National carrier

What a waste!

Pakistan has secured the second last tranche of the IMF extended fund facility while a national crisis looms at home. So far the crisis has caused a loss of PKR 2 billion to date, a figure that is bound to increase and has claimed two innocent lives; a figure hopefully no one wants to increase. If the PIA was in shambles a few weeks ago, then it has become a complete catastrophe since then. There seems to be no end in sight of the deadlock between the two main stakeholders while the public can only stand by and watch, as the national carrier dies a slow miserable death.

Airlines around the world have seen the best of times in terms of both profit and glory. However, there are always turbulent times when costs are high, competition is fierce and tough decisions have to be made. Occasionally, some sort of help is required, be it bailouts from the government or external advisors who point it in the right direction.

PIA has been subject to similar problems in more recent times. High fuel costs and an ageing fleet required more money to be put in that it wasn’t able to make. The government made a capital injection of PKR 20 billion in 2003 when fuel costs soared, the rupee aggressively depreciated against the dollar and PIA was having a tough time paying off loans, let alone manage their cash flow.

The bailout kept the airline above water and along with it came a profitable year, a newer fleet and because of newer planes, new international routes like Chicago, Toronto and London. The success was short lived, as in 2005 the same demons reared their ugly heads with jet fuel price increasing from PKR 72 to PKR 102 and a 2006 Fokker plane crash resulting in grounding of all Fokkers, forcing arrangement of replacement ATRs.

Year 2007 saw a ban on PIA by the United Nations to use their B-747s and A-310s to fly to member states, restricting them to use the newly purchased B-777s only. Come 2008 and oil had gone to almost USD 150 a barrel and a global financial crisis did no favours to anyone. The PPP came to power and inherited a jaundiced airline with millions of dollars of debt. Airlines across the world were cutting costs, downsizing, shedding aircraft weight while we were battling the unions. PIA posted a loss of PKR 35.88 Billion that year.

Most of the loans that PIA had accumulated over the years were in USD; not opting for local financing, which meant that any rupee depreciation against USD hiked up all principal/interest payments. During the early part of the PPP government, companies were not allowed to book forward their USD import exposures due to speculative concerns, which only made things worse as it left PIA’ foreign currency exposures un-hedged while the rupee took a beating against the dollar.

As far as fuel management goes, there was little or none. While most companies were hedging their fuel exposures, PIA had no such mechanism in place. The price of oil per barrel crept up to USD 105 but the PPP was busy getting their cronies well paying jobs at PIA so as to just collect their salaries at the end of every month. After taking power, the PML-N didn’t do the airline any favours in that respect either; it was only the market that saved them when price per barrel fell to USD 60, and its still falling.

So, when one takes in all the history, premature changes in governments and management, unions and lobbies getting their way and remaining unprepared for market volatility, there lies a very pungent smell of mismanagement and opportunism that has existed for more than two decades. And in a nutshell, the creation, protection and thriving of that stench is what has brought us to where we are today.

Take a stroll through any of our major airports today and you may very well get that sinking feeling one gets when you go to a once frequented restaurant after a few years and find yourself in the middle of a sparsely populated dining room with a bad bowl of soup to start with and finish with a big check to wash it all down. What a waste!

There are around 19,000 employees managing a fleet of 38 planes covering 67 routes. Couple this with a monthly loss of PKR 3bn and you’re left wondering what has been holding this airline together all these years. Most of these employees have been there for a while by the grace of someone who can pull some strings to place them there and then keep them there with minimal or no performance appraisal of any sort by their superiors, superiors who are in fact also the result of the same recruitment process.

Privatisation makes sense. It will bring about a more performance oriented culture within the organisation with experienced professionals trying to resurrect it from its current state making it into a more economically viable, profit making business. That’s all well and good but easier said than done. At the outset, the proposal to privatise loss making entities was not a manifesto agenda in the elected government’s priorities; it’s a compulsion, rather a condition set out by IMF to secure each quarterly tranche under the programme undertaken in 2013.

The bill was hence bulldozed through parliament, to the dislike of most opposition parties but in particular, the employees. So the people who had the most to lose hit the streets, got tear gassed, watered down, shot at with rubber bullets just to keep the status quo intact whilst hiding behind the veil of false promises of turning the struggling airline back around in a matter of months. Enough was enough and ministers threatened terminations of the strikers. A day later two people are shot and killed and the airline is now idle with losses accumulating and passengers suffering.

The opposition has not played the most positive of roles either. Yes, our PM, prior to becoming PM did say in a TV interview that PIA can be salvaged by selling some foreign assets and inject that money into the airline to buy better jets and get better routes and still keep it government run. But it surely was one of PTI’s strongest pre-election manifesto points to privatise loss-making, government run enterprises. So why the U-turn and complete denouncement of any such plan being undertaken by the elected government now and then following it up with a call to a nationwide strike?

PML-N has also been pretty reckless with this whole mess. Starting with the complete lack of transparency in the privatisation process, followed by strong-arming the lower house into passing an ordinance to allow the privatisation to progress. The IMF itself had to take an advisory role a month back to suggest the building of consensus amongst stakeholders prior to moving forward with the privatisation. The government agreed to delay the process by six months two days ago. Too little too late, damage done!

The government is now forced to seek help from private airlines such as Air Blue. Air Blue, whose owner is currently our federal petroleum minister and is part of the reconciliatory body, which at first was talking to the disgruntled employees but has now decided that there will be no talks, just firing the strikers via a committee they themselves have chosen. There’s your answer to who is the winner in all of this. The loser is quite clear to all, Pakistan.

It is a sad state of affairs and is costing us dearly. From a financial point of view we are losing billions of rupees while whatever semblance of ‘image’ was left of the ill fated airline, slowly erodes away day by day. It will take a lot of confidence building from both sides for talks to resume; PML-N will have to be more forthcoming in terms of transparency and take opposition parties on board. The opposition itself will only complicate matters further by going to the streets at this stage rather than parliament. The workers however, well, let’s just say, ‘too many cooks spoil the broth’.