ISLAMABAD, Nov 3: Pakistan International Airlines (PIA) is in such dire financial straits that it may be threatened with liquidation because of its monthly losses of more than Rs1 billion and its current liabilities which exceed its assets by more than Rs20 billion, sources told Dawn.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the corporation ‘s ability to continue as a going concern, said its internal auditors in a half-yearly report for the period ending on June 30, 2006, approved by the PIA board of directors.

A senior finance ministry official told Dawn on Thursday that long-term financing on the back of government guarantees or a direct equity injection by the federal government could bail out the company and improve its cash flows which otherwise is a fit case for liquidation.

A senior PIA official, when contacted, said the board of directors of the corporation which met on October 30 also approved another net loss of about Rs3 billion, taking net losses to Rs9 billion as of September 30. As such accumulated losses reached Rs22 billion. He, however, said a financial restructuring plan had already been submitted to the ministry of finance.

The corporation’s chartered accounts Anjum Asim Shahid Rahman and Ford Rhodes Sidat Hyder & Co wrote in their note to the half-yearly report that the corporation has incurred a gross loss of Rs74 million and a net loss of Rs6.144 billion during the half year ended June 30, resulting in accumulated losses of Rs17.944 billion on the balance sheet date.

According to the auditors, the corporation’s current liabilities on June 30 this year exceeded its current assets by Rs20.326 billion. The auditors said: “Due to lack of adequate audit trail to support the carrying value of inventories at moving average costs as a result of problems with the inventory management system, we could not verify the valuation of capital spares and consumable stores and spares with carrying value of Rs3.716 billion and Rs2.464 billion, respectively.”

In layman terms, the auditors were not satisfied with the PIA’s methodology to evaluate costs of inventories and were not ready to give audit certificate for Rs6.2 billion accounted for as capital spares and consumable stores.

When contacted, Dr Ashfaq Hassan Khan, spokesman of the finance ministry, said he was not in the picture about the financial problems of the national flag carrier but hoped the corporation would not be liquidated and added that such a state of affairs in PIA was ‘normal’.

Another senior official of the finance ministry said the corporation had been asked to conduct a need assessment of the finances and come up with proposals about how it wanted to meet those needs.

The PIA management said the net loss of Rs6.144 billion was due to increase in international fuel prices. The fuel cost for the half year ended June 30, 2006, amounted to Rs16.442 billion.

PIA spokesman Imran Ghaznavi said the corporation’s liabilities had surpassed its assets by Rs22 billion by September 30 because of higher fuel prices. He said the company had asked the government for financial restructuring and “they are examining our proposals”. The corporation on its part was taking cost cutting measures to reduce losses, he said.

The airline is currently considering operational restructuring measures, including disinvestment of its holding in PIA Investment Limited or dispose of its properties to improve cash flows. The national flag carrier’s cash flows have already been hit by the European Union regulators’ decision to curtail some of its flights on the lucrative European sectors, particularly United Kingdom, on account of safety concerns due to inadequate maintenance.

Already, as part of the financial package an amount of Rs6.575 billion has been provided to the corporation up to June 30, 2006, against which 543 million A-class ordinary shares of Rs10 each were issued to the GOP. Another Rs114 million shares are expected to be issued during the current financial year.

The federal government has already provided Rs8.8 billion as equity and guarantees to the PIA for the purchase of eight new Boeing 777 aircraft out of which five have been acquired to date.