What is the problem with PIA, anyway?

It is not that complex at all

Once the pride of the nation and a role model and mentor in the aviation industry, Pakistan International Airlines (PIA) has been losing altitude for the past twenty five years and is now perilously close to terrain. Created under the PIAC Act of 1956, the airline’s initial mission was to connect East and West Pakistan and initiate international operations. The airline acquired the then state-of-the art Boeing 707 aircraft in both passenger and cargo variants, and became the first airline in Asia to do so. These long range, ultramodern aircrafts put faraway destinations like London and New York within PIA’s reach and PIA quickly rose to the ranks of top airlines of the world. PIA was also the first in Asia to operate pure freighters which catered to the international freight movements from Hong Kong to Europe and North America.

The airline played a pivotal role in the nation building of a fledgling country. Some key projects included setting up of PIA Shaver to introduce farmed chicken in Pakistan, precision engineering, sponsoring and employing talented sportspersons and many other non-aviation related services which were vital for Pakistan at the time.

PIA achieved all this when there were few expat population pockets of Pakistanis in Europe, North America and the Middle East. So why is it that now when PIA’s home country’s population is nearing 200 million, out of which amongst 10 million are permanently settled in Middle East, Europe and North America and are regular visitors to Pakistan that the airline is in its worst shape and descending fast, nose first?

The most popular answer you will get from the Pakistan intelligentsia and aviation experts is the aircraft to employee ratio, which ranks amongst the highest in the world. Employees become a burden on a commercial organisation when they are consuming a higher than normal percentage of total revenues as are not performing. The PIA employee payroll, however, has hovered around 16 to 17 percent of its revenue whereas the industry standard worldwide is around 25 percent. As for non-performance, there are a few thousand who need to do more, but that is strictly a management issue. If aircraft to employee ratio was PIA’s core problem, it would have been the easiest to fix as it could be solved by throwing money at the problems by either retrenching the excess employees or by inducting more aircraft. Another way to bring this ratio down is by outsourcing ground handling, catering and other non-core activities. However, outsourcing does not significantly reduce the financial outlay as you still have to pay for these services and the economic benefit of doing so is not that great.

PIA’s infamous trade unions are also blamed by many as the source of trouble and downfall of the company. There may be some instances where unions bullied the management into doing something unholy, but by and large they are not the troublemakers they are perceived to be. PIA has elaborate rule manuals which empower management to take action against even a union president if he or she breaks any rules. An appropriately worded letter from the competent authority generally solves the issue. Collective Bargaining Agents (CBAs) the world over will ask for the moon and will take whatever they can get. PIA’s CBAs are no exception. In fairness, the pilots’ association, PALPA, has done more damage to the cause of the company than all the staff unions put together. The most damaging being the sabotage of the Turkish-PIA alliance.

There is no reason why a flag carrier of a populous country with large expatriate populations should be in this condition, unless there was something fundamentally wrong in the country’s aviation policy or its priorities

PIA’s drop-in management is as clueless about the company as the owners sitting in Islamabad, most of them are remnants of bygone regimes. These individuals were inducted directly at management positions during the Musharraf and Zardari regimes and are now largely running the show at the PIA head office in Karachi. There is an ex-army major who was the son-in-law of a famous PPP patriot whose father-in-law was the Minister of Defence and actually twisted the then Chairman PIA Tariq Kirmani’s arm to induct his ADC and son-in-law directly in group IX. True to form, this talented individual, who spent most of his army life carrying briefcases instead of guns, has now been able to create the softest of corners for himself in the Aviation Division and is now the Director of Customer Services, Flight Services and Virtual Marketing.

Another current Director, who is also the Chief Financial Officer, was inducted directly as General Manager during the Zardari era. The only thing he will predict is the closure date of PIA which, fortunately, he has got wrong every time. These individuals and a few others of their cadre are now running the airline. Obviously these drop-ins can ill afford to speak up for merit or PIA’s interests even if they did have a clue, because the masters in the Aviation Division will promptly kick them into oblivion. Having said that, most of PIA’s problems are, in fact, not their doing, and even a professional management would find it impossible to turn PIA around from the state that it is currently in unless certain basic aviation policy issues are addressed first.

