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.

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  1. There has been a slump in the economy which affects the airline adversely; the dollar/ rupee rate affects the statistics quoted.
    The present MD and CEO had an exemplary record of service in running the Pakistan Aeronautical Complex at Kamra where the Pakistan/China joint fighter is manufactured. I can think of no other person in Pakistan capable of managing the affairs of PIA than the present MD and CEO.

  2. I beg to ask Syed Mohamed Hussain to quantify his statement “The present MD and CEO had an exemplary record of service in running the Pakistan Aeronautical Complex at Kamra where the Pakistan/China joint fighter is manufactured”. Else, it’s just a pleasing statement for whatever its obvious purpose could be..Can he show, any single parameter from a range of KPIs, that he may support his pleasing statement?

  3. It seems that Pakistan post office and PIA is at the right track now, if the losses are decreased as stated by many then , we should sit back and give it 2 years to make any judgement.

  4. I don’t agree with Tariq Ali.. Its absolutely opposite to what facts n figures released by PIA… Recently, I met a high up who was serving in the org for last decade or so… Showed complete trust in present regime… Proudly.. Mentioned about the profits… N management skills… May be the mentioned losses are due to previous debt servicing… I think the writer should have shown the complete corners of the story

  5. Nauman, It is fine to disagree, you have the right, but do you have any facts that you can resent to refute his arguments? If it is true that PAF officers are being brought in to head departments and an unqualified person has been put in place for internal audits then those are serious issues. The para about an unknown, unregistered company getting the IFES contract is typical example of cronyism that has led the entire country to its current sorry state, despite having so much potential. As far as financial numbers are concerned they are for everyone to see and show a dismal picture. Having roots in Pakistan and being a non resident Pakistani for the last 22 years I need a national carrier that is of international standards so I can have non stop flights.

  6. I don’t agree with Syed Hussain and Nouman, PIA is not there to manufacture fighter aircraft, it’s a service industry.Kamra has a budget to spend, where as in PIA you have to earn your expenditure and bread & Butter.
    Why don’t they put right people at the right place

  7. Fundamental issue with any service is to generate revenue and manage its outgoing.

    At present, its outgoing outstrip its revenue stream by too much and the gap needs to be contained at first before reducing it.

    As far as appointment of professionals are concerned it must be done through proper hiring process which doesn’t exist in any major govt run institute.

    You must have board meetings to review your performance but it doesn’t happen here. Anyone can put up any figures to provide positive or negative financial image. There must adhere to strict audit rules but I believe nothing really exist

  8. The current CFO of PIA, Mr. Khalil Ulla Sheikh, is a Chartered Accountant and also the serving president of Institute of Chartered Accountants of Pakistan. I think he is quite capable to manage the national airline. Non of the CFO like him came before.

  9. I say give this team at least 3 years to prove their mettle. It’s this strange trait of ours to demand and expect “instant results” that is wrong.

    Having said that, I will say that after flying PIA earlier this month I observed certain shortcomings that could compromise passenger safety. This is intolerable and in my humble opinion PIA needs to invest in proper training of its cabin crew and maintenance departments.

  10. I am very sorry to say that our educated people twist the facts… if a person comes from PAC which is a defence project, can run a commercial project?, as there is no concept of economics when it comes to defence. Is PIA for manufacturing purposes? When PIA is charging in US Dollar equivalent amount then what is concept of devaluation?

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