Saving the airline

Let us first accept the facts. PIA is under by around Rs350 billion. Its total assets do not make up for this amount. Even if they did, which they do not, it could merely pay up by selling itself out in entirety. Which really means that PIA will be no more. PIA’s entire assets do not make 350 billion. When an institution has more liabilities than its total worth, it is bankrupt. It does not have the ability to pay out what it has borrowed. The PIA is bankrupt; it does not have the ability to pay out its loans.

This has been the case for long now; yet PIA has continued to function. That was only possible because since 2008 the government has been underwriting PIA’s expense in the order of around Rs30 billion per annum. This has kept the airplanes flying and the employees paid. The government now says it is difficult to continue to sustain this organisation because of what it costs them. The same is the case for Pakistan Steel and perhaps the Railways. For sure, there are others too but these big ones, along with something like the circular debt in electricity bills, really sting the fiscal space of an impoverished state with a stagnated economy.

Much that the state would like the flag of the country flown to global destinations, it has become impossible for it to now sustain these national symbols.

The year 2008 was bad for the aviation industry when the oil prices more than doubled. Only those with institutional resilience and fiscal strength could take the blow. Universally, the industry lost money and lost its viability to return profit. Only the big fish survived while they devoured the smaller ones who sold themselves out unable to sustain the financial hit. This is when major mergers, especially in the US, occurred. Where governments owned the aviation industry, as in France or Germany, the going became rough. Small players, poorly managed, like the PIA, could never recover from such debilitation.

Given the nature of the function and the need to make it viable as a travelling option to the common global citizen, further compounded by cut-throat undercutting, profits are hard to come by in this industry. What thus sustains is incremental profit in seat-per-mile utilisation. Modern technology has helped. The introduction of the Airbus 380 and the Boeing 787 is predicated on significantly higher passenger space with efficient engines that enable greater profit for the same number of miles by holding larger number of passengers per aircraft over longer distances. This also means that most, if not all, of those seats must be occupied. Larger capacity and occupancy then incrementally adds to significant profits. Emirates Airlines is one such example. Smaller airlines should aim to at least sustain themselves financially even if not return huge profits.

In my experience, Shaheen Airlines run under the aegis of Shaheen Foundation, a PAF subsidiary, was always a challenge. The idea to run an airline was predicated on the belief that since the air force was all about airplanes, running an airline would be a natural. It soon proved false. It was not about airplanes and the familiarity with them, this was an industry that needed business acumen and corporate familiarity. The airline, thus, soon went under. Strategic partners came in with promise to bring funds which either never came or added to the debt pile when they did, without the airline ever rising above water. Down the line, sense prevailed, and the airline was sold away.

PIA should surely do better. To gauge the nature of its problems compare any burgeoning airline with it: with approximately the same size of manpower, Turkish Airlines operates a fleet of 296 airplanes to 282 destinations and delivers a revenue of $8.2 billion per year; PIA in turn, with slightly larger manpower, operates only 38 planes and flies to only 67 destinations turning in a revenue loss of $238 million every year. The average fleet age of the Turkish Airlines is far younger than that of PIA’s; this too makes a huge difference in operating efficiency and cost-cutting. In every aspect the PIA remains an ailing laggard. Give it to its many employees -management and workers - to have brought it to this point.

Can it be recovered? Surely – if what debilitates it is excised. Political interference and excessive exploitation of PIA’s governmental control, filling in job-seekers of various political denominations haemorrhage the system and suck at the airline resources. It is not the 20 percent salaries proportion of the expense that alone hurts – that too because it isn’t being paid out to the more productive employees, but being spread out thinly as compensation for political favour to the undeserving – but what they indulge in; rampant corruption that reeks from every nook of a badly leaking airline is what really hurts. Procurements, spares, fuel, hotels, privileges, joy-rides, non-core businesses and what not has made PIA into a huge behemoth, ‘too-big-to-lose’. This is what must change to return profitability and credibility.

The recovery strategy must include dividing the airline into two separate functions: one, international with the best, long-range, fuel-efficient aircraft, with optimal manpower comparable to international standards, retaining only its core bare-bone operations with an aim to increase the fleet-size in due course. And the second, a domestic variant, with a different name, privatised to the existing group of workers in the airline, if they indeed so desire, asking them to make it into a profitable venture. If not, they may then be forced to consider alternate options, like selling it off. The added businesses must go wherever they are and retire some of the liabilities, till all can be paid out in due course by a more efficient, restructured entity. This is the age of sourcing out, not holding on to what others could do cheaper and better. Corporate wisdom will at least teach PIA this eternal truth.

The writer is a retired air-vice marshal, former ambassador and a security and political analyst.

Email: shhzdchdhry@yahoo.com