What’s wrong with PIA?

What is wrong with the PIA? Experts, former officers and analysts say there are three fundamental problems that have brought Pakistan’s flag carrier to its knees – lack of planning, lack of commitment, and lack of finances. Amidst an emotionally charged debate on whether the government’s new plan for the airline will work, there is one fact everyone agrees on. There are is something fundamentally wrong with how PIA is being run right now.

There are frequent reports of a flight narrowly avoiding an accident, delays of up to 24 hours, and cancelled flights leaving the passengers stranded.

“Flights get delayed because the crew and the staff arrive late,” says Lt Col (r) Akhtar Lateef, a former general manager at the national airline. Many of their planes are old and need regular repairs, and there is no backup support at most airports, he says. “If a plane needs a spare part, it is often transported from Karachi.” These delays also increased the operating costs.

There are concerns that the airline is overstaffed, and various governments in the past have given out jobs in the organization for political leverage. The employee-to-aircraft ratio at PIA is 485, almost twice as much as the standard followed by the world’s profit-making airlines. “This figure has to be cut down to bring it to the international and time-tested figure of 220-250,” says Col Akhtar. The salaries, perks, and medical bills of the extra staff add up to millions of rupees, he adds.

Turkish Airlines have less than 100 employees per plane

But a representative of the employees who were on strike for about a week says there are 13,900 staff in PIA and 38 planes, which makes the ratio approximately 366. Dr Imran is the joint secretary of a “joint action committee” of employees.

According to lawyer Yasser Latif Hamdani, the ratio depends largely on operational machines, and varies from 390 to 780 as per various reports and depending on how many planes are in operation. Hamdani also writes columns about political issues. “The globally acceptable number for a productive airline is 190 employees to an operational aircraft,” he told me. “Emirates, known for its extravagance, has 220 to 230 per plane. I believe the model is Turkish Airlines, which has less than 100 employees to a plane.”

I also asked him about the conflicting claims about the airline’s losses. Do they have something to do with the international oil prices? Most airlines do not lower the fares right when the oil prices go down, Hamdani says. The PIA did increase its revenue that way.

“When oil prices go up, they don’t hedge, and go into loss. That happened with the PIA in the past,” adds the former general manager.

In 2003, the government injected a capital of Rs 20 billion into the airline when fuel costs increased rapidly, and the rupee depreciated against the dollar. “The PIA was having a tough time paying back its loans and maintaining its cash flows on its own,” he says. This bailout kept the national airline floating. Then came a profitable year in which PIA bought new planes and added new international routes, such as Chicago, Toronto and London. “But unfortunately, this success was short lived because the jet fuel price shot up from Rs 72 to Rs 102.”

In 2006, when a Fokker plane crashed in Multan, all other Fokker planes were grounded, and the PIA was forced to arrange replacements. The very next year, the UN banned PIA from flying their B-747s and A-310s to its member states, restricting the national flag carrier to its newly bought B-777s.

By 2008, global oil prices had risen once again, to almost $150 a barrel, because of the international financial crisis, Col (r) Akhtar recalls.

When the PPP came to power in 2008, they inherited an airline on the verge of bankruptcy, with millions of dollars of debt. “At a time when airlines across the globe were cutting costs, downsizing, and shedding aircraft weights, we were battling the unions,” he says. “PIA posted a loss of Rs 35.88 billion that year.” Since the airline did not opt for local financing, all its loans were in US dollars. As the rupee depreciated, interest payments increased.

If there are so many factors at play, many beyond the management’s control, I asked him how privatization would help. He told me that the national flag carrier of Sri Lanka was having similar problems when they sold it to another airline. It is now making a profit. “But the most important thing is that Sri Lanka had shown utmost honesty in assessing the worth of their airlines before they sold it,” he says. “That should also be done for PIA.”

Yasser Latif Hamdani advises caution. The PIA owns billions in terms of assets abroad, he says. “It owns the Roosevelt Hotel in New York, which has 1,026 rooms and 22 luxury suites for heads of states, the Scribe Hotel in France, which has 600 rooms, and property in London, Milan and other places.” But in a recent auction, the highest bid received from a close ‘Arab’ friend of a Pakistani leader was Rs 400 million. “The government should not sell off PIA’s assets for peanuts.”

The problems are political, not economic

The government insists they are not “privatizing” the airline, and only looking for a “strategic partner” who will buy 26 percent of PIA’s shares and take over the management.

“That is not true,” says Dr Imran, the representative of the protesting employees who are negotiating with the government as I write. Under section 2 of the Privatization Commission Ordinance of 2000, a change of management is part of the definition of privatization, he says.

He is also suspicious of the government’s claims that there will be no downsizing and nobody will be fired. “Will they guarantee that in writing?” he asks. When the PTCL was privatized, he says it had 60,000 employees. Now it has about 16,000.

These concerns may be genuine, according to noted economist Dr Akmal Hussain. “If the basic reason for PIA’s losses is overstaffing, then it is absurd for the government to claim no employee will be laid off,” he says. “Such claims deepen the concerns of the staff.”

He says complete transparency in the terms and conditions of privatization is vital. “The most important part is a legally binding commitment for a golden handshake to all employees laid off by the new owners.”

Dr Akmal Hussain is especially unhappy with the way these concerns were handled. Two people died when unidentified men fired at a protest by PIA employees in Karachi. “It was a needless conflict,” he says. “Two innocent people lost their lives for no reason, and it will also be a disincentive to potential investors.”

Air France saw the worst strike of its kind, by their staff and pilots, two years ago he says. But the matter was amicably. “But they never compromised the comfort of their passengers and the government ensured the passengers were picked up by other European Airlines in a timely and orderly manner.”

Yasser Hamdani cites the privatization of Turkish Airlines as a model. Set up as a state airline in the 1930s, it faced problems similar to the one being faced by PIA today.

“In 2004, it began privatization by offering 25 percent shares to the public. Today, the Turkish government owns less than 50 percent shares in an airline which has gone from strength to strength and is a proud symbol of the Republic of Turkey.” On the other hand, Air India is a loss-making state-owned enterprise – an example he says we should not follow.

But PIA’s losses, even if they are caused by poor hiring practices of successive governments, cannot be blamed on employees, says another representative of the employees, Obaidullah Khan. “The poor decision making or political interference at the top level cannot be blamed on the middle and lower management,” he says.

Regardless, Yasser Hamdani believes a strike is not justified. The airline should be considered an essential service, he says, and the Pakistan Essential Services (Maintenance) Act of 1952 (not to be confused with its provincial version, the 1958 Act) caters to precisely this issue. The law empowers the government to make any union activity that hampers PIA’s services illegal.  “But a law is only as good as its application. Does the government have it in it to utilize the act now that it has been implemented? These are political decisions.”

The problem with PIA is political and not economic, says Dr Qais Aslam, an economist. “The losses are due to corruption and embezzlement rather than due to market competition,” he says. “A lack of transparency and bad governance seem to be the primary problem, not just with the PIA but with all state-owned enterprises.”

“With more honest management and structural transformation, the PIA can once again become a leading airline,” he believes. But according to him, those who lose from PIA remaining state-owned are supporting the privatization, and those who gain from it are opposing it.