Revenue leakages and corruption are also PIA issues and rightly so. However, these are again management issues. The rules exist and if the management has the will to stop it, it can. In fact all of the issues described above are basically management related and can be fixed in Karachi. What the management cannot fix are the policy related issues which can only be addressed by the owners in Islamabad. There is no reason why a flag carrier of a populous country with large expatriate populations should be in this condition, unless there was something fundamentally wrong in the country’s aviation policy or its priorities.

Fair competition is healthy for all businesses and commercial aviation is no exception. The Chicago Convention of 1944 provided the basic framework and defined the rights and responsibilities of sovereign states in regards to aviation. It ensures that all states have ownership of airspace over their territory and all commercial aviation treaties are to be negotiated between two countries. Thus, each country has the opportunity to own and operate its national airline, no matter how big or rich another country may be. Generally these treaties are called bilateral agreements and are negotiated by the representatives of each country in consultation with their respective national airlines. These treaties or bilateral agreements safeguard each carrier’s interests and prevent the balance of aviation trade from becoming lopsided in favour of one country. The bilaterals allow each of the two nations to pick up and drop off passengers in the other’s territory as per agreed frequencies per week and the type and capacity of aircraft used.

In 1972 a new type of airline emerged when the tiny but rich city state of Singapore decided to create an airline which would largely be a sixth freedom or “hub and spoke” type operation. The concept was to launch a high end airline which would channel passengers through its hub at Changi Airport. This new type of airline was strictly international as most of their passengers were only transiting through its home country. Ironically, PIA helped the Singaporeans by giving them technical and manpower support, especially in Flight Operations.

Then in 1985 the rulers of Dubai, another rich city state, decided to launch their own airline on the Singapore model and turned to PIA for support. PIA wet leased them a brand new Boeing 737-300 and an Airbus A-30 along with engineers, technicians and of course pilots. Emirates was born.

As a hub and spoke airline the first target of Emirates was the expatriate and tourism traffic originating from and terminating in the subcontinent. They set high standards for passenger comfort and service and started ordering the most modern and efficient aircraft. They hired professional aviation industry personnel from all over the world who planned the road map for future expansion and the rulers themselves used their influence with the countries of the subcontinent to gain access to their most coveted gateways.

After the success of Emirates, the rulers of Abu Dhabi and Qatar, who were also looking for big ticket projects to invest their petrodollars in, decided to launch their own airlines and build ultra modern mega size airports to serve as their home bases. Each had the same business model i.e., get into the huge population base in Pakistan, India, Bangladesh and Sri Lanka. Billions of dollars were invested by Dubai, Abu Dhabi and Qatar in building infrastructure, buying aircraft and developing other allied aviation service providing companies. With the infrastructure in place, all that was needed was access to our northern gateways i.e., Lahore, Islamabad and Peshawar. Each government in Pakistan since 1990 succumbed to them and with every passing year they gained more and more foothold in Pakistan, while offering very little to PIA in return. On the other end of the business, the legacy Airlines of Europe and North America also started to feel the pinch as the big three of the Middle East, Emirates, Etihad and Qatar airways started to take business away from them from their home bases.

The Chicago Convention and the bilateral treaties didn’t suit these Middle Eastern airlines as being flag carriers of tiny city states they do not have any indigenous traffic. Essentially, they were saying, “You can pick up your own expat workers from our country back to your own and we shall pick up all the UK, Europe, America, Canada and Australia bound passengers from your country and bring back your expats from these countries as well.” Such is the Gulf states’ passion for their own airlines that when Canada refused Emirates a fourth frequency into Toronto, the Government of Dubai put visa restrictions on Canadian nationals and the matter got escalated to the level of a diplomatic row. However, the Canadians didn’t budge. Their argument was that there had been no significant surge in passenger movement between Toronto and Dubai and that Emirates wanted enhancement of frequency to pick up Pakistan and India bound passengers only.

Last month, the big three US carriers – American, Delta and United – approached the Obama Administration to cap the operation of the three Middle Eastern airlines into United States even though US has a longstanding open skies policy. Their argument is unfair competition. They have submitted proof to their own government that collectively the three Middle Eastern carriers have received 42 billion dollars in subsidies and that they do not disclose their accounts to the public. Therefore, the American carriers are unable to compete with them and jobs are being taken away from America.

