PIA pays $13mn to reclaim aircraft stranded for two years

AP-DLG returned to Pakistan on Tuesday, and the other is set to return following the other $13 million

After a gruelling two-year hiatus in Indonesia, Pakistan International Airlines (PIA) has reclaimed one of its two aircrafts, by parting with a hefty sum of $13 million to the leasing company. The Airbus A320, bearing the registration number AP-BLZ (msn 2944), made its return to Islamabad International Airport on  Tuesday night, having embarked on its journey from Jakarta and refuelling Bangkok.

However, its companion, an Airbus A320 registered as AP-BLY (MSN 2926), remains ensnared in Indonesia. Yet, there is a glimmer of hope as it is anticipated to grace Pakistani soil within a fortnight. The root of this predicament lies in a leasing agreement between PIA and AirAsia that has since expired. Ordinarily, aircrafts are dutifully returned to the lessor. This was also the intended fate for the AP-BLZ, which was scheduled to be returned in the autumn month of September in 2021. However, AirAsia declined to accept both aircrafts, citing their dilapidated condition after being utilised by PIA. As a result, AirAsia had the planes impounded in Jakarta in September 2021.

“PIA’s aircraft procurement department is a hotbed of incompetence and corruption,” declares Tahir Mian, senior  aviation journalist. “There is a glaring issue at hand, because it baffles me how and why PIA consistently secures the most problematic, the most troublesome lease deals – when the majority of the world airlines are securing the best deals for their aircrafts and everything proceeds without a hitch. This entire saga is a testament to how poorly managed PIA’s maintenance is, that they have consistently failed to deliver a leased aircraft in a condition that is acceptable to the lessor after the leasing term expires,” Mian elaborates.

Mian’s remarks on the matter paint a grim picture, because not only are more fuel-efficient aircrafts available on more affordable terms, but this is also not the first time PIA’s aircraft has been impounded. Earlier in May, PIA’s Boeing 777-200ER, registered as AP-BMH, was seized earlier this year for the second time by Malaysian authorities in the span of three years.

We have previously delved into how PIA found itself in this predicament to begin with, and how it subsequently navigated the situation.

Read more: PIA bleeding millions paying rent for two A320s grounded for past nine months; PIA’s long dispute with aeroplane leasing company seems to have ended; PIA resolves $26mn dispute with AACL through out-of-court settlement

However, let’s take a moment to recap.

The issue at hand 

In 2015, Pakistan International Airlines (PIA) entered into a six-year lease agreement with AirAsia, a Malaysian multinational air carrier, for two Airbus A320 planes. The monthly rent for each plane was a staggering $550,000.

For the ensuing half-decade, these aircraft soared the skies under the PIA’s emblem, bearing the registration numbers AP-BLZ and AP-BLY. This was not an anomaly for PIA, as the airline frequently resorted to leasing older models from other companies. The two A320s in question had their inaugural flights in France in 2006, before serving AirAsia and eventually being leased by PIA.

However, as the lease period drew to a close in 2021, PIA found itself in a quandary. The aircraft were to be returned to AirAsia in the exact condition they were received, necessitating extensive refurbishment, replacement of original parts, and meticulous cleaning. This process was not only costly but also time-consuming, and PIA was obligated to continue paying the rent until its completion.

Typically, PIA would opt to purchase the leased aircraft from the original owners, especially if they were too antiquated to hold much value. However, in this instance, AirAsia declined to sell the aircraft, despite PIA’s offer. AirAsia insisted on having its aircraft returned, leaving PIA with no alternative but to comply.

The redelivery process, however, was riddled with complications. PIA was supposed to get the c check from a third party, It could not do the c check itself. Hence the planes were sent to Jakarta. There, a third-party company, FL Technic, was to inspect the aircraft. FL Technic, a global provider of aircraft maintenance, repair, and overhaul services, is headquartered in Vilnius, Lithuania.

Upon arrival in Jakarta via Kuala Lumpur on September 19th, 2021, the aircraft were found to be in a state of disrepair, necessitating further repairs. PIA maintained that it had been paying the rent for the aircraft, but nothing more, and that the parking fee was covered. However, rumours circulated that the parking fee was included in the payment made to FL Technic and the engineering facility in Jakarta. PIA did not provide clarity on this matter.

In an attempt to resolve the issue out of court, PIA dispatched a seven-member delegation to Jakarta in October 2023, led by the Secretary of Aviation, Saif Anjum. The delegation also included PIA CEO Amir Hayat, the Chief Technical Officer, and the Chief Financial Officer. Following negotiations with AirAsia and PIA’s legal team, PIA agreed to pay $26 million to settle the dispute and repatriate the aircraft to Pakistan. This was in contrast to the $31.3 million that AirAsia had demanded in a court case against the national flag carrier in the UK.

This incident marked a significant setback for PIA, which has been grappling with financial difficulties for years. The botched aircraft rental deal lays bare PIA’s mismanagement, inefficiency, and lack of transparency. It also raised questions about PIA’s accountability, as no one was held responsible for the debacle. The PIA’s A320 saga was a classic example of how Pakistan’s national airline lost millions in a bad bargain.

Daniyal Ahmad
Daniyal Ahmad
The author is a member of the staff, and covers the automobile, energy and advertising insdusties as a sector analyst. He can be reached at [email protected]

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