Privatization of PIA

Pakistan international airlines

April 21, 2016

MEMORANDUM .............................................................................................................. 2
PROPOSAL ........................................................................................................................ 3
REPORT ............................................................................................................................. 4
BLOG .................................................................................................................................. 9
CONCLUSION ................................................................................................................. 12
APENDIX ......................................................................................................................... 13
BIBLIOGRAPHY .................................................................................................................. 14
Privatization of PIA | 4/21/2016

1
MEMORANDUM

TO: Head of Administration of PIA

FROM: Mehnam Rauf, Ayesha Ismail and Zeeshan Adil

DATE: 29/05/2016

SUBJECT: Privatization of PIA

We are students of Business Administration in Foundation University and we are given a task to present
you about the Privatization of PIA.

The purpose of this memo is to investigate the causes of the Public criticism faced by your organization.
Since 1990s we all have been hearing about the Privatization of the national flag carrier airline in the
news but we have never heard anything about the response of the organization itself. You, as the Head of
PIA requested us to conduct a survey on public criticism faced by your organization on this issue.
Therefore, the analysis we have conducted is as follows:

Your own employees are not loyal to the organization and are spreading false news everywhere. Plus you
also do not try to approach the people through media that what is the hidden reality behind this issue.
People keep assuming on the basis of false news they get from media and some from your own
Privatization of PIA | 4/21/2016

employees. We will recommend you some best solutions for your organization after the investigation
process is completed.

Thank you for allowing us to participate in this worthwhile study. We hope that this research will help
you to take appropriate decision in time to avoid the public criticism your company has been facing since
ages.

2
 PROPOSAL

Pakistan international airlines have been facing a lot of problems lately due to the loss it has been
facing for the last decade .the organization is owned and controlled by the government which is
no more ready to pay for the organizations loss and Pakistan is a developing country it needs
money for other purposes such as education, infrastructure and health etc .Also PIA caters a very
small percentage of the population and they also belong to the higher middle class.

It is clearly not the governments to own and control an organization because then the political
leaders make it there Ginny pigs to make money. They put more and more employees into the
organization which results in the over employment with no merit and competence .all this results
in the loss of the organization.

The organization needs to be privatized so that capital can be added into the organization and
also its need the vision of a business man to become profitable.
Privatization of PIA | 4/21/2016

3
REPORT

INTRODUCTION

Pakistan International Airlines commonly known as PIA is the national flag carrier airline of Pakistan. It
operates to 23 domestic destinations and 30 international destinations in 27 countries across Asia,
Europe and North America. Its main hub is Karachi while Lahore and Islamabad/Rawalpindi are
secondary hubs.

PIA has a history of milestones, such as being the second Asian airline to operate a jet aircraft and Boeing
737 aircraft. It is Pakistan's biggest airline with a fleet of more than 40 aircraft. Also PIA is the launch
customer of the 777-200LR model of the Boeing 777. PIA will go through a procedure of privatization to
shift management from government to the private sector. It employed nearly 14,000 people as of annual
report 2015.

PIA (Pakistan international airlines)was a great success in 60s and 70s it was the first Asian airline to
work with jet plains.PIA was so successful airlines like Emirates and Malta would look up to it as an
example for its amazing and world class services. But over the years this changed drastically as
corruption, patronage and incompetency took over professionalism, innovation and hard work.

The story of PIA is similar to many public sector organizations in Pakistan. Corrupt politicians Privatization of PIA | 4/21/2016
have used organizations as tools of patronage for their own interests by avoiding merit during
employment. Therefore this has led to the complete dependency of the organization on the state.

Currently the financial position of PIA looks awful, it has an approximate debt of Rs300 billion.
Interest payments of almost Rs3 billion is paid per month (total of RS36 billion per year).

PIA employs almost 18000 employees. It has one of the highest numbers of employee per plane.
PIA spends much less on its employees compared to other airlines because other airlines are

4
 making profits and PIA has not made yearly profit in the last decade. It is very clear as per the
current balance sheet that it will not make a profit in the foreseeable future. This is done to keep
PIA afloat but when traveling in the airline the service that it provides to customers is pretty
ordinary. Like other Pakistanis i have suffered at the hands of the PIA staff as well. Delayed
flights, ordinary catering services, malfunctioning planes and poor customer service now
associated with PIA.

The case of PIA is that whether an airline should be run by the state or by the private sector. If
we look at Pakistan Railway, it is justified because railway is used by low income groups
therefore subsidizing it makes sense. Likewise utility store should also remain in the public
sector as it is being used by the low income group but PIA which is being used by high income
groups should make profit if not then it should go bank corrupt. The government sponsorship of
PIA should stop. The money that the government puts in PIA should go to improve the standard
of living for the people of Pakistan.

