Doubts surface over PIA-Turkish Airlines deal


LAHORE – Cooperation between Pakistan and Turkey in any field is always a welcome step. However, the proposed agreement between the Pakistan International Airlines (PIA) with Turkish Airlines (TA), details of which have now come to light, indicate that certain concessions being proposed are in clear violation of national interest and on the face of it, a one way ‘sell-off’.
Pakistan Professionals Institute (PPI) which has analysed the document at length, recommends that the federal government adopt an integrated, cohesive approach towards policy for Pakistan’s vital national transport industry of rail, air, road and shipping, so that the most economical mode of transportation is provided by efficient management headed by qualified professionals of integrity.
PIA as the national airline is a vital part of the national logistic chain, with an assured traffic with over 60 percent of clients originating from Pakistan, operating flights with a load factor of over 70 percent which generates enough revenues to make it profitable, provided operating expenses and pilferage is kept under control through strict monitoring. Apparently, such a mechanism is not presently in place.
The national airlines fare structure is comparable and competitive with regard to other airlines in the region, which are either breaking even or are profitable. The problem of PIA lies not in a lack of revenue generation, but a culture of mismanagement, political appointments, pilferage and mediocrity that pervades the upper echelons of its hierarchy.
In a signed document titled ‘Record of Discussions’ dated December 29, 2010, between PIA and TA, PIA agreed to suspend its flights to key destinations in Europe and the US, on which the airline has been operating for several years and formed the foundation on which the business plan for induction of Boeing 777s was based upon.
A pressing issue which needs to be highlighted is the competence and qualifications of key executives in the PIA management team led by Managing Director (MD) Captain Muhammed Aijaz Harron, Director Marketing Imran Ahmed Khan and other senior officials who were involved in these negotiations.
MD Capt Aijaz Haroon, who other than holding an ALTP Licence and presently flying Boeing 777 of PIA, has received no formal college or university education. In direct contrast, the Turkish team was led by President and CEO of TA Dr Temel Kotil (PhD in Aeronautical Sciences), EVP Commercial Orhan Siyrikaya, SVP Business Development and Agreements Ozlam Salihoglu and others.
Once this agreement is implemented, PIA will suspend direct flights to New York, Chicago, Barcelona, Amsterdam, Frankfurt and Milan. Basically this means PIA will halt its flights to all major destinations in the US, while it can restart operation to Houston, a route which it suspended a few years ago according to PIA’s own records, due to losses.
It is stressed this is an ill-conceived decision, as it is tantamount to selling off vital gateways and takeoff/landing slots, which have been procured after years of bilateral agreements and are PIA’s biggest asset. PIA’s only other significant asset which has not been pledged is its trained workforce of skilled pilots, engineers, technicians, sales, reservation, traffic and aviation accounting staff.
PIA which was operating three weekly flights to New York, two to Chicago, will now wind up these operations. The numbers speak for themselves. The present management took over PIA in April 2008, when the national airline’s accumulated losses stood at Rs 42.416 billion on March 31, 2008 according to the First Quarterly Report 2008 available on PIA’s website.
On January 1, 2010, PIA’s total accumulated losses rose to Rs 76.645 billion, while losses between January and September 2010 stand at Rs 11.693 billion. PIA’s total accumulated losses as of September 30, 2010 stand at Rs 88.338 billion. The airlines negative equity has further deteriorated from Rs 17.17 billion in March 2008 to Rs 57.924 billion in September 2010. Total equity and liabilities have also escalated from Rs 125.83 billion in March 2008 to Rs 207.760 billion in September 2010.
PIA’s outstanding liabilities against assets subject to financial lease on the A310 and Boeing 777 Fleet stood at Rs 56.1 billion as of 30 September, 2010. All the above statistics are based on PIA corporate reports available on its website. PIA’s short term borrowings during the tenure of the present management have exceeded all reasonable limits.
