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| 25 March 2004 | Thursday | 03 Safar 1425 |
PIA decision to buy Boeing 777 criticized
ISLAMABAD, March 24: The Planning Commission has raised serious objections over PIA's decision to purchase eight new Boeing 777 Family aircraft at a cost of Rs105.95 billion.
An official document said that no proper feasibility was carried out to purchase the new eight aircraft. In the absence of a proper and independent feasibility study, it could not be ascertained whether the proposed procurement of aircraft was the optimal option. The selection of the aircraft preceded all other developments. It appeared that no bids were invited.
The option of the Airbus was foreclosed in the initial stage, which left only two options viz old versus new Boeing aircraft. Four A340 Airbus could have been purchased at the cost of three Boeing 777.
The cost of Boeing aircraft was $1.5 billion as against $1.3 billion for an Airbus that would have meant a saving of $196.19 million per aircraft. "PIA cannot make any profit in the face of declining fare viz-a-viz huge investment entailed in the selected option," the Planning Commission said in the document, adding that PIA's actual traffic declined after 1993 on domestic routes, and after 2000 on international routes as well.
Also revenue projections were based on traffic projections which might not necessarily materialize. Any decline in traffic would result in diminishing of the revenues. The calculation of cost was based on an exchange rate of Rs60 to a dollar. The cost would need to be corrected on the basis of prevalent exchange rate.
PIA's projected cash flows were based on provision of equity, which would be difficult to provide and that there was a discrepancy in the figures of duties, which would require to be reconciled. Likewise, exact cost of the project has yet not been known.
"In overall terms the proposed procurement of aircraft could not be established as a sound investment decision. However, the agreement has already been signed and payments have been made. It is case for ex-post facto approval," the documents revealed.
Sources said that Central Working Development Party (CDWP) of the Planning Commission was to discuss the purchase of eight new aircraft in its meeting held on March 22, but the PIA authorities and the sponsoring agency of the project - the ministry of defence officials - did not turn up reportedly to avoid the objections and criticism over the issue.
The Planning Commission said that PIAC eliminated Airbus A340 aircraft in the very initial stage despite being a cheaper option. Operators of only one type of aircraft were contacted wherefrom no serious offer was received.
PIA should have explored the possibility of used A340 aircraft, which they may have inducted, even at much cheaper price. The plea that there were only two possible options for the PIAC in the purchase of the aircraft was absolutely untenable.
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