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Reviving PIA

To quote my article “Keep PIA flying” (June 20, 2013), “Facing multiple crises simultaneously – most of them man-made – Pakistan’s workforce and institutions remain amazingly resilient. Beset by extraordinary interference over the years, both during military and civilian rule, PIA continues operating thanks to the competence of its core staff, for this miracle one must give credit to PIA’s pilots, its cabin crew and ground engineers, its management and ground staff.” It would seem incongruous to now claim that in the 60s and 70s PIA was one of the best airlines in the world, that happens to be the stark raving truth. Selected on merit its employees were a cut above the rest in all senses of the word, as a corporate entity PIA once a model for others. PIA’s pilots and cabin crews still rate among the best in the world, that its ground engineers and maintenance staff have kept the ageing aircraft flying safely is a tremendous feat by itself.

A symbol once of excellence based on teamwork, undermined by ‘patronage’ groups belonging to whichever political govt was in power, PIA today is a case study of a corporate disaster. Fortunately as compared to the vast ‘silent majority’ labouring to keep the airline functioning, they are a minority, but with nuisance value. Those appointed or promoted because of nepotism and favouritism invariably have an inferiority complex to those who have risen on merit. For the brilliant, hardworking and competent among the hapless majority, merit became a disqualifier. PIA symbolizes the degradation the country has suffered at the hands of atrocious and corrupt leaders. PIA’s problems are mostly blamed on politicization, the administrative excesses that finally brought the airline to its knees took place when incompetent cronies were appointed to the airline’s helm during the Musharraf years. One corporate genius had the PIA abandon the national flag on the aircraft’s tails and have his daughter re-design it at exorbitant cost to resemble Banarsi Saris. Calculate the cost spent on membership of the World Economic Forum (WEF), not including the supporting staff (4 General Managers) and their hotel, transportation, etc. And who paid for the spouses’ lunch luxury resort at St Moritz? Junior and middle-level PIA staff are prosecuted for petty crimes, those causing colossal damage to the airline walk away scot-free. When some able executive like Zafar Khan came along, the problems created were too overwhelming to address.

Bloated with personnel, with ageing fuel-guzzling aircraft, some of them unserviceable, PIA’s assets total Rs 128 billion, less than half of its outstanding debts Rs 262.5 billion (and counting). 19418 employees (including 3188 service providers) serve only 25 serviceable aircraft, the ratio is 776 employees to one aircraft. Most experts say downsizing is required, while PIA must be made lean and efficient gradually, the real challenge is to profitably employ the extra manpower. The industry average is less than 100 in this Region it is 270 employees per aircraft for Emirates and 127 employees per aircraft for Etihad. However comparing commensurate salaries, etc reduces this to less than 125 per aircraft. Services like security, cleaning, catering, transportation etc should be, spun off as independent corporate entities, Strategic Business Units (SBUs), with at least 25% shares earmarked for employees on the Employee Stock Option Plan (ESOP).

Force-multiplying a Commercial Pilot’s Licence (CPL) and over 2000 flying hrs in both fixed and rotary wing aircraft with handling over 15000 employees on a continuing basis gives one some understanding of PIA’s problems better, the KISS (Keep It Simple Stupid) formula will increase revenues and reduce costs. Bluntly speaking, it is a question of providing hands-on management. A meeting with Capt Shujaat Azeem was requested to understand whether the “Revival Plan for PIA” was based on practical realities or wishful thinking? Confident and refreshingly transparent, Shujaat Azeem’s proposals for a modern fleet envisages (1) increased revenues and (2) passenger confidence (3) schedule and route rationalization to reduce costs (4) fuel cost reduction and (5) reduced maintenance costs. Instead of cronies PIA now has, for the most part, a good Board of Directors, the criteria of social contacts and Sindh Club membership gradually being discarded. An entrepreneur is generally far more skilled than a salaried person to put into practice a cost-benefit exercise.

PIA must earn enough revenues to offset its operational and administrative expenditures, and service its debt at the same time. Presently out of a present fleet of 34 aircraft, (average age 17 years) 9 are unserviceable. The present scheduling and rationalization of fleet against routes is mind-boggling. The B-777, a long haul aircraft, is used criminally on shorter domestic routes because of the shortage of aircraft. Except for the B-777 most of the aircraft are fuel-guzzlers, the Airbus A-310 takes double the amount of fuel for the same distance for the same number of passengers as does the comparable Airbus A-320, Fuel consumes more than half of the company’s annual revenues. Rationalizing includes increasing functioning aircraft from 25 to 43, and thereby increase number of passengers from the present 4 million to 5 million and reducing the burden of fuel by 38%.
PIA’s Revival Plan (1) covers domestic and gulf countries (i.e. the shorter routes) by fuel efficient new generation A-320 or B-737 and tackle the long haul to US, Europe, Japan, Umra requirement, etc through increased number of B-777s inducting new generation 20 Airbus – 320 or Boeing 737 (900 ER) as well as 4 more Boeing 777 and 4 ATR-72 aircraft, (to augment the 6 ATR-42s in service) (2) By selling of 12 serviceable A 310s, 3 Boeing 737s and 2 Boeing 747s some money will become available for capital expenditure. (3) Re-furbish the B-777 fleet, particularly the Business Class (equipping 13 Boeing 777s will cost US$ 14 million) to attract those travelling on the longer routes who do not want stopovers enroute (4) spinoff some none-core units by creating SBUs like SPEEDEX, Flight Kitchen and “Maintenance, Repair and Overhaul” (MRO). The PLAN presently does not include non-core entities like transportation and security, these should be added to the list.

Instead of purchasing aircraft (and thereby allowing somebody to pocket huge commissions), the PIA “Revival Plan” envisages dry lease (not purchase), this allows option of upgrading aircraft down the line as required. The increased aircraft will augment revenues by about Rs 72 billion at a 85% seat factor, the cost cutting measures enforced in fuel, etc should bring PIA within 12 months to a breakeven level. Ambitious maybe, but do-able! Some legal and financial formalities may require transferring the core assets to a separate company before privatization, this must include “employee stock options”. It is upto the Ministry of Finance and the Privatization Commission to fine-tune this intricate process.

The unions must support the process, without extraordinary commitment by all employees and making them stakeholders, this plan will not succeed. On the other hand it is in the larger interest of all employees to revive PIA to its former glory! The next few months will be critical. Shujaat Azeem says failure is not an option. The only option is to bring PIA back what it once really was, “great people to fly with”.


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