant borrowing by other banks has resulted in government of Pakistan extending guarantee of 138 billion rupees on behalf of PIA. How to plug this exponentially increasing amount is turning out to be a task beyond the current managers at the organisation.

Speaking to multiple PIA employees both serving and retired from various departments, as well as industry experts, there was, however, one plausible answer to the question touched upon earlier. Or at least, an answer on which some did agree: indecisive and incompetent leadership.

Irshad Ghani, a former Director in Marketing department and Corporate Planning department at the PIA who retired in 2012, believes it is lack of continuity at the top management level.

“While corruption is rampant at every level of food-chain, it is the instability at the top which makes the organisation weak,” he says. Shockingly, there’s no MD currently serving at this crucial juncture in the organisation’s history.

The incumbent, Shahnawaz Rehman who was appointed only as a care-taker MD in July 2014 has been on his Leave Preparatory to Retirement since August 2015. Rehman, a former Director at PIA’s Corporate Planning department, himself replaced Captain Junaid Yunus who served two completely inconsequential years and left the post abruptly to go on a long leave.

As a matter of fact, PIA has indeed gone through a number of changes at the top in last 10 years with no MD staying at his position for more than two years. Despite various advertisement for the post of MD having appeared in newspapers, nobody has yet been appointed.

As another former senior official who served for more than two decades in the Flight Operation department said, “When the decisions are not made at the PIA by its own officials, when appointments and transfers are made on account of nepotism and favouritism and we are asked to only obey instructions, it is impossible to lead or perform.”

Agreeing with the sentiment, another former senior management official added to the chorus of complaints, blaming the current state of affairs on meddling from too many people. “When puppet-masters are controlling the strings from Islamabad and decision-making is left to a coterie of favourites, what do you expect?” he asks rhetorically.

When pushed to give example of nepotism, more than one personnel cited example of the PIA board which includes two members who are on board of Hunar Foundation, a vocational training institute, along with Azeem. In fact, Azeem has already been pulled up by the courts couple of years ago for a case of conflict of interest due to his co-ownership of Royal Air Services (RAS), of which he was chief executive before assuming the office of adviser. RAS handles terminal services, cargo/ramp and Airport Traffic Control at multiple airports in Pakistan including Karachi, Lahore and Islamabad.

While government officials portray a somewhat bullish façade of reviving the declining airline and making it soar again, the morale of the staff at the organisation, even those at significant posts in key departments such as engineering, finance and others appear quite low.

In conversations with Dawn, many portray an obvious sense of disillusionment making one wonder how deep, and severe is the malaise. Government officials talk a grand game about ‘revival and restructure’ and alliances with ‘strategic partners’, but with the fear of privatisation looming large on the cadre, despite vehement denials, whether the corporation will be able to walk the steep walk as well will define the course of PIA’s future.

‘PIA has to reschedule its debts to survive’

by Khurram Husain

Chairman of the PIA board, Nasser Jaffer, talks about his plans to revive the organisation

He joined as chairman of the board in October 2014, and worries that all his time may end up being spent in fire-fighting. Nasser Jaffar works in one of the toughest jobs in the country, tasked with restoring the ailing national airline back to health, and draws no salary. He doesn’t mention privatisation as one of his objectives, preferring to keep his goals restricted to “cleaning the balance sheet”, improving flight operations, and managing a human resource behemoth. He sat down with Dawn to speak about some of the challenges he is facing.

Q. What are your objectives for this organisation?

NJ: The objectives which were given to me, in simplified terms, was to work towards revival of the airline in the shortest possible time. But I don’t think [this] can be done in the shortest possible time.

Q. What exactly does “revival” mean?

NJ: Bring it back to profitability and bring it back to its old prime, where everybody wants to say PIA is a great national brand. PIA is a great brand, it has been abused by many, yet it still stands out for many as a national symbol.

Q. We’re talking about two separate things here, restoration of profitability and the brand image. Let’s start with the profitability. With accumulated losses of Rs295 billion, there is an acceleration in the pace at which the losses are piling up if we look at it over the past ten years. What lies at the core of this? Why is this organisation going deeper and deeper into loss?

NJ: Let me talk about the last two years. You’re looking at a loss of Rs42bn in 2013, and about Rs29bn in 2014. So when you look at it, it has gained something. The losses have come down. In 2015 we are looking at a lesser loss than Rs29bn. It may be very close to it, it may be slightly… a few million here or five million there, I don’t know, whatever it comes to. So we are trying to contain it.

You’re looking at a loss of Rs42bn in 2013, and about Rs29bn in 2014. So when you look at it, it has gained something. The losses have come down.

Q. How are you trying to contain it?

NJ: The basic problem we have is our finances. Our financial constraints, with negative equity and negative cash flow, debt and losses of Rs295 or 300 billion, no one can bring us out of this quagmire unless we restructure our balance sheet.

Q. What does that involve?

NJ: Going to the banks, restructuring our loans. There’s a lot that the financial wizards can put in together and help us evolve a balance sheet which would be far more receptive and acceptable to the market, thereby giving us reprieve on the month to month payments we have to make to the banks and to our other creditors. We are nowhere near it. Every day of the month I am struggling, PIA is struggling, with its financial ability to pay. Therefore the debts keep piling up, we’re just unfortunately, the way I look at it, we’re just borrowing from one to pay to the other.

Q. When does that process of restructuring the debts begin?

NJ: We have already approached the finance ministry. What our request was, and it was an oversimplified request, that please park all these loans of the past, the losses of the past, elsewhere so we can show you a turnaround of this organisation. They have their own constraints. They are not in a position of creating budgetary deficits of this magnitude. What we have today is a situation whereby they [the government] are now suggesting that look, let us find a strategic investor to resolve this issue, and I don’t know whether that will be a possibility or not, only time will tell.

Q. You mentioned parking your debts elsewhere. Do you think what was done with the circular debt in the power sector could be a model?

NJ: This is what we have suggested to them. But this is the domain of the ministry of finance, since the government are the owners.

Q. There is a big perception out there that one of the reasons why PIA is running a big loss is because it is overstaffed. Do you think it is overstaffed? How heavy does the payroll weigh on you?

NJ: Let’s agree in principle that yes we are overstaffed, for the number of planes that we have. Now imagine, we have not increased the staff at all, but we have gone from 21 to 40 planes [in the past two years].I cannot say that we have low staff, the numbers are high. In some cases, the numbers may not be enough. I’ll share with you that right now we are increasing our number of flights to Saudi Arabia. We realise we might need to engage more people locally over there, and we are in the process of getting board approval to do it.

The writer is a member of staff.

He tweets @khurramhusain

Published in Dawn, Sunday Magazine, January 24th, 2016