It cannot subsidize one segment and leave the others. Government has to privatize not because
the IMF is asking it to do it but rather because privatization is the only way for PIA, its
employees and the people of Pakistan.

SHOULD PIA PRIVATIZE?

The government’s proposal to sell 26 per cent share in PIA and enter into a “strategic
partnership” with a competent private stakeholder has predictably been received with enormous
hue and cry. Workers union came out on strike and mainstream opposition parties too jumped
into the fray.

But numbers don’t lie as things stand today, PIA has an accumulated debt of Rs300 billion and
Privatization of PIA | 4/21/2016

faces yearly losses of Rs20 to Rs30 billion, which the government has to pay. The current
government is fed up of taking care of the problem child and is all set to handover it to able
hands. One of the main persons working on it Mohammad Zubair who is minister of state and
chairman of the Privatization Commission.

Zubair sounds frustrated with the way the whole PIA issue is being raised in the public
discourse. The government does not want to feed a giant organization with billions of rupees

5
that, we know for certain, cannot be revived on such monthly survival doses. The government
plans to invite privately owned firms with two basic qualifications: world class management
skills and huge capital to inject money in the airline for a complete renovation and make it
competitive. Since the 1980s PIA is not making any profits. The organization was dying a slow
death, over decades.

The losses increased after Pakistan opened its doors to foreign airlines, especially from the Gulf
region to do business in the country. Airlines such as Emirates and Gulf Air took over PIA’s
market share and its revenues began to fall

The organization is so mismanaged and under so much chaos that simple decisions are also taken
to court and made into huge problems To explain the magnitude of PIA’s mess an example is
The PIA management had called off its flights to Amsterdam. A station manager didn’t like the
idea. He went to court and got a stay. Now the chairman cannot do anything. The matter is with
the courts.

PIA has one of the highest employees per plane ratio, which is above 700 employees per aircraft,
while Emirates has around 220. The reason behind the huge difference is the range of services
the national carrier has. From engineering services to ground handling to cargo management and
maintenance which are a few of the sectors of PIA, unlike other successful international airlines,
who keep their employees as less as possible

If PIA has been in loss decades, one of the reasons was the way the organization was handled by
successive governments. The decisions made about PIA were never meant to serve the
organization instead it was to serve the political leaders The organization has excess workers
who were always patronized by political parties, so infused the culture of inefficiency in the
Privatization of PIA | 4/21/2016

organization. But they can be handled if managed properly.

In order to make PIA competitive, some radical decisions have to be taken, including firing
people hired on political basis and bringing efficient workers .PIA needs a stakeholder who has
money to put in and manage it like one’s own.

6
 Giant public enterprises that begin milking money usually end up becoming piggy banks in the
hands of politicians and top management, while the lower rank employees sustain on salaries,
resulting in closure.

FINANCIAL PERFORMANCE
The table 1.1 gives the key financial results for 2011 along with those since 2004. The financial
performance for FY 2011 continues to be in loss with an after tax loss of PKR 26.767 billion.
This was preceded by six consecutive loss making years starting from 2005. The airline did
report a reduction of post tax losses of 83% in 2009 (compared to 2008) based on a reduction in
fuel cost, comparatively stable exchange rate for the Pakistan Rupee and higher revenues. But in
2011 & 2010, losses again rose sharply compared to the previous years.

The airline faces many challenges which should be catered to make the organization profitable
such as over staffing and management issues. An employee count of 18,014 for a fleet of 40
aircraft should be reviewed

As shown in appendix 1.2 In recent years, PIA revenue and sources of income has been reducing
significantly. In 2010, PIA carried 1,454,000 kg of mail. In 2013, it managed just 648,000 of
mail. Also PIA's revenue from excess baggage, passenger load and kilometer traveled are among
many that have been declining steadily.

Also that for 2011 about 81% of revenue is from passenger traveling and only 5% from cargo.
Another 7.8% is from food and beverage sales. The remaining 6% is from extra baggage, charter,
engineering services, handling & related services, mail & other.
Privatization of PIA | 4/21/2016

LITERATURE REVIEW

Since the point has been raised to privatize PIA and sell 26% of its shares there is a lot of hue
and cry not only by the employs of the company but also by the politicians. All is despite the fact
that PIA is in loss for many years due to over staffing mostly regardless of merit resulting is less
then satisfactory performance of the company. Gone were the days when PIA under (late) Air
marshal Nur khan was a “shining star” among the world airlines. Due to personal and political

