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October 8, 2020

PIA wants its debt of Rs500 bn to be taken off by govt

Top Story

October 8, 2020

ISLAMABAD: The PIA wants its debt of Rs500 billion to be taken off from its balance sheet by the government as the burden of debt servicing and related exchange loss has now become unsustainable. Moreover, it has become impossible for PIA to come out of financial quagmire even with the operating profit.

This has been disclosed in restructuring reforms being undertaken by the management and some financial restructuring measures that were submitted to the federal cabinet by the Aviation Division for final approval. The government under the proposed options has also been suggested to introduce other tools to get the PIA rid of financial morass by ensuring immediate ‘one-time’ upfront payment or permitting PIA to float PIB (Pakistan Investment Bond) at market rate for arranging the required liquidity.

This has been proposed by the Aviation Division with a view to making PIA self-sustainable, without calling on the government for financial bailout now or then. Under the restructuring measures being undertaken by the management, PIACL is in process of announcing Voluntary Separation Scheme (VSS-2020) to all eligible employees. And this is imperative to bring the number of employees in line with requirements of the organisation and achieve right sizing of the human resources for improvement in the company's financial position and productivity.

Under the proposed restructuring plan, PIA management is also making its mind to outsource its various functions, which are not related to PIA’s core business that include Food Services Division (FSD), Technical Ground Service (TGS), Base Maintenance of Engineering Department (BMED), Speedex and Precision Engendering Complex (PEC).

The document pertaining to the restructuring measures, PIA management is working upon, there are three major food uplift stations in Pakistan that include Karachi, Islamabad and Lahore. Currently food preparation setup has already been outsourced in Lahore, however, kitchen operations in Karachi and Islamabad are going on as usual. Moreover, for international stations this function has already been outsourced. Management is evaluating the possibility of Operating & Management contract of Food Services at Karachi & Islamabad. It is not expected to generate much savings but this will definitely improve product quality and customer satisfaction.

The document also mentions that Technical Ground Service (TDS) is one of the essential services related to Aircraft Ramp Handling. There are 12 major stations in Pakistan on which PIA is getting ‘In-House’ Ramp Handling Services. For international stations this service has already been outsourced. So, management is evaluating the possibility of an Operating & Management contract for TGS all across Pakistan.

PIA is also getting ready to outsource Base Maintenance of the Engineering Department. Currently this facility is part of PIA and is utilised for heavy checks of B777s & A320. However, this infrastructure is outdated and requires heavy investment. Currently long turnaround time is required due to material availability and manpower allocation challenges. Therefore, PIA management has planned to covert this into a successful model by outsourcing this function so that airlines can focus on the main business.

Likewise, according to the document, PIA management is also making plans to outsource its function of Speedex — a courier service. PIA launched its courier service in 2003 with the brand name of Speedex. Initially it started its operations at three major stations (Karachi, Islamabad and Lahore) by utilising surplus space and resources. It is obvious that managing courier business is nowhere related to the core airline business. Since there is a potential in the market for courier services and Speedex is already established as a brand name.

The document also mentions that PIA management is also planning to outsource Precision Engineering Complex (PEC) that manufactures high precision engineering parts for the aerospace industry and a number of other industries. This is not completely related to airlines core business. The document also highlights that a meeting was held with the prime minister on April 4, 2019 in which it was decided to carve out this department to the Pakistan Air Force. It also mentions that the PIA Board approved that a consultant should be appointed for carving it out in December 2019. And to this effect, based on the lowest bid, Deloitte is appointed as financial consultant for this process.