The Economic Coordination Committee of the Cabinet, on December 6, approved the release of the first tranche of $16.46m for PIA, enabling it to acquire 15 aircraft on dry lease.
The dry lease transaction is worth $52m. The amount will be injected as equity, and the ECC has asked the Pakistan International Airline Corporation (PIAC) to complete all formalities required under the rules of procurement.
A committee comprising the finance secretary, SECP chairman and petroleum secretary will analyse PIA’s financial statements and projections before the second tranche is released. The remaining installments are to be paid on a monthly basis, after December 20.
PIA has done relatively well during the nine months ending September 30 (9MCY14), as its after-tax loss decreased to Rs20.87bn, from Rs31.94bn in the same period last year. Revenue for 9MCY14, at Rs75.93bn, was up 6pc from Rs71.72bn last year.
Besides, the cost of aircraft fuel, at Rs37.84bn, is down 7pc from Rs40.48bn in 9MCY13. As percentage of net revenue, aircraft fuel cost for the current nine months works out at 50pc, as against 57pc in the previous year. These are positive developments, but much more needs to be done to bring PIA to profitability.
PIA has done relatively well during the nine months ending September 30, and taking aircraft on dry lease would help it fruitfully engage its current employees and facilities
Taking aircraft on dry lease would help the airline fruitfully engage its current employees and facilities. Under the dry lease, the aircraft are acquired without insurance, crew, ground staff, support equipment and maintenance facilities. They would join PIA’s fleet in a few months, and the national carrier should be able to improve its services and flight punctuality.
PIA has suffered major losses for the past 14 years — except for 2002, 2003 and 2004, during which only nominal profits were reported. The airline incurred a loss of Rs44.531bn in calendar year 2013, taking its accumulated losses to Rs197.798bn by then. By that time, its current liabilities exceeded its current assets by Rs164.697bn. The situation is really grave.
PIA, like other airlines, needs to periodically update its fleet. But despite government support for the past 10 years or so, the carrier has been posting big losses. Perhaps, the government funding has been inadequate, or the implementation of the restructuring was not properly monitored.
The National Assembly recently passed a unanimous resolution, urging the government to take immediate steps to improving PIA’s services. Lawmakers regretted the airline’s deterioration, dependence on ageing planes, cuts in services to both domestic and international destinations, delayed flights and frequent cancellations for no apparent reasons.
The concerned minister mentioned various measures taken by the government, including injecting funds into the airline to reduce its foreign debt, leasing planes from foreign airlines and appointing competent officials etc.
Later, the issue was referred to the standing committee on cabinet division, which oversees the airline.
One would recall that PIA is one of eight public sector enterprises that the government had selected for restructuring in January 2010. However, because of its size and the complex issues it is facing, its restructuring might not be easy.
Repeated attempts have been made over the past decade or more to bring a turnaround in the airlines state of affairs, and it is hoped that the policymakers would keep the past experience in view while moving forward.
Published in Dawn, Economic & Business, December 15th , 2014
