casestudyofpakistaninternationalairlinepiadownfalls-130130044953-phpapp02-converted.docx
- 1. Submitted to: Mr. Hassan Mujtaba Nawaz Saleem Submitted by: Syed Awon Hussain Shah Roll No 226 Tauseef Raza Gillani Roll No 227 Talha Ali Ansari Roll NO 218 Session 2010 – 2014 Department of management science
- 2. Pakistan International Airline “Downfalls” A famous proverb is that, “A house is caught in fire from its own lamp.” History Air transport has probably never been more important to the development of a new nation than in the case of Pakistan. In June 1946, when Pakistan was still in the offing, Mr. Mohammad Ali Jinnah, the Founder of the upcoming nation, instructed Mr. M.A. Ispahani, a leading industrialist, to set up a national airline, on a priority basis. With his singular vision and foresight, Mr. Jinnah realized that with the formation of the two wings of Pakistan, separated by 1100 miles, a swift and efficient mode of transport was imperative. On 23rd October 1946, a new airline was born. Initially registered as a pilot project in Calcutta, Orient Airways Ltd. had at its helm Mr. M.A. Ispahani as Chairman and Air vice Marshal O.K. Carter as General Manager. The new carrier's base remained in Calcutta and an operating license was obtained in May 1947. Four Douglas DC-3s were purchased from Tempo of Texas in February 1947 and operations commenced on 4th June 1947. The designated route for Orient Airways was Calcutta-Akyab-Rangoon, which also happened to be the first post-war international sector to be flown by an airline registered in India. Within two months of Orient Airways' operational beginnings, Pakistan was born. The birth of a new nation generated one of the largest transfers of population in the history of mankind. Orient Airways with a skeleton fleet of just two DC-3s, three crew members, and twelve mechanics, launched its scheduled operations in a fairy-tale manner. The initial routes were Karachi-Lahore-Peshawar, Karachi-Quetta-Lahore and Karachi- Delhi Calcutta-Dacca. By the end of 1949, Orient Airways had acquired 10 DC-3s and 3 Convair 240s which were operated on these routes. In 1950, it had become increasingly apparent that additional capacity would have to be inducted to cater to the growing needs of the sub-continent. Orient Airways was a privately owned company, with limited capital and resources. It could not be expected to grow and expand independently. It was then that the Government of Pakistan decided to form a state-owned airline and invited Orient Airways to merge with it. The outcome of the merger was the birth of a new airline, named Pakistan International Airlines (PIA) on 11 March, 1955.
- 3. When Pakistan was founded in 1947 it comprised two territories on either side of the expanse of India. It was in generally known as PIA; or Pakistan International), is the national flag carrier and a state-owned enterprise of the Government of Pakistan. It is primarily owned by the Government of Pakistan and is regulated by the Ministry of Defence as an autonomous body Once regarded as Asia's best airline, it is headquartered at Jinnah International Airport in Karachi and operates scheduled services to 24 domestic destinations and 38 international destinations in 27 countries across Asia, Europe and North America. Its main bases are at Karachi, Lahore and Islamabad/Rawalpindi. Problem in PIA On December 18, 2012, PIA flight Boeing- 777 had to takeoff from Lahore to Frankfurt at 8:00 am, when the time came, of loading the passengers, at 5:00 am , it was inform to Airport authorities that boeing-777 is not ready for takeoff because leakage of fuel tank of the plane. It was announce that flight will take off at 11:00 am. But it could not takeoff at 11:00 am and then announced again to fly at 12 but it failed to takeoff. So finally air port authority told the passengers at 2:30 pm, that boeing-777 is not taking off today due to problems in planes. So 278 peoples including men, women, children and old-age. They waited at least 10 hours at airport, but nobody told the right information to the innocent passengers. Some peoples were booked for next day flights, but most of the passengers who they were from out site cities, gone back to home. According to the recent report, 2540 flights have been delayed due to weather, security, flaw of engines. Flight delays and cancellations have become the norm rather than the exception. . Naturally this situation cannot be tolerated for unlimited period. PIA will have to overpower its weaknesses. It has failed to resolve issues of its organization. This case was prepared by Tauseef Raza, Talha Ali, and Syed Awon (MBA 5th eve) and It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Department of Management Sciences, Islamia University of Bahawalpur.