7
interests of the people its very hard for PIA to become. Apart from these there are many other
reasons why PIA should be privatized.First of all, it is not the business of a Government to run a
business. A Government is meant to provide a good environment for the private sector to do
business. Its main task is to ensure peace and security, provide good infrastructure. On the other
hand, private sector is always the backbone of booming Economies in the west and south-East
Asia..Another good reason for selling PIA shares is that it is under a debt of some Rs 300 billion
(Thirty thousand crores) Almost Rs three Billion interest is being paid every month. (Mirza,
2016)

The PML-N is a bunch of robber. The PPP are a bunch of incompetents who think the federal
kitty is their personal fund. And the PTI are a bunch of opportunists, torn between corporate
sense and political opportunity the billions that is being given to PIA and everyone likes to talk
about only matter when spewed out of context. And selling PIA has little to do with changing a
decrepit state. (ALMEIDA, 2016)

According to an article, on April 11th a joint session was arranged by Parliament which was to
approve the Pakistan International Airlines (PIA) bill among others. NA assembly Speaker
AyazSadiq was to chair the session at 11am. The government was to table seven bill including
one about curb honour killings and another about selling shares the shares of national flag carrier
airline. On 6th April it was reported that the party and the opposition party had agreed on the
privatization of PIA. In the meeting it was decided that 49 percent shares were to be sold while
the remaining 51 percent would remain with the government. Even the administrative controls
were not given to the shareholders. The management of PIA would remain to the board of
Governors. It was also decided that the pensions and salaries of the employees would also not be
Privatization of PIA | 4/21/2016

affected and the assets would not be sold as well. The main purpose of converting into a limited
company was to attract premeditated partners. The opposition parties were demanded that the
cases were to be taken back against the employees of PIA. (Parliament's joint session likely to
pass PIA privatization bill today, 2016)

8
 BLOG
PIA –PRIVATISATION
PIA known as the Pakistan International Airlines was established in 1951. After three years of
Independence Pakistan realized the need of its own national flag carrier airline and on 1st
February 1955 the airline flew for the first time from Karachi-London via Cairo. Till date it
operates 23 domestic destinations and 30 international destinations in 27 countries across
Europe, Asia and America (North). PIA was once known as the safest airline but due to a
number of factors which we will be discussed later in this article; its reputation has been
deteriorated with the passage of time. PIA was the second Asian airline to operate Boeing-737. It
has a fleet of more than 40 aircrafts and is Pakistan’s largest airline.

Being a citizen of Pakistan we all must be aware of the factors involved in PIA’s Privatization so
that we can analyze the situation. Here, we will discuss the Privatization of PIA and the reasons
behind it. What caused the downfall of an airline like PIA which was considered one of the best
airlines in world? Who will lose and gain by privatizing PIA? Would it benefit the state?

ROLE OF GOVERNMENT:
Pakistan has been privatizing its state organizations since 1980s. The pace of privatizing sped up
Privatization of PIA | 4/21/2016

in 1990s when the country due to mismanagement of its balance sheet and low internal revenue
generation had borrowed loan from IMF to repay its loan with interest. IMF was not in the favor
of privatizing any organization and its only reason was to ensure that Pakistan repays its loans
with interest without evasion. Pakistan could repay its loan with interest by increasing the taxes
(Pakistan is currently the lowest tax payer country 11% tax to GDP), our government has been
promising IMF that they would increase the taxes in order to repay the loans but they are actually
emphasizing on the privatization of the state enterprises. The present government has turned it

9
the other way by saying that they are not privatizing it but we are converting it into a limited
company to create a strategic partnership with the private sector. However, side by side they will
operate another airline Pakistan Airways. The reason behind this could be that by privatizing PIA
it would lose 10 landing rights at the Heathrow airport which would be a loss of 450 million
pounds (45 million pounds per Landing). By operating a new airline Pakistan would lose 450
million pounds per week.

The government thinks about privatization whereas the employees at PIA strongly disagree as
they fear to lose their jobs. The PIA is currently under a deficit of Rs. 20 billion and revenues
have declined by 9% during the last 1 year. Its operating cost is too high and its not generating
profits at all since the past year.

REASONS OF FAILURE:
One major reason for high operating cost is the political appointees in the organization. They are
offered high salaries whereas the rest of the employees are getting the same pays determined by
the government. The top management of the organization changes with the election of another
government. Every government brings employees of their own to reflect their party. According
to an article written by a girl whose father was an employee in PIA for 37 years said, ‘PIA IS AN
ORGANISATION IN A DEVELOPING COUNTRY WHICH HAS DONE ITS BEST TO
PROVIDE JOBS TO THE EDUCATED PEOPLE BUT THIS HAS BEEN MISUSED BY OUR
POLITICIANS’.

