By Qamar Bashir
In a significant step forward, Finance Minister Ishaq Dar introduced a bill in the
upper house today (6th August, 2023) on restructuring and privatisation of
Pakistan International Airlines (PIA), allowing the government to sell a 26% stake
in PIA to a strategic partner and allow the airline to enter into joint ventures with
other airlines.
Considering the PIA's dilapidated state and the massive losses it has incurred and
will continue to incur if a complete reengineering is not undertaken backed by
unwavering political will, it would be an outright injustice to the taxpayers, who
are the ultimate victims of these inefficiencies and resulting losses.
The staggering data revealed by Finance Minister Ishaq Dar indicate that PIA is in
a dire financial predicament and that immediate action is required to turn the
airline around.
PIA has lost Rs. 204.6 billion over the last four years. Sustained losses of Rs. 38
billion in 2018-19, Rs. 50 billion in 2019-20, Rs. 75 billion in 2020-21, and this
year the losses are expected to be Rs. 175. Furthermore, PIA has a debt of Rs. 750
billion that it is unable to service. If things continue as they are, PIA's debt could
surpass Rs. 1 trillion in the next five years. In this context, the measure is a positive
step that could assist to turn around PIA's fortunes.
The anticipated sale of a stake in PIA to a strategic partner may bring in much-
needed investment, and joint ventures may assist PIA in expanding its network and
improving its services. However, it is also true that the government must act
differently this time than in the past, as many previous efforts, rather than reversing
the situation, made PIA worse.
In the 1970s, one of the first attempts to reorganise PIA was made. Zulfiqar Ali
Bhutto's government hired a new management team and undertook a variety of
cost-cutting measures. However, these steps were insufficient to turn around the
airline, and PIA continued to lose money. In the 1980s, Zia-ul-Haq's administration
attempted to privatise PIA, but failed due to objections from the airline's unions. In
the 1990s, Benazir Bhutto's administration selected a new management team and
attempted to restructure PIA without success. In 2010, Yousaf Raza Gilani's
government established a new management team and provided the airline with a $2
billion rescue. Even this massive injection failed to solve PIA's difficulties. The
PTI administration recruited a new management team and unveiled a fresh plan to
overhaul PIA in 2019, but it was unsuccessful.
None of these reforms could resolve the issues of overstaffing, corruption, and
mismanagement of finances. It failed to deal with chronic inefficiencies and low
quality human resources. The operational costs which were much higher than those
of its competitors could not be reduced. Neither the old and ageing fleet was
retired nor new fleet and aeroplanes inducted nor maintained. The Airline
continued to run on outdated technology and procedures. The planes were flown by
the pilots with fake licences and therefore PIA was banned in many countries.
Resultantly, PIA lost whatever business it had to other more efficient, updated and
service oriented airlines like Emirates, Qatar Airways, and Turkish Airlines.
The latest attempt to restructure PIA is also in line with the Indian government's
move, which passed the Air India (Nationalisation) Amendment Act, 2007, to give
the airline more flexibility in managing its finances, raising capital, borrowing
money, and investing in new aircraft, setting fares, routes, and schedules. It also
allowed the management to enter into joint ventures and partnerships with other
airlines, all of which helped the airline expand its network and reach new markets.
A new CEO, Rohit Nandan, was appointed and a new board of directors (BOD)
was created to oversee the management, as well as new management was
appointed to guarantee that the airline was managed professionally and efficiently.
Indian Airlines was eventually privatised in 2012, allowing it to access private
investment and expertise. It downsized its fleet, retiring older planes and replacing
them with newer, more fuel-efficient planes. Customer service was improved, new
amenities were added, and business and customer services were automated. These
measures aided Indian Airlines' turnaround, and the carrier earned its first profit in
ten years in 2012. Since then, the airline has remained profitable, and it is currently
regarded as one of India's most successful carriers.
However, we do not have to replicate the Indian model because we have our own
success story that can be replicated to turn around PIA. Sialkot International
Airport Limited (SIAL) opened in 2007, and Airsial debuted in 2017. Both are
growing rapidly domestically and internationally. Sial Airport, now in its 15th year
of operation, has progressed from limited passenger and cargo operations to
become one of the country's busiest international airports, and it continues to grow.
It offers a premium service to businessmen, traders, shippers, exporters/importers,
travellers, Hujjaj, and Zaireen. It has connected Sialkot to the rest of the country as
well as the most desirable overseas destinations, contributing to the area's and the
country's economic improvement. In 2021-22, the company's import cargo
increased by 64.81% over the previous year. Similarly, passenger flights increased
by 72.18%, while embarked passengers increased by 148.38%, reaching 390,832 in
2021-22, up from 157,352 the previous year. As of 30.06.2022, SIAL has a net
profit of Rs 1.5 billion.
AirSial, which is owned by the Sialkot Chamber of Commerce and Industry and
has a capital investment of PKR2 billion, began domestic operations on December
25, 2017 and began international service in August 2022. It has made a profit since
its first year of business and expects to make a profit of Rs. 300 million in 2023.
It already flies to the UAE, Saudi Arabia, Qatar, Oman, Iraq, and Iran, with
ambitions to expand to Riyadh, Dammam, Medina, Dubai, Abu Dhabi, Sharjah,
Muscat, and Kuwait in the future. It is completely prepared to include Europe and
the rest of the world in their second phase of expansion.
The goal of this thorough reproduction of SIAL is to emphasise that the SIAL
airport and Airsial are administered by a Board of Directors wholly composed of
Pakistanis. The management that runs both SIAL and Airsial is of Pakistani origin,
and the human resources that run the operations of SIAL airport and Airsial are
also Pakistanis, bringing home an important point that we don't need to look for
foreign partners, which some analysts believe would be a sell-out, while others are
concerned that joint ventures would not be in the best interests of PIA.
It also implies that we have a successful model of SIAL airport and Airsial, which
may be replicated in other parts of the country. This will not be a difficult task. In
every major city, there is a Chamber of Commerce and Industries. Each CC&I can
form two separate companies, one to administer airports and second to run an
airline by buying 51% shares in PIA assets located in its jurisdiction.
Each CC&I can appoint BOD, and bring in top management to enjoy the flexibility
and freedom to make decisions. It may bring in trained, efficient, and highly qualified
human resources. Rationalise the PIA and CAA assets acquired by each CC&I in
each city to make them more efficient and cost-effectively.
Refocus on regional routes, which would allow it to be more focused on its target
market, renew the fleet with younger aircraft, which would make it more fuel-efficient
and less expensive to maintain, and improve its customer service, which would help to
improve its reputation. It should also bring in new technological innovation to
modernise and upgrade infrastructure and bring the airport and airline services at
par with top airports and airlines of the world.
PIA's turnaround is not difficult; if it was, Indian Airlines would have gone
bankrupt by now. Airsial may not have existed, and many other airlines that
are progressively populating the sky throughout the world may have gone
bankrupt.
What we need is a strong political will and an excellent communication
strategy to persuade airport and airline workers to embrace the reforms and
restructuring measures happily and willingly. The Sial airport and Airsial model
can be adopted to bring airport and airline services at par with the best
airports and airlines of the world.
PM Shahbaz while chairing a meeting on June 27, 2023 of the committee
constituted to proposed restructuring of PIA very rightly said that PIA could
only progress if run by professional and administrative experts purely on a
profit-and-loss basis, whereas the government should only confine itself to
policy-making and facilitation of investors, businessmen and companies. This
is the only wayforward to turn around our cherished and close to our heart
airline, the PIA.