Back to Pakistan, when the current government took office in June 2013, one of the first actions was to remove PIA from the Ministry of Defence and create an Aviation Division and appoint Shujaat Azeem as its head. The Pakistani media calls him an Advisor to the Prime Minister, which he is not. Many think he is the Chairman of PIA, which he is not either. Nor is he an elected person. Some think he is still the co-owner of Royal Airport Services, a ground handling company, but according to him he is not. If his title is extrapolated from his actions, then he is the czar or the king of aviation in Pakistan. He conducts promotion boards in PIA, makes all the aircraft leasing and acquisition deals in PIA and doles out additional frequencies to his favourite Middle Eastern carriers.

When he took office, Qatar Airways had four weekly Islamabad and a similar number to Lahore. Within a span of two years, Qatar Airways now operates 14 weekly flights to Islamabad in addition to new services to Sialkot, Faisalabad and Multan. He has also allowed increased turnarounds to Emirates and has now struck a code share agreement with Etihad, which will reduce PIA to being merely a feeder service for the Abu Dhabi based carrier. No marks for guessing as to who set up the ground handling contract for all these additional frequencies and new destinations – obviously Royal Airport Services, the company not co-owned by Shujaat Azeem. He created the smokescreen of privatisation of PIA to divert media and public attention to privatisation so that he could himself sell out PIA’s bread and butter gateways. He spent billions of rupees to appoint a consortium to sell off our national flag carrier and then started giving out traffic rights to the three Middle Eastern carriers to reduce PIA’s value. Richard Branson, the founder of Virgin Atlantic Airways, said in an interview about five years ago that if there was one airline he would like to acquire it would be PIA, because of its populous home country and large expat population. Ask him today and he would laugh it off.

In the current situation, acquiring any more 777s, or any other wide body aircraft, will only add to PIAs woes and exacerbate an already precarious situation, as PIA does not have any long haul sector left where they can operate them with break even loads year round

International aviation industry watchers are in shock and awe over the manner in which Pakistan’s Aviation Division is selling out PIA’s interests to the Middle East Three and how PIA management is taking it all without a whimper. Thousands of aviation related jobs could have been created in Pakistan had PIA absorbed even half of the business growth to and from the country since 1990. But the fact is that PIA has been shrinking fast and the past two years have been particularly harsh as the aviation czar’s sympathies and interests lie elsewhere. He only tolerates those whose spring-headed necks oscillate in one direction. It might be disturbing to some but the fact is that Shujaat Azeem through his dubious actions has taken away the dream of Pakistani children to become pilots or an aircraft engineers or even cabin crew in their own country’s airline. Sure they can dream of being an aircraft cleaner in Dubai or a loader in Doha, if they choose to.

By 2025 a whopping 22 percent of Dubai’s GDP is going to come from the aviation sector. More power to them – the UAE is one country with two mega airlines and both want virtually unlimited access to Pakistan’s populous cities. Qatar, with its five star airline and lots of combustible gas, wants it all. In fact, there is a cold war amongst the Middle East Three as two who can get more access in the lucrative Pakistan market and they have found a willing partner in Shujaat Azeem, who is awarding them frequencies and even ready to make PIA a feeder airline for Etihad. What can poor old PIA do in such a scenario? The subsidies the ME3 receive were enough to create a trade imbalance, couple them with the less than transparent manner in which they have acquired unprecedented access to Pakistan’s populous cities and a perfect recipe for disaster for Pakistani’s aviation industry is in the offing.

It is baffling that Pakistan’s NAB-ers and enforcers, who generally wake up after the government who is doing the damage is gone, are unaware of or ignoring this invasion from the ME3. The damage to Pakistan’s aviation industry, if not addressed yesterday, is going to be permanent.

What Pakistan needs to do is engage our brotherly Gulf states and explain to them that we have a huge unemployed youth population and our aviation sector has been virtually taken over by their airlines, which they created for fun but are taking jobs away from our country and killing our national airline. There is no chance of a diplomatic showdown here as the ME3 are aware how they get their rights in the first place. The air services agreements have to be rolled back to the 2010 levels, at least (if not earlier) and a rational assessment of services to be made simultaneously. In the current situation, acquiring any more 777s, or any other wide body aircraft, will only add to PIAs woes and exacerbate an already precarious situation, as PIA does not have any long haul sector left where they can operate them with break even loads year round. The payments will obviously start from the day they take delivery. PIA marketing must know this and should be sweating bullets at the thought of this. If however the induction is accomplished by a rationalisation of frequencies from ME3, PIA will see a surge in revenues and may even need more planes.

Until that happens, nobody should hold their breath in the hope of a turnaround.