Another reason behind the failure of PIA is that the air fleet carrier is aging and needs to be
repaired for which our government has no money for it plus the organization is overstaffed. The Privatization of PIA | 4/21/2016

employees of PIA themselves are the cause of its failure. The employees of PIA have been
involved in a number of activities which affected the reputation of PIA. Then the poor services
of the airline which include rudeness of the staff, mismanagement of the flight scheduling have
contributed to the decline of PIA. People off and on face huge problems due the delaying of
flights they miss the connecting flights plus they are not even accommodated or compensated.
One woman who travelled to Nepal had a flight back to Pakistan but PIA did not inform her
about the cancellation of flight. When she came to know by calling the International Airport of

10
 Nepal that her flight is delayed for 4 days she was surprised and when she called the
representative of PIA she was so disappointed by his attitude and rudeness. She was running out
of cash as no credit cards were operational there and the airline was least bothered. Who would
like to travel through an airline which is not even responsible of informing the customers if
there’s a change in the flight schedule? One more incident which I came across is that the the
flight was to take off from London Heathrow Airport but it was delayed for two hours just
because the pilot wanted to have sandwiches on board which were not in the menu and it took
two hours to provide him and the passengers were kept waiting inside the aircraft without the
proper functioning of ACs. One passenger was almost about to die. I am sure no one would like
to tolerate such tantrums of the employees. Then many times we read in the newspaper that the
PIA pilot was found drunk and was grounded for months. Once two passengers had to travel
sitting on the toilet seat as the tickets were booked more than the capacity of the aircraft. This is
all because of bad management of the employees and the organization as a whole. The answer to
this question is complicated as two types of people will be affected. The people who will be
jobless after the privatization. The second being the people who travel free or at discounted rates.

Both of them would be affected as these both are inefficient and have zero contribution in the
progress of PIA and if our government says no one would be fired then there is no need to
privatize as these are a burden on the organization and in order to make it profitable they need to
fire the inefficient workers.

To avoid these problems we are somehow convinced that the privatization of the PIA is
important and we have no other way out to solve this issue and make it back to the top 10 best
airlines in the world. In this way, the aircrafts will be taken care; good services would be
provided by fulfilling the need of our people. By providing facilities on board and through
Privatization of PIA | 4/21/2016

friendly staff it can really make it to the top.

A number of failures causes and benefits have been quoted above so now we shall see how many
people are actually in favor or against the privatization.

PEOPLE’S VIEW:

11
A number of people are in favor and are not in favor of PIA’s privatization. The following graph
shows, 47% people are in favor whereas 46% people are not in the favor of PIA privatization and
the rest 7% are unsure about it. Therefore it is a sensitive topic the ratio is almost equal of people
who are in favor and against this decision.

AUDIENCE POLE
YES

NO
AUDIENCE POLE

MAY BE

0% 10% 20% 30% 40% 50%

CONCLUSION
PIA has been in debt for many years now, the government needs to take a quick step and
privatize PIA as soon as possible so that’s no more money is spent on such a small percentage of
the population .the government needs to sell its shares to a person with a large capital and highly
Privatization of PIA | 4/21/2016

skilled in entrepreneurship to introduce new ideas to earn profit .also that the employs need to be
reduced as the organization cannot afford anymore loss. Like many others companies such as
PTCL and Continental hotels which have been sold to the private sector and have changed
drastically.PIA also needs a ambitious person to make it a profitable organization.

12
 APENDIX
1.1

Revenues

Year Revenues (PKR in Million) Profit/(Loss) (PKR in Million) Employees (Ave.)

2015 3Q 69,249 (50,552) 15,000 approx.

2014 99,519 (32,222) 16,000

2013 95,771 (44,322) 16,604

2012 97,438 (33,844) 17,439

2011 116,551 (26,767) 18,014

2010 107,532 (20,785) 18,019

2009 94,564 (5,822) 17,944

2008 88,863 (36,139) 18,036

2007 70,481 (13,399) 18,149

2006 70,587 (12,763) 18,282

2005 64,074 (4,412) 19,263

2004 57,788 2,307 19,634

13
1.2

Passenger Traffic

Revenue Passengers Passenger Load Average Passenger Stage Distance

2014 4,202 72 2,833

2013 4,449 70 2,751

2012 5.236 70 2,650

2011 5.953 72 2,631

2010 5.538 74 2,827

2009 5.535 70 2,510

2008 5.617 71 2,479

2007 5.415 67 2,527

2007 5.415 67 2,527

2006 5.732 69 2,639

2005 5.499 70 2,638

Privatization of PIA | 4/21/2016

Bibliography
ALMEIDA, C. (2016). its not about PIA. DAWN.

Mirza, A. M. (2016). Should PIA be privatised? the nation.

(2016). Parliament's joint session likely to pass PIA privatization bill today. ismlamabad: dunya news.

14
 Privatization of PIA | 4/21/2016

15