PIA, CAA and conflict of interest

Published July 13, 2020
If the violation of national and international regulations continues, the nation will keep paying the price in the form of both money and human lives. — Reuters/File
If the violation of national and international regulations continues, the nation will keep paying the price in the form of both money and human lives. — Reuters/File

THE objectives of Pakistan International Airlines (PIA) and Civil Aviation Authority (CAA) have an inherent conflict.

As per the 1982 Ordinance, CAA was expected to establish a safe, efficient and economical air transport system in the country. This meant that air travel would not only be safe but also affordable for ordinary people. A strong regulatory structure along with competition in domestic and international markets was the only way to achieve the two objectives.

PIA, on the other hand, is a business entity and profitability is its primary objective. In its heyday, it was an absolute monopoly. Therefore, its profits were guaranteed, although air travel was out of reach for the middle class. It was also a relatively safe airline then.

Deregulating the airline industry in 1992 without privatising PIA was a cardinal sin. Sadly, we have not learned our lesson even after three decades. We continue to lose tens of billions of rupees every year by operating the airline. PIA lost money in 2019 even though the perception is that it became profitable. About Rs12 billion in gross profit in 2019 was insufficient to cover other operating costs and, therefore, the airline ran into a loss of Rs20bn before interest and tax. The airline paid the interest cost of Rs36bn but paid no tax to the government. Hence, its total losses stood at Rs56bn in 2019.

The operator’s strategy to assume the regulatory function, albeit indirectly, paralysed the regulator

If we add CAA’s loss of revenue amounting to Rs4bn on account of excusing airport charges in order to cut down PIA losses, then the total stands at Rs60bn. And let us not forget the Rs34bn worth of sovereign guarantee given to the banks. Should we say that the government or the nation as whole lost Rs84bn in 2019? Some industry pundits may disagree on technical grounds.

But the point is that a perpetually loss-making entity with Rs489bn of accumulated losses and Rs330bn of negative equity is already in a debt trap.

Ceteris paribus, financial weakness in an airline is in itself a major safety concern. With no money left for the development of human resource, infrastructure upgrade, training, technology and maintenance, the pathological safety culture is likely to replace the generative one.

The regulator being under the same controlling ministry is expected to look the other way when it comes to regulating the national carrier. The airline became financially bankrupt about a decade ago and should have been grounded for the same reason as per the national regulation.

On the contrary, the regulator had been allowing the bankrupt airline to continue business as usual even though its dues have piled up to over Rs100bn — something unthinkable for the relatively smaller private domestic airlines competing against the government-owned carrier.

CAA started to deteriorate the moment it was deprived of its director general in January 2018 and the Aviation Division began to remote-control a most diverse and complex government organisation from Islamabad. The practice still goes on as no director general of CAA has been appointed yet.

Yet PIA got its new CEO, in uniform, following the change of political government in 2018. He introduced military-style discipline among PIA’s rank and file. The strategy to cow unions and associations into silence paid off. The managerial authority at upper and middle levels was restored to a large extent. Even the leakages in the system were locked to some extent, but aircrew discipline remained elusive.

However, the operator’s strategy to assume regulatory function, albeit indirectly, paralysed the regulator, eliminating even the semblance of a regulatory authority over the oldest airline of the nation. The operator’s recent claim to be the author of the National Aviation Policy 2019 was proof that the regulator had been rendered dysfunctional.

The national carrier even sought the government’s approval on Jan 1, 2019 to take over the Islamabad airport, eliminate CAA airport and air navigation service charges and block foreign airlines’ traffic rights.

When you weaken the regulator, frequent accidents are a natural outcome. The responsibility for the disaster of PK-8303 cannot be shifted to individuals in line management in either PIA or CAA. It was a system failure. Therefore, organisational heads ought to take responsibility. The Safety Management System (SMS) for the operators and the State Safety Programme (SSP) for the regulator — both developed by the International Civil Aviation Organisation (ICAO) and implemented by all the contracting states, including Pakistan — say the same thing.

If the violation of national and international regulations continues, the nation will keep paying the price in the form of both money and human lives.

We hear that our prime minister is willing to pump in more funds to keep the airline afloat. If the airline suffered a loss of Rs56bn in 2019 despite receiving a Rs34bn government loan, what would be the quantum of loss in 2020?

The irony is that the national carrier cannot be privatised because of a huge debt of Rs500bn along with 14,500 employees spoiled both politically and professionally. The only way out is to shut it down and let the private sector take care of the airline industry.

The writer is an expert in airline economics and bilateral air services agreements

Published in Dawn, The Business and Finance Weekly, July 13th, 2020

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