Restoring PIA

Only possible if we know what went wrong in the first place

Prime Minister Nawaz Sharif needs to understand that Richard Branson, the owner of Virgin Air, himself a keen pilot, understood that it takes more than pilot skills to run an airline and appointed Craig Kreeger, former Senior VP Customer Experience of American Airlines in February 2013. Kreeger, a graduate in Economics and an MBA from University of California, joined American Airlines in 1985 with valuable knowledge of Heathrow he acquired while posted there for six years as head of American Airlines Operation and Sales in Europe, Middle East, Africa and Pacific. He also served in Marketing, Finance, Revenue Management, Corporate Development and Yield Management. A study of Gordon Bethune’s profile, the man who restored Continental Airlines can serve as guideline in choice of person by PM to restore PIA through restructuring and strategic partnership plan or even privatisation. The choice of CEO, his credibility and team he selects, will reflect government’s intentions. Perhaps, the PM might rethink to let team of experts he once announced be tasked to select CEOs for state owned enterprises.

For any plan to succeed, PIA assets, both declared and unlisted, must be evaluated honestly. Whatever the option exercised by duly elected federal government, which owns 91.7% of PIA shares, its execution should be done transparently without any loss to taxpayers. The best option would be to cleanse PIA’s top and middle management of incompetence and all those recruited in violation of merit, or involved in financial irregularities, while retaining its identity to exercise grandfather rights over slots and routes acquired over years.

PIA’s nosedive started when its top and middle management human resources were diluted by repetitive political appointments. Men like Rafique Saigol and Nur Khan were able to achieve results because they understood their limitations viz a viz knowledge about intricacies and demands of commercial aviation, a highly competitive industry subject to international regulatory controls. They were given freehand by political government in power and selected a team of qualified professionals with integrity, ensuring no conflicts of interest, while maintaining strict financial auditing and administrative discipline. Advances in aviation technology over the past two decades have been fast and it requires more qualified human resource to adapt to new aircrafts and systems. For this PIA needs to upgrade recruitment in all cadres and must upscale minimum requirements for management cadre to masters and graduation in science for pilots and apprentice trainee engineers.

Profitable airlines sell over 70% of passenger seats through direct online sales whereas PIA only sells 1%. Airlines promote direct sales by passing to client benefit of service charges they paid to travel agents in the past. Such sales are not only client friendly but prevent defaults because money collected through credit cards is directly credited to airline accounts on nominal fee.

The bulk of PIA’s fleet is pledged to banks as collateral and its biggest assets, apart from real estate within Pakistan, are Hotel Roosevelt and Hotel Scribe located in Manhattan and Paris and unlisted assets such as routes and peak time slots at major international airports such as Heathrow, JFK etc. It is an established fact that real estate property always appreciates manifold, unlike aircrafts and machines which depreciate. There also exists a vast potential of local ethnic Pakistani passenger traffic which is estimated to be about 13 million annually with growth rate of 7-8%. The national airline must be provided a level playing field in share of ethnic passenger traffic originating from Pakistan by ensuring that traffic rights between individual sovereign states are based on reciprocity and not at a disadvantage where all Pakistan based airlines operate only 55 weekly flights to UAE as compared to over 400 weekly flights by Gulf based airlines.

Flight Global archives published by Flight International in their issue dated 8 Jan, 1991, reveals that traffic rights to Heathrow were exclusive to PANAM and TWA, which were paid $445M by American Airlines for access to Heathrow in 1990 and $400 by TWA. Reputed financial services firm Deloitte values peak time Heathrow slots between £25 million to £30 million each. Airport Coordination Ltd, a government regulated company, is responsible for allocation of slots at Heathrow, where demand for slots exceed runway capacity by over 40%. Its former MD Peter Morrisroe is on record that “if an airline wants to retain the rights to its slots, it is essential it complies with the use-it-or-lose-it rule.”

Airlines jealously hoard slots and in some cases these landing rights have become more valuable than company. Slots are arguably an airline’s most valuable asset, yet are almost never listed in airline balance sheets. PIA routes and peak time slots may value more than its declared assets and need to be evaluated honestly. Airlines which operate to busy airports like Heathrow use a device called a slot exchange, where valuable, peak-time slot is swapped by the selling airline for a worthless one late at night, and money changes hands on the side. Even London High Court gave this ploy the seal of approval in a ruling over a slot deal between BA and KLM. Since then the trades have continued unabated.

Numerous PIA executives in the past, with or without connivance of various governments, have been involved in dubious deals depriving airline of millions in dollars while portraying them as cost cutting measures suspending flights. These dishonest executives have been handsomely rewarded by Gulf based airlines, both financially and offered jobs in their subsidiaries post retirement from PIA. It is no coincidence that PIA after having built traffic at Chicago or Houston etc, sustaining losses in the beginning, suspended operation once market was consolidated, only to see specific Gulf based airlines start operation from there. PIA exercises grandfather rights over nine slots from Heathrow in addition to other such slots at JFK etc.

Ever since most political and military governments exercised interference in appointments and recruitments, not only airline human resources stand eroded but its revenue pilferage has escalated, with accumulated losses having reached over Rs255 billion and liabilities exceeding declared assets by over Rs175 billion by 2015. On 7 May, 2008, PPP government appointed an O Level controversial pilot Aijaz Haroon, with history of irregularities as MD. It was during his tenure that PIA losses escalated astronomically and numerous other glaring irregularities like recruitment of fake degree holders, appointment of GSA, procurement etc took place, with numerous more traffic rights to Gulf based airlines. He appointed Salim Sayani as DMD Operations & Engineering in 2009 on a fabulous salary of $50,000 per month, with tax liability picked by PIA and residences in Dubai and Karachi, with the task to make engineering profitable. However, by the time he was sacked by Ministry of Defence in September 2012 over a dozen PIA aircrafts were grounded. In February 2011, the PPP government replaced Aijaz Haroon amidst protests and appointed another crony Nadeem Yusafzai who was forced to resign in July 2012 with PIA losses going haywire and more than half its fleet grounded. It was beyond AM Rao Qamar Suleman to handle PIA and he resigned within a year.

It defies logic that PIA having acquired long range B777 with a business plan based on direct cross Atlantic flights signed a “Record of Discussion” on 29 December, 2010, with CEO of THY, which effectively surrendered existing frequency of flights to New York, Chicago, Frankfurt, Barcelona, Amsterdam and Milan in return for paltry commission per passenger it was to feed Turkish Airlines for onward flights to Europe and beyond. If business strategy had been changed to reduce PIA to regional airline feeding passengers to Turk Hava, they should have bought cheaper medium to long range aircraft ideal for flights between Pakistan and Istanbul because in return PIA was offered joint venture on its flights to Kathmandu, Dacca, Colombo, Male etc, all points to east. This ROD document raised suspicions because since 1990 no airline has given up its take off/landing slots at busy airports without payment of millions of dollars.