MUSHTAQ GHUMMAN
ISLAMABAD: Civil Aviation Authority (CAA) has reportedly been grilled in the federal cabinet meeting for allegedly inking anti-PIA interests Air Services Agreements (ASA) and failing to act as an independent regulator as well as hurting the national flag carrier’s financial interests, well informed sources told Business Recorder.
The cabinet presided over by Prime Minister, Shahid Khaqan Abbasi, on November 1, 2017 rejected the Business Plan submitted by the PIA, saying that the statistics presented by PIA are unauthentic.
The sources said, a detailed presentation was given by the Chief Executive Officer (CEO) of Pakistan International Airlines Company Limited (PIACL).
The following were the salient features of the presentation: (i) present fleet of 36 would be enhanced to 44 by 2022 which would enhance the present revenue of Rs 96 billion to Rs 210 billion. Likewise, the operating profit would be Rs 27 billion in 2022 from current loss of Rs 14 billion; (ii) PIA had a 70 percent share of domestic market and 22 percent share of international market which could be increased; (iii) PIA would follow new business model based on Hub & Spoke Model and Islamabad would be made the “Hub”; (iv) the reasons for sub optimal performance of PIA was poor customer service, rigidness to change and performance gap, which required business transformation; (v) factors affecting PIA were Aviation Policy, regulation of Unions and Associations (running shadow management), resistance to change, core competency gaps in leadership, legacy debt burden, frequent changes in management , decisions without strategic clarity, piecemeal solutions applied by successive governments and geo political factors; (vi) strengths of PIA were national flag carrier, substantial market growth ( 9.5 per annually), “a new commercially focused Board of Directors”, sufficient number of competent and committed managers despite difficult internal business environment; (vii) positive global outlook of the aviation industry. Pakistan’s market was growing by 9.5 percent per annum; (viii) Aviation policy did not protect the commercial interests of PIA as discriminatory Air Services Agreements (ASA) were inked, which did not provide a level playing field to PIA vis-a-vis foreign airlines. The basic reason was that Aviation division did not ask for the input of PIA while concluding ASA with foreign airlines. Resultantly, Aviation Policy became more liberal and friendly towards foreign airlines; (ix) network would be expanded through code sharing; (x) the six pillars of the new strategy would be IT transformation, commercial restructuring, passenger handling service, HR initiatives, flight operations and engineering and MRO services; (vi) cost cutting under eight heads would be carried out which would save Rs 6.038 billion; (xii) fleet would increase from present 36 carriers to 44 in 2020. The current five ATR 72s would be done away with by 2018; (xiii) PIA yield (Rs 6.03) was less than the global yield (08 cents) and PIA would incur loss after tax, even in 2022; and (xiv) Aviation contribution to GDP was around 1.5 percent whereas direct contribution of PIA was 0.6 percent. Moreover, PIA was providing 18000 direct jobs and indirectly employed 50,000 people as supplier, vendors and support activities. In case PIA was to wound up, then it would dent the job opportunities, while liabilities would still be there and most of the Pakistani passengers would lose direct connectivity with the world and domestic passengers would lose direct connectivity where other domestic private airlines are not operating due to their capacity issues.
Two options were presented to make PIACL financially viable. Option-1(debt free, balance sheet)- In order to make PIACL a debt-free organisation, restructuring of balance sheet would be required. The option envisages that liabilities of PIACL amounting to Rs 352 billion out of Rs 406 billion be off loaded from the balance sheet by transferring assets of PIA e.g. Roosevelt Hotel and Scribe Hotel to the government and after a turnaround by 2022, PIAC’s capitalization would reach a level where the government would be able to recover its investment.
Option 2 (immediate government support): In order to get the fiscal space for two years (2018- 19), it was suggested that government may pick up the tag of Rs 59.334 billion in 2018 and Rs 49.988 billion in 2019 under debt servicing and Rs 8.827 billion in 2018 and Rs 666 million in 2019 under investment in improvements (total – Rs 118.815 billion). For the remaining years, i.e., 2020-2022, organisation would pick up the cost.
Earlier, Advisor to Prime Minister on Aviation, Sardar Mehtab Abbasi stated that the organisation at this stage was facing monumental challenges. Unfortunately, before 2013, there was no ownership from the government. Resultantly, there was no accountability which in turn led to wrong policies and practices without corrective measures. However, the present government had assigned priority and had extended patronage to the organisation. Presently, there are 33 aircraft with 18000 employees. The Board of Directors would be revamped and Directors with credibility would be nominated. Unfortunately, there had been no full time Chief Executive Officer (CEO) for quite some time, but now the organisation has one.
He further informed the Cabinet that now, concept of check and balance, risk management, introduction of profitable routes and closure of non-profitable routes and concept of quality assurance had been introduced to enhance the performance of the organisation. Due to these corrective measures, losses would be lower compared to previous years.
According to sources, the cabinet discussed the issue at length, the following was the gist: (i) the increase of revenue in first year of 21 percent without fleet increase was skewed; (ii) it was difficult to analyse the figures presented before the cabinet without backup data; (iii) despite given full autonomy by the government, the desired results in four years could not be achieved; (iv) direct connectively should not be the sole criterion to retain PIA; (v) The piecemeal measures would not be advisable and closing down the airline may not be the option; (vi) office of independent regulator may be established as Aviation Division could not act as a regulator because of conflict of interest; (vii) PIA should take measures to enhance its efficiency which did not require money along with strict accountability; (viii) expert consultants with experience in Aviation policy may be hired; (ix) the number of employees was not the problem rather poor performance in customer service together with leakages in procurement and lack of accountability had led the organisation to collapse; and (x) in order to analyse the Business Plan, a subcommittee may be formed as Business Plan required detailed/ thorough scrutiny. The recommendations of the subcommittee would then be presented to the Cabinet.
After a detailed discussion it was decided to constitute a subcommittee to be notified separately with the approval of the Prime Minister to examine the financing requirements of the PIACL and submitted to the Cabinet.
