Getting PIA Back on Track: Is Privatization the Only Solution?

by Waseem A. Minhas

Once upon a time, Pakistan International Airlines (PIA) was among the world’s premier carriers. Having the green national flag painted on every plane was a symbol of statehood and pride. Delivering high levels of safety standards, service quality and punctuality, it lived up to its ‘Great people to fly with’ tagline.

Originally founded as Orient Airways in 1946 in the Calcutta city of British India, it was nationalized in January 1955 and renamed to Pakistan International Airlines.

PIA has a history of milestones and was a leader in regional aviation industry. It was the first Asian airline to fly the Lockheed Super Constellation and second to have a jet aircraft, Boeing 707. It also helped establish today’s leading airlines — including Emirates — by leasing its aircrafts and providing technical and administrative services in the mid-1980s.

PIA was a very successful player in the market until early 2000s because of high quality and a mostly empty battlefield until it began to crumble to foreign competition.

Today, the very same airline is facing unprecedented crises and is in an appalling condition. It is sucked into a vortex of burgeoning losses and is paralyzed beyond repair. It has become a real white elephant for the government; too costly to keep up but very lucrative to discard. It is almost impossible for the government to feed this giant organization with billions of rupees every month when there are no hopes for revival.

State-run enterprises (in Pakistan) seldom prosper. Political and bureaucratic interference, debt burden and over staffing, lack of professional staff and poor management often lead to slow yet steady demise of these entities.

PIA also witnessed the same. Increasing expenditure, decreasing revenue, in-efficient utilization of capacity and resources, poor planning and short-sightedness have left the airline with an accumulated loss of over Rs. 300 billions.

According to the latest figures given during a Senate committee hearing last week, the airline’s monthly spending are around Rs. 13.14bn against earnings of around Rs. 7.5bn resulting in an additional loss of over Rs. 5.6bn being added every month.

Lack of innovation and laid back attitude of employees has made the airline uncompetitive. Over the period, the operating cost and payroll spending of the airline continued to swell while revenues declined, making it more difficult to manage.

The staff to aircraft ratio in PIA is among the highest in the world and it is listed as one of the worlds least efficient airlines. All these factors have contributed to transform an airline generating billions for the national exchequer to where it is standing today.

Looking forward, PIA needs radical changes in its setup and organizational structure. It can be revived again by entering into a strategic partnership with some competent stakeholder who is well versed in managing airlines.

While in government’s hands, despite all efforts to curb corruption and ensure transparency, the bureaucratic style of management and political interference will always place both government and public at a disadvantage. The government plans to divest 26% of its stake to improve its efficiency. The majority of the stake will remain with the government but the administration will be in private hands.

There exist numerous success stories of airlines after privatization. British Airlines, Sunair Airlines of South Africa, Austrian Airways, Bangladesh’s Biman Airlines, France AOM French Airlines, Canada’s Air and Japan Airlines are some of the examples where inefficient and loss making airlines were converted to profitable and efficient ones after privatization.

These airlines not only improved their service quality and profitability, but most of them are among the world leaders of the industry today.

Privatisation is a bitter pill but is the only option available in this situation. This will save the hefty amount of taxpayers’ money disbursed as subsidies. After-all, why should the poor taxpayers subsidize the government’s businesses? When in private hands, its management will be more concerned about the operational efficiency and profitability of airline. They will have to meet the increased expectations of the stakeholders for the return on their investments. They will come up with logical justifications and scientific reasoning for any happening, rather than the stereotyped ideas of slaughtering black goats to ensure safety of passengers even in the twenty first century.

The privatization procedure in Pakistan is laborious. There will be much resistance and outcry from the airline’s staffers, labor unions, media and opposition’s political parties.

Government should take all these key stakeholders into confidence, otherwise it will compromise the success of overall process and taxpayers’ money might go waste. Some organization of international repute should be hired to assist with this procedure.

Proper due diligence should be conducted and transparency ensured. This is the only way we can bring back the glorious past of PIA and help it soar again.

The author is a finance professional and a freelance writer, serving a public sector oil & gas entity. He tweets @WAminhas

The views & opinions expressed in this or any guest post featured on our site are those of the guest authors’ and do not necessarily reflect the opinions & views of ProPakistani as a whole.