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PR Short Notes


Photo Source: Dawn

Pakistan Reader# 687, 26 October 2023

Pakistan International Airlines: On the verge of Shutdown



PIA requires major restructuring to deal with the legacy liabilities

Femy Francis

On 25 October, Dawn reported that Pakistan International Airlines cancelled over 300 flights within the last ten days. The flagship airline is on the verge of shutdown due to the unavailability of fuel and the economic crisis facing the company. Its fuel supplier Pakistan State Oil refuses to supply oil to the company owing to unpaid dues. A recent negotiation was achieved where PIA pays in cash for its daily requirements to get the fuel, a task the airline is struggling to consistently complete.

The golden days of PIA
In 1946, Mohammad Ali Jinnah the first Prime Minister of Pakistan ordered a leading industrialist M. A. Ispahani to establish a national airline for the newly independent country. Following this Orient Airways was formed which was privately owned and had limited capital and resources. The government then invited the aviation company to merge with them and form a state-owned airline in 1955 the Pakistan International Airlines. PIA saw good days when in 1962, it broke the world record for the fastest flight between London and Karachi. In 1964, PIA became the first airline to charter a flight to China from a non-communist country. During this period the flagship airlines expanded its fleet of aircraft with 720B and two Fokker F-27s. A forgotten part of the PIA history is that it provided crucial support for the now aviation giant and the most sought-after airline the Emirates. In 1984, the Dubai-based new venture approached PIA and asked for support with a budget of USD 10 million. Emirates rented two aircraft and ran the airlines operated by PIA crew and staff, with that PIA provided additional training to the new airlines.

Privatization of PIA
On 19 September, Minister for Privatization Fawad Hasan Fawad held a meeting to kickstart the privatization process for the loss incurred by Pakistan International Airlines, the committee looked to set up clear timelines to expedite the process. Finance Minister Shamshad Akhtar estimated that the airlines will be liable for PKR 12 billion loss per year. As per the official PIA Half Yearly Report of 2023, till June 30 2023 revenue was PKR 120 billion with a gross profit of PKR 11.252 billion while there was a staggering increase of 359 per cent in profit, the net loss surged as well with PKR 60.715 billion.

On 25 October, in a bid to save the flagship airlines, the government and commercial bank representatives held a twelve-member committee to formulate a plan for debt restructuring to keep the airline afloat for the coming six months. The committee is allotted the responsibility to accumulate PKR 15 billion to cater for the immediate needs of the airlines. 

The cause of downfall of PIA
First, Inefficiency and lack of accountability. PIA was fully supported by the government and creditors for continued operations. The airlines were incurring losses for a prolonged period due to which Prime Minister Anwaarul Haq Kakar refused to provide cash assistance for the state-owned airline and ordered restructuring. The airlines only serve three per cent of the local population while consuming a major chunk of public funds. The lack of accountability and the overlooking of the SOEs led to the massive crisis.

Second, Lack of competition. The Market is largely a self-sustaining engine based on survival and profit. The drive of competition and no protection drives private entities to keep their accounts and profits in check. The lack of competitiveness has led to the employees slacking where the national flag carrier suffered a loss of over PKR 38 billion just because of the slackness and inefficiency of its technical staff. The airline's engineering department took up to 905 days to complete maintenance jobs that were supposed to be completed in less than a month.

Third, corruption and political favours. The airline is riddled with corrupt practices, and several political leaders have used the airline for their benefit. The airlines ran on political favours and pressure where the heads of the airlines were mere cronies of the political bosses placed there on vested interests.

Hurdles facing the flagship carrier  
First, hands tied due to IMF review. The ministries are rushing to sort their affairs before the first review meeting with the IMF high-power delegates to check if the conditionalities were met according to the stand-by agreement. The current government has been making moves to alter the economic landscape by privatizing loss-incurring businesses like PIA and increasing tariffs on oil. Pakistan was able to acquire 1.2 billion out of the 3 billion bailout plan and it is therefore essential for the government to deal with liabilities like PIA.

Second, taking care of the liabilities incurred by the airlines. PIA requires major restructuring to deal with the legacy liabilities. The solution had been originally floated around and approved during PM Nawaz Sharif’s government. Whereby the company would be divided into two and the staff would be slashed by 25 per cent. This would result in the lowering of PKR 457 billion worth of liabilities by 2023. What stands is that the government either would have to absolve and pay for PIA’s debts or shut down the airlines to stop them from generating further losses.

References
Shahbaz Rana, “PIA debt restructuring talks begin,” The Express Tribune, 25 October 2023
The trainwreck that is PIA,” Business Recorder, 26 October 2023
Half Yearly Report 2023,” PIAC

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