PPI has also learned from reliable sources that over 60 percent of PIA’s total revenue sales are in hard foreign currency and therefore, impact of foreign exchange currency fluctuations are only on fewer than 40 percent of its total sale receipts. PIA’s salary, wages and allowances bill for January to June 2010 have risen to Rs 7.225 billion from Rs 5.90 billion in the corresponding period of 2008, which is due to hiring surplus staff on political recommendations, salary hikes and the hiring of executives with extravagant pay packages.
According to PIA corporate reports, the airline bought fuel for Rs 221.2 per gallon in 2008, while the average cost of fuel from January to September 2010 was in the range of Rs 183.2 to Rs 194.22 per gallon. During the last thirty months, PIA’s flight regularity, in terms of delays has touched an all time low in its history as per reports compiled by IATA approved monitoring agencies such as Flight Stats and major international airport authorities based in the UK, such as Manchester Airport.
There are also many eye-opening open ended details in the “Record of Discussions” document which are yet to be specified such as the “principles of the seat capacity utilisation” and levy of penalties if the parameters are not met. The record of discussion gives the impression that PIA will surrender its traffic rights to New York, Chicago, Barcelona, Amsterdam, Frankfurt and Milan to Turkish airlines, all major destinations west of Pakistan, on which PIA has traditionally enjoyed both a high seat and load factor.
In compensation, Turkish Airlines will be a joint venture partner in operations to the following destinations east of Pakistan namely Kathmandu, Dhaka, Mumbai, Bandaranayake and Male. These are destinations on which PIA already has over 78 percent load factor and are points to which TA will likely have very few clients to pass on to PIA.
In fact, TA is presently operating flights to Mumbai only and the document of record of discussion does not specify any intent on the part of TA to even cease this operation. In a step defying logic, PIA has deliberated that it will voluntarily give up its most valued routes and slots in exchange for mere partnership, when in fact it could have sold this asset for several million dollars.
The agreement is very unbalanced and is clearly tilted in favour of TA and detrimental to PIA’s interests. According to the proposed agreement, PIA will be the General Sales Agent (GSA) for TA in Pakistan, furnishing the airline with customers that it had cultivated because it offered its passengers the convenience of direct flights, without any change of aircraft, to destinations in Europe and USA, a key advantage to Pakistani expatriate clients.
An inherent danger is that these passengers would avoid embarking on a flight which involves a change of aircraft and instead opt for more attractive options, for example Middle Eastern airlines which offer more competitive fares, connections and choice of airlines to almost every conceivable destination in the world.
This would result in heavy penalties imposed on PIA, when it fails to meet its capacity utilisation on flights from its hubs in Pakistan to Istanbul as per the proposed “free sale, code share basis and on pool/SPAs/other commercial agreements, as required on case to case basis considering Air Service Agreement third Party Code Share restrictions”.
Once PIA has lost this traffic, it will be difficult to recover; even it wants to abandon the proposed deal. It also important to note that such a major policy decision has been taken by the MD without the formal approval of the federal government as required under the PIAC Act.
This is reminiscent of a similar letter of intent signed by the PIA MD in 2008-09 for the purchase of more aircraft without approval of competent authority. The MD pushed hard for the procurement deal, although statistics reveal that utilisation of existing fleet of Boeing 777 is well below the industry average. He continued to press for procurement of over 40 new aircraft, till December 2010.
When funds were not made available, an alternate strategy is now being pursued, without taking into consideration the short term and long term impact on the airline. PIA gave up its London to New York slot in late 1960s and has never ever been able to recover it.
This is too complicated and sensitive a matter to be left to a team marked by mediocrity, incompetence and lack of professional expertise, experience or qualification so essential to meet the challenge of the cut-throat competition that prevails in the international aviation industry. PIA should enter a code sharing agreement with TA, or other airlines solely on a reciprocal basis. For example, PIA could operate three weekly flights to New York via Istanbul from Pakistan on code sharing flights.
Similarly, PIA can conceivably operate three weekly flights to Istanbul on medium capacity aircrafts with convenient connections for its passengers to destinations in USA and other European destinations on its network on code sharing flights. But the present agreement represents a betrayal of the national trust placed in the once illustrious flag carrier.
The writer is a former PIA flight engineer.