- 4. Financial Losses Pakistan international airline is struggling with financial losses from past few years. It is also facing of such breakdowns, delay of flights, routes problem and some other issues.PIA was the most profitable in the starts decades. Basically PIA is under the ministry of Defense. But the government has changed many of chairman and MD’s in the past 5 years. The Government keeps the people of its own interest. It is also unlived that PIA, which made world record to cover the distance from London to Karachi in 6 hr 43 minutes and five seconds, which still world record today. But what is the reason that this is going down and down, day by day. PIA has, in all, 39 aircrafts in its fleet comprising of 4 Boeing 777-200 ER, 3 Boeing 777-300 ER, 2 Boeing 777-200 LR, 6 Boeing 737-300, 5 Boeing 747-300, 12 Airbus A310-300 and 7 ATR 42-500. A number of aircrafts have been grounded due to shortage of spare parts or overhauling. These include Boeing 747s, Boisiseing 737s and Airbus A 310. It is generally believed that PIA high-ups are responsible for the inconvenience of the passengers. The whole system needs overhauling.PIA planes deprived of repairs, overhauling. The repair and overhauling works of the aircrafts of national flag carrier have not been done overseas due to financial crisis in PIA. Foreign companies refused to provide engine to PIA due to non-payment of hundreds of thousands of dollars of dues. Sources said that over 15 planes of the national flag carrier still remain grounded due to unavailability of engines and spares. This has badly affected the PIA's flight schedule both on domestic and international routes. The sources disclosed that PIA has not been able to pay $ 25 million of dues due to its financial crisis.PIA has not paid $ 6 million to Air France for engine repair; over $ 6 million remains unpaid to Singaporean company Eagle Service Asia for the repairs of two engines while over $ 4 million remains unpaid to a Jordanian company for repairs of five engines of Boeing 747 aircraft. Political Involvement PIA employed number of employees in last 3 years on the political basis. There is excessive recruitment without advertisements. Even though Ministry of Defense and Chairman PIA did not know that how many employees are working in PIA. In the question of media respondent, Naveed qamar told that 18000 employees are working but the Chairman of PIA gave the answer of same question that, 20000
- 5. employees are working in PIA. But both of them were wrong. They do not even know how many employees working under them. According to fact: No. of employees;Approved Position = 19159 Employed = 1289 On daily wages = 3058 Total = 23605 23605 employees are working in PIA and PIA has 40 aircrafts. And for one plane 590 employees are working. Which is third time the international standard? It means that on the basis of unnecessary recruitment, overstaffing issue is created by the PIA. According to international standard 150-225 people are for only A plane. But in this firm situation is very worse the average ratio of staff should not exceed 150-225 per aircraft while PIA enjoys more than 500 employees per aircraft. It is overpopulated and needs to cut its coat according to its cloth. It needs some hard decisions by the administration to run the system smoothly. Pakistan International Airlines should give primary importance to the safety of the passengers and make efforts to avoid any untoward situation. Several untoward incidents occurred in PIA in the last decade. It is necessary to tackle with such incidents seriously to minimize the losses. The passengers should not suffer in its custody. Management Issue Pakistan government is doing his job greatly to destabilize the firm and after this showing de-stable firm and to sell the PIA to private authorities and by privatization, so as far government could corruption of billions of rupees again. The National Assembly's Standing Committee on Finance was informed here on Tuesday that Pakistan International Airlines (PIA) losses had increased to Rs 142 billion and gap between revenue and expenditure continued to widen. The PIA management conceded before the National Assembly Standing Committee on Finance, which met with MNA Khawaja Sohail Mansoor in the chair, that the number of employees (18,000) on the national flag carrier was relatively higher as compared to other organizations. Moreover, the member of the committee said that
- 6. PIA flights were operating on economically non-viable roots due to political pressure. Senior official of the Finance Ministry blamed the PIA management for the losses and termed their non-serious attitude responsible for the crippling financial condition of the organization. DG Debt Masroor Qureshi said that the Finance Ministry has on and off requested management of PIA to bring everything in black and white before the Cabinet Committee on Restructuring (CCoR) as well as business plan but the response, however, appeared non-serious. Reason of Failure The committee was briefed by the PIA deputy managing director regarding reason for the current state of affairs such as aging fleet, volatile fuel prices, exchange loss, interest on non-fleet loans and aviation policies. He added that PIA has taken almost 66 percent businesses from narrow body aircrafts and fuel financial effect on different aircrafts is approximately 54 percent of the total cost. The committee was further informed by the deputy MD that PIA had paid Rs 59 billion to Gulf Airlines under the aviation policies. The committee was told by the PIA chief financial officer that PIA has almost 23000 employees, out of which 1,500 employees were drawing more than