Saturday, August 22, 2009

PIA: Where A Loss Of Rs.5.4 Billion Over Six Months Counts As Good News

That, my friends, is my suggestion for PIA's new slogan since "Great People to Fly With" has run its course, as has the consumer favorite ("Perhaps I'll Arrive"). Now, I'm hoping that I'm not treading on Mosharraf Zaidi's territory here, since he has in the past laid claim to being aghast over PIA's ineptitude (a google search of "PIA site:mosharrafzaidi.com" returns 74 results, which itself is quite a story for a weekly columnist who only started writing last year). But I can't resist, so forgive me, Mosh.

Today's Dawn is reporting that the airline lost a whopping Rs.5.4 billion in the first six months of this year. Moreover, the report is filed in the same sort of tone that a parent adopts when their athletically challenged child finishes last in a school race -- "now, now, beta, at least you finished ahead of, uh...well, um, the point is you tried." Honestly, go read the report. You really get the feeling that the reporter or Dawn's editors are actually happy about this outcome.

Thankfully, regular reader Wasay sent me their annual financial report from last year (i.e. before the "encouraging" five and a half billion rupee loss). It makes for highly entertaining reading. Before we get to the hard data, let me show you a couple of pictures.


That's the first page of their annual report. No, seriously. Because if there's one thing I think when I think of PIA, it's "the budding era of growth." Wait, there's more.


I'd make some lame joke about how you have a better shot of getting where you need to go on a bloody air balloon than a PIA flight, but I'll spare you. Please continue to note the soaring rhetoric.


Ideology? They do know this is a financial statement for a business, not a manifesto for a new political party, right? What, exactly, is PIA's ideology? Do they even know what the word "ideology" means? Let's move on.


Alright, enough with the pictures. I don't know if I'm ready to crunch some numbers, but I am pumped up as hell. LET'S DO THIS! YEAHHH!

So if you go to pgs 58-65 of the report, you will notice the following things that Wasay pointed out for me:

1. In 2008, PIA reported a loss of about Rs.35 billion. Read that number again.
2. in 2008, PIA had about 18,000 employees.
3. According to Hina Rabbani Khar, Minister of State for Finance and Economic Affairs, only 2.5 million Pakistani pay taxes.

Using basic arithmetic, we can arrive at the following conclusions:

1. Each Pakistani taxpayer basically paid Rs. 14000 to the government to finance PIA's losses. As Wasay said, think about how many schools and hospitals you could build if each Pakistani taxpayer paid that much money for, um, schools and hospitals.

2. We could save ourselves a whole hell of a lot of trouble if the government simply gave each PIA employee a check for Rs. 2 million at the beginning of the year, and told them to stay home. The financial bottom line would stay essentially the same. Think about that.

We could even cut the middleman (the government) out by having groups of 142 taxpayers each pay their Rs.14000 share straight to a PIA employee of their choice, and we could all call it a day.

All jokes aside, this is a truly sordid state of affairs. And this is not some deep-rooted, nigh-on unsolvable problem like the Taliban war or anything. The solution is simple: STOP GIVING MONEY TO PIA! For God's sake, stop giving money to PIA. Please.

Anyway, I thought the cast of characters atop the airline also presented a fairly interesting picture. For instance, the chairman of PIA, Mr. Chaudhary Ahmed Mukhtar, is said by the report to be the "perfect blend of a businessman and a politician", which naturally leads one to wonder why PIA couldn't just be handed over to the perfect businessman instead. The report also tells us that the Managing Director, Captain Mohammad Aijaz Haroon, "hails from the famous Memon community known for its business acumen in Pakistan." I wish I was making this stuff up.

Then there's Lt. Gen (Retd) Syed Athar Ali, who is a director on PIA's board and whose qualifications are impressive for a war strategist but not so impressive for someone in charge of turning an airline around. This is his full mini-profile:
Lt. Gen (Retd) Syed Athar Ali is a nominated director since November, 2008. He holds Masters Degrees in War Studies from National Defence University and International Relations from Columbia University, USA. He is presently Federal Secretary Defence. He held various command, staff and instructional appointments which include representation of Pakistan on UN Peace-Keeping Mission in Sierra Leone in the dual capacity of Deputy Force Commander and Chief Military Observer for more than two years. Lt. Gen. Ali is a recipient of Hilal-i-Imtiaz (Military).

