PIA records Rs32.7bn loss in first half of 2019

KARACHI: Pakistan International Airline (PIA) and its subsidiary, PIA Investments Limited, continue to bleed massively due to a variety of reasons, ranging from mismanagement to lack of transparency and weak audit controls by independent auditors as well as the Auditor General of Pakistan.

Nur Khan succeeded not because of his Air Force combat experience but his self-assessment capability that he was not well versed in dynamics of running commercial aviation industry, which is subject to strict regulatory controls of countries whose airspace they flyover or land, apart from its own Civil Aviation Authority (CAA).

PIA's before tax unaudited six-month loss for the period January-June 2019 stands at Rs32.746 billion, which, after taxation, is expected to be in the range of Rs38-39 billion. Although PIA revenue generation in this period has risen by 44pc in terms of Pak Rupee, it does not reflect the actual revenue since almost 55-60pc of its revenue is earned in hard foreign currency through sales at its various international outlets and travel agents.

Rupee devaluation as compared to 2018 is in the range of approximately 39-40pc, while the cost of fuel has increased by over 19pc. PIA route miles decreased as compared to 2018.

The national flag carrier registered a net loss of Rs59.685 billion in FY18, according to the year's annual report which was signed by auditors with various adverse comments. This loss was higher than that recorded between 2008-2011, when the airline was headed by controversial semi-literate cronies like Aijaz Haroon and Nadeem Yousafzai, who, other than involvement in financial controversies, had no management experience.

The auditors in 2018 Annual Report had mentioned that PIA's major revenue of almost 43pc came from the Middle East, while revenue generated from Pakistan was 37pc, Europe 14pc, UK 4pc and Canada 2pc.

After the 1971 debacle, PIA was headed by Air Vice Marshal Zafar Chaudhry with Air Commodore Khaqan Abbasi as his second in command. They advised then PM Zulfiqar Ali Bhutto to reduce by half airline's fleet, routes and manpower. PM ZAB chose to remove him and handed over the airline to Rafique Saigol, who managed to put it back on track. Nur Khan took over from Rafique Saigol and to his credit, he appointed a team of qualified professionals, well experienced in aviation. He did not bring a team from PAF, because he understood that commercial aviation, unlike military aviation, can survive only if it meets marketing requirements, passenger needs, comfort and international safety standards apart from a reliable schedule, ease of booking seats etc.

Since 2015, PIA Investments Limited has been incurring losses, while the management continues to get bonuses. The incumbent PIA Investments MD had initially retired in 2015 but managed to get extensions courtesy his political contacts. In violation of rules, PIA Investment, with its head office based in Karachi, has never held its Board of Directors meeting in Pakistan but instead in Paris or New York (not giving access to Auditor General of Pakistan).

When the present management took over, they were expected to restore both financial and administrative experience and reduce operating costs. But unlike Nur Khan, the Air Marshal brought a team from PAF to head almost every department and appointed a CFO on 26 April 2019, who was serving as a director in K-Electric, with no commercial aviation experience.

Instead of appointing a qualified Chartered Accountant as Chief Internal Auditor, he selected an MBA who joined PIA in 2003. This gentleman possesses a Certified Internal Controls Audit diploma, which is not equivalent to a Chartered Accountant. This practice of appointing unqualified individuals as Chief Internal Auditor started during days of Aijaz Haroon.

Transparency in acquisition of commercial aircraft by PIA through lease or hire/purchase agreements saved it from huge losses and pilferage in the past, such as cancellation of deal with SIA for used B747-300 by Benazir Government following review and objection by Parliamentary Committee as compared to non-transparent deals such as alleged DC-10-30 swap with old Boeing 747 200 by AVM Viqar Azeem.

Reports published in the media about "status of implementation of the project of MC-21 passenger medium-range aircraft" made in Russia is a cause for concern. One hopes that any such aircraft deals by PIA are subject to review by relevant parliamentary committees because most of the loans secured are on sovereign government guarantees since national liabilities exceed their total assets.

This unfamiliarity with dynamics of commercial aviation and the need to meet demands of passengers in a competitive market where PIA no longer has a monopoly is reflected in the lack of any progress in replacing and updating existing Inflight Entertainment System, which has been not functioning for over three years. For this, neither the PIA BoD and former MDs can be absolved nor the existing chairman/MD, who in spite of getting sufficient funds in the range of over Rs63 billion, has failed to rectify IFES.

Inflight Entertainment System is an integrated part of aircraft systems linked with cabin call and cabin illumination systems, both controlled by same hardware/software and also caters for different flight situations like emergency warnings etc.  Any company authorized to work on any aircraft system must be certified and have required approvals acceptable to EASA for certification otherwise insurance coverage will be compromised. The contract for IFES worth over Rs700 million was given in a nontransparent way to Avionics (Private) Solution Pakistan based in Main Golra Road, although they were registered with RTO on 18 March 2019 while tender floated had a closing date of 8 July 2015 and bids were to open on 15 July 2015 as per Tender PPRA Ref No (TSE) TS392390E.

The auditors have expressed reservations that no meeting of the Board of Audit was conducted in the second quarter of 2019. The Board of Directors have failed to quantify outlay of service delivered by the corporation as a public service obligation. They have also noted that the board failed to establish a pricing mechanism for distinguishing an "arms-length transaction from a non-arms-length transaction". It has also not quantified six-monthly detailed summaries of accounts.