LAHORE: The federal government needs to make a well thought out decision about the future of Pakistan International Airlines (PIA) which will help regain its competitiveness, the Institute for Policy Reforms (IPR) noted in a fact-sheet issued on Friday
It recommends that all parties must dispassionately help the national carrier’s reform rather than dwelling on ‘to sell or not’.
“As of September 2015, PIA had negative equity of Rs167 billion and long-term debt of Rs109bn or more. Its current assets of Rs24bn are a mere 12 per cent of the current liabilities of Rs197bn, payable within 12 months.
“Furthermore, for years, the airline has generated negative cash flows,” the fact-sheet said.
It says payroll costs, which seem to be at the centre of recent discussions, are 19pc of total cost (17pc, if finance cost is included). The equivalent number for Emirates, another public sector airline, is 14.3pc.
According to the airline’s Annual Report 2014, its average number of employees is 16,243. Consequently, each employee contributed Rs6.1 million to revenue.
PIA’s available capacity per employee is 147,502 tonnes kilometre (unit of transportation measurement). The corresponding numbers for Emirates are Rs55m revenue per employee and 1.1m tonnes km.
PIA does not do well in the critical indicator of capacity utilisation. Its passenger seat factor is an acceptable 72pc, but overall capacity utilisation is a sub-par 59pc. Corresponding numbers for Emirates are 80pc and 67pc with a break-even point of 64pc.
“To hold PIA’s workforce responsible for its weak performance is misplaced. The key to PIA’s woes is that it is not run as a business. Government plays a major role in many operational decisions.
“Too many non-commercial considerations become PIA’s responsibility,” the fact-sheet notes. The government also sets the policy framework in which PIA operates. The most obvious example of this is the open sky policy, the report added.
The factsheet states that even a strategic investor for 26pc equity would expect the government to clean the balance sheet and assume PIA’s over Rs190bn long and short-term debt.
As the majority owner, the government must bear this liability whether PIA remains in the public sector or not.
The fact-sheet noted that PIA’s landing rights at most major world airports are of considerable value. If presently these are not fully utilised, there is considerable potential for revenue increase here, it added.
Published in Dawn, February 20th, 2016