Rs 100,000 salary. The committee was also informed by the deputy MD that PIA had 14 consultants, however, former MD and chairman had reduced these appointments and now they were seven. He further informed that about 45 general managers were still working in PIA and PIA has planned in its transformation process to reduce non-operational areas, which will be done through normal attrition. He said that HR rationalization plan will result in a cost reduction of approximately Rs 3.8 billion over a period of five years. The committee has shown its reservation about the huge number of postings of general managers, the committee was told by the PIA representative that employees cost to PIA is 16 percent of the budget. The PIA management informed the committee the reasons behind the losses to the national carrier were aging fleet, volatile oil prices, exchange rate losses, interest on non-fleet loans, geo-political situation, and delay in aviation policy, inconsistent policies and services on commercially unviable routes. It was further informed that
- 7. PIA's fleet loans amount to Rs 54 billion and financing cost of these loans is around Rs 1.5 billion and exchange rate loss has been worked out at Rs 4 billion. The non-fleet loans are estimated at Rs 98 billion and their financing cost is Rs 9.7 billion and exchange rate losses have been worked out at Rs 2.1 billion annually. It was also informed that jet fuel price per US gallon was $123.5 in 2006, which has shot up to $270.1 per gallon in 2011, projecting an increase of 119 percent. Similarly, exchange rate was Rs 61 a dollar in 2006, which has gone up to Rs 90 a dollar in 2011. The revenues of the national carrier were Rs 43.6 billion in 2001, which have increased to Rs 116.6 billion by the end of 2011. Ministry of Finance (Debt) director general has informed the committee that PIA could not prepare its proper business plan and PIA management was not looking serious towards business. He proposed that PIA should make its strategic business unit, said units should make separation of non-core business activities from airline business through speedex, flight kitchen and ground handling services etc. The committee was informed by the standing committee chairman that he came to know through some reliable sources that a senior officer of PIA is involved in corruption of procurement in different parts of PIA aircraft. The Standing Committee has shown its dissatisfaction on the presentation given by PIA management and decided to call another meeting on the same agenda. The committee was of the opinion that present team of P1A has no business vision and PIA is operating on the wishes of people, because they don't have any proper administration. The committee has recommended that details of the recruitment made in last five years may be furnished to the standing committee, PIA chairman, MD and defense secretary may be called in the next meeting of the committee. Competitors It said Pakistan had become a lifeline for foreign carriers, mainly from the Gulf region, which were sucking away the resources of Pakistan (Pakistani passengers). “Precious exchange is being drained and the airline of Pakistan is the ultimate loser.”The report regretted that foreign airlines had been increasing their capacity on Pakistan routes because of the facility of liberal traffic rights. Successive governments have allowed foreign airlines to fly to and out of the country without offering any reciprocal rights to PIA to fly to their countries. As the rightful
- 8. revenues of PIA were taken away by the ambitious airlines of oil-rich countries, PIA was unable to invest in new aero planes, it said, adding that no aircraft was inducted into its fleet from 1992 to 2002. This was the period when the airline started incurring losses. The report said PIA had lost as many as seven million potential passengers to other airlines on the US and UK routes between 2009 and 2012 because of the unilateral liberal traffic rights given to foreign carriers. The rights were given despite the fact that PIA was operating direct flights to the two destinations. “This decision alone robbed PIA of more than Rs150 billion in three years.” External competitors: American Airline British Airways Sheehan Air International Internal competitors: Aero Asia Air Blue Shaheen Air international Recommendation Recently, the management announced a 5-year turnaround plan and has asked the government to write off losses of $1. 7 billion to prevent bankruptcy. The plan envisions cutting costs and buying new planes that are more fuel efficient. News items suggest the likelihood of government accepting the plan is low, and thus PIA will either have to resort to more borrowing or declare bankruptcy over the next few years. *Financial Statements of PIA are given at the end.
- 9. Year 2011 Revenues (PKR in 11G. 551 Million) Profit/(Lass) (PKR in i2G.7G7) Million) Employees (Ave.) 18.014 2010 107. 532 i”20.785) 18.019 2009 94.5G4 i 5.822) 17. 944 2008 88.8G3 i”3G.139) 18.036 2007 70.481 i 13.399) 18.149 200G 70. 587 i”12.763) 18.282 2005 G4.074 i4.412) 19.2G3 2004 57.788 2.307 19. G34
- 10. Pakistan Internati0naI.trIines Fleet .‹.TR1?-TOO 6 0 9 — 10 IO 59 9•)tMq /?/-?O0 J 0 O — 2J RJ 116 e•)tiq ///-?0OLR 2 0 O 3f 60 21f J1O Orferfeli›er›lram 2O1f Total
- 11. UNCONSOLIDATED BALANCE SHEET AS IT DECEMBER 31, 2011 €adi a«d bank baIe«cn .Wnual Report 20J I 15 16 [email protected]
- 12. UNCOMSO£IDATEDBA£ANCESHEET AS AT DECEMBER 31, 2011 Annual Repzu 20J1 41
- 13. UNCONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 201 1 Onhr n Annual Repnrt 7OJ J fs8szsl
- 14. UNCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31 2011 Annual Repos 201 I