Audit report invalidates PIA’s claims of increase in revenue

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KARACHI: Despite under obligation to publicly declare its quarterly and annual financial reports, Pakistan International Airlines (PIA) had not declared its financial details since 2016 owing to missing information, and when it finally obliged to publish the report of 2017 after two years, the report invalided the national flag carrier’s claims of increase in revenue.

The report exposes a very bleak financial picture of PIA, which reported a loss of Rs47.76 billion compared to the preceding year’s loss of Rs44.77 billion. While the national flag carrier’s revenue increased by 2.07 per cent, primarily due to rupee devaluation, the operational costs went up as well.

GOP enhanced guarantee limit on loans to PIA from Rs178.085 billion in 2017 to Rs222.107 billion in 2019 to meet the cash deficit. PIA is also exposed to market risks such as unstable currency, interest rate risk, fuel price risk, etc. The liquidity risk is managed by cash generated from operators and financing against GOP guarantees. Even Hotel Roosevelt posted a net loss of Rs457.619 million on December 31, 2017, compared to the loss of Rs393.906 million in December 2016.

Moreover, PIA management claimed that the projected revenues for the months of January till June 2019 showed a 30 per cent increase in revenue when compared with the previous year. However, the facts reveal a different picture. The financial health of any airline or commercial organisation is revealed by the total loss or total profit tabulated by comparing the total revenues to total operating cost calculated in USD because fares of PIA’s international and domestic flights are based on competitive fares charged by airlines in those regions.

In any case, almost 56 per cent of PIA revenues are collected in hard currency from its various sales outlets in foreign countries. The USD to PKR exchange rate on January 30, 2019 was Rs139.46 while it was Rs110.811 on January 30, 2018, which translates to a devaluation of 25.85 per cent. Similarly, the USD to PKR exchange rate on June 30, 2019 was Rs163.76 while on June 30, 2018, it was Rs121.73, which translates to a devaluation of 34.52 per cent. The average devaluation rate comes to 30.187 per cent.

In light of the devaluation of rupee, PIA’s claim of 30 per cent increase in revenue should be a cause of concern not celebration as devaluation has led to an increase in fuel cost which comprises over 50 per cent of the total operating cost. The total projected loss for January-June 2019 is expected to be in the range of over Rs30 billion as compared to Rs22.9 billion in the corresponding six months of 2017. The January-June results for 2016 reported a loss of Rs20.8 billion whereas Rs27.1 billion were the losses in 2015, Rs18.97 billion in 2014 and Rs9.8 billion in 2013.

All these issues are primarily due to a lack of proper business plan as the projected revenues are never achieved. The national flag carrier needs strict financial and administrative discipline.

Moreover, PIA’s infrastructure is also prone to damages. 13 PIA engines were damaged because of birds in Karachi while 10 were damaged in Lahore. Even the new Islamabad airport could not provide a secure environment for the PIA planes. These accidents amount to losses of $15 million, which need to be compensated by the Civil Aviation Authority (CAA).

PIA needs a team of qualified executives with professional experience in commercial aviation with powers to hire and fire people without political interference. Unless this is done, there is no way to take PIA out of the quagmire it is stuck in.

Moving the operational base of the national flag carrier to Islamabad is overdue because nearly 80 per cent of the air traffic originates from the northern hubs of the country. This will reduce the total operating cost by almost 16-18 per cent by eliminating the burden of positioning flights from Karachi. In order to achieve this successfully, the Civil Aviation Authority (CAA) must allocate sufficient space at the new Islamabad airport for a wide body hangar instead of allotting more land to Shaheen and Askari Aviation.

The airline needs to relocate sufficient flight deck and technical staff to Islamabad and Lahore, etc. to save money on hotel accommodation and non-operating crew travel. Similarly, PIA must procure parts and lease aircrafts in a more transparent manner and avoid giving contracts of indigenous development to unknown firms instead of an EASA approved firm.

It is worth mentioning here that the audit statement of FY2018 has not been cleared by auditors yet, which is why it has not been made public.

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