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Another go at a PIA turnaround

July 02, 2018

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Musharraf Rasool Cyan  is the chief executive officer of Pakistan International Airlines
Musharraf Rasool Cyan is the chief executive officer of Pakistan International Airlines

Can the PIA brand be revived and the airline turned into a profitable concern? Many would reply in the negative. This is understandable given the national carrier’s tainted image, smaller size, massive debt, overstaffing, poor management, revenue losses, corruption, uncooperative labour union and the other problems it faces.

But Musharraf Rasool Cyan, who took over the crumbling airline as its chief executive officer (CEO) in September last year, has a different point of view. He argues that the company can be revived and made profitable provided the government showed political will to tackle all these problems head-on. He is also not in favour of selling it to some businessman.

“Brands can be revived. (PIA’s) revival is doable. Take the example of Malaysian airline. There are also several instances in America where loss-making airlines were rebuilt as successful companies,” Cyan told this writer in an interview.

Many advocate privatisation of the national airline because of poor management and administration, losses and employees’ attitude. “But that is not a solution. An honest and sincere effort will succeed even if we have failed in the past” says Musharraf Rasool Cyan

He is also opposed to the idea of privatisation of the carrier. “Privatisation works best in competitive markets. Aviation in Pakistan is not competitive. In the domestic market we have very few players and in the international market foreign airlines are heavily subsidised by their governments.”

He contended that many advocate privatisation of the national airline not because of economic reasons but because of poor management and administration, losses and employees’ attitude. “But that is not a solution. An honest and sincere effort will succeed even if we have failed in the past (because of shortage of cash and lack of political will).”

The to-do list he has for the government if it is interested in the airline’s revival is a long one.

The major actions needed to save the company include a clean-up of its balance-sheet that has government-guaranteed debt of Rs218 billion parked in it or debt restructuring with a grace period of 3-5 years in the short term because interest payments alone are costing it Rs18.5bn a year. Additionally, the company has Rs34bn in liabilities that are not backed by sovereign guarantees.

“This is the kind of debt PIA cannot repay given the small size of its operations. It is a major drag on our cash flow,” Cyan contended. “Unless the debt is taken off and balance-sheet cleaned up, we have no chance of saving the national carrier.”

The PIA CEO said the government had approved a 5-year business plan, being implemented from July, under which it had agreed to pick up interest payments and make them part of its budget. Besides, it has also approved financing of Rs20bn for overhauling aircraft engines.

Secondly, he wants a political consensus to deal with the problem of overstaffing in the company and labour union that is acting as ‘shadow management’. He said the management would go back to the government some day to discuss and find a solution to the problems of overstaffing (PIA has 13,780 employees for its small fleet of 32 aircrafts) and labour union.

Thirdly, he favours a new aviation policy that supports and facilitates domestic airlines rather than foreign companies. “Why do we have an extra liberal aviation policy? It has diverted our market share to them. Gulf carriers are so cheap and heavily subsidised by their government that no other airline can compete,” Cyan said, adding PIA was discussing review and rationalisation of the country’s aviation policy with the government.

He also wants the PIA management to be empowered to take on-time crucial decisions for better administration and improvement of its operations instead of turning to government authorities every time, at the cost of losing opportunities. He was of the view the government needed to separate the role of regulator and airport management to improve services at the airports for both passengers and airlines.

Ever since the business plan was approved the management has taken steps to improve the product quality by refurbishing aircrafts, increasing engineering cost from $54 million to above $90m in 2018 for aircraft maintenance, stabilising administration cost at the previous year’s level, improving flight punctuality and in-flight services, etc.

Now the company is working to increase its fleet of aircrafts on dry lease to 50 in 24 months and find new, profitable routes. It has already returned aircrafts on wet lease and improved its revenues by Rs3bn through improved ticket sales, freight and extra baggage tickets.

Cyan says the management is working on a plan to reduce operating loss from Rs26bn last year to Rs18bn this year. “We are close to the target but haven’t achieved it so far because of the recent weakening of the rupee against the dollar and rising fuel price that has gone up from our estimate of $55 per barrel to $79 per barrel. These two factors have put an additional burden of Rs2bn a month on our expenditure.

We plan to increase our fares from next month to recover the increased fuel costs and expect to bring down operating loss to Rs18bn at the end of the year. Our objective is to turn PIA into a modern corporate, profitable and competitive concern.”

Published in Dawn, The Business and Finance Weekly, July 2nd, 2018