Now, someone has to explain two things to me. First, if PIA is ok with losing 35 billion rupees, how about make it 35 billion and 500 hundred, and hire someone who can actually write grammatically correct English to write this nonsense? Second, is there anything in that profile that suggests this man is a director of PIA for any reason other than the fact he is, or knows someone, important? When people complain about bureaucrats and ex-military generals and colonels dominating civil society, this is what they mean.

I don't even want to imagine what each director makes as a monthly salary, but I have to imagine its at least a million (10 lakhs) a month. At least. And since this man, according to the report itself, is currently Federal Secretary Defence, can anyone proffer a guess how many times he actually showed up to work? The man has another job, for the love of God -- one that he is infinitely more qualified for, I might add.

So there you go. The Pakistani taxpayers are financing an airline that loses money better than it flies planes, financing cushy jobs for cronies and bureaucrats and retired military men, and financing the ludicrous continuation of this failed enterprise.

Can anyone tell me why?

14 comments:

AKS said...

Ahsan your attack on the Gen. Athar Ali isn't fair. He is a member of their board of directors and not part of PIA's management as such he is not expected to 'show up to work,' he is expected to attend board meetings, which I'm guessing are held twice a year. And I don't see any harm in the Defence Secretary being part of the board, it actually makes sense to me.

You ought to be focusing your ire on the Managing Director, the man actually responsible with running the company, he is a pilot who has spent his life flying planes and has no prior experience in running a business (his only quality in this area as you pointed out is that he's a memon). Just because you can fly doesn't mean you can run a business. (Similarly just because you were a cricketer doesn't mean you can run PCB!)

I do wonder how many people who have options available to them (i.e. they actually pay for their ticket, or aren't flying to domestic destinations serviced solely by PIA) actually prefer flying with PIA? The percentage can't be too high.

Lastly look at this PIA ad from the 60s:

http://www.historyofpia.com/memorabilia7.htm

PIA used to be cool man.

Ahmed said...

Ahsan a good post. Gen Athar may not be an employee but he is the man. As Secretary Defence he is responsible to make PIA work.

I don't think PIA is an airline but it is actually a part of our national security machinery working under the Ministry of Defence. At least this is the only way poor taxpayers' 35 Billion can be justified, if at all.

Ahmed
Perth

NAA said...

As AKS points out Gen. Athar is not part of management. The Directors get a fee which, in the aggregate, was Rs 0.68 million for 2008 (pg. 107). The Chairman and Managing Director's remuneration was Rs 81 million, of which I'm guessing the majority was for the MD. The Chairman, as a leading industrialist, probably has more money than he knows what to do with.

Another interesting item to note on pg 107....PIA had 1,112 "executives", however that term is defined.

Some other gems from the Annual Report.

PIA's aircraft fleet went up in value to the tune of Rs. 11.675 billion over their written down value of Rs. 88 billion as revalued by an independent valuer (pg. 80). I'm guessing the above relates to buying new planes, discarding old ones, revaluing the entire inventory etc. which would have been fine, but here's the kicker, and I quote "However, in connection with this analysis, the valuer did not physically inspect any of the aircraft and has relied on the information provided by the Corporation." So let me guess…this entire exercise probably took 30 seconds and the company billed PIA for 3 months worth of work. This just sounds like a shady way to “limit” our loss to 35 billion because, God forbid, it actually could have been 46 billion.

Provision for construction of University Road, Karachi was booked to the amount of Rs. 215 million (Pg. 99, Item 23.2). I didn’t know PIA was in the road construction business. Too bad this entry was reversed during the year…I guess we’ll never know how good PIA could have been at constructing roads.

“The subsidiaries of the Corporation…PIA Shaver Poultry Breeding Farms (Private) Limited…had applied under the ‘Easy Exit Scheme’ announced by the SECP for voluntary winding up. Assets and liabilities of these subsidiaries were taken over by the Corporation (pg 99, Item 23.3).” I really want to know which genious came up with this idea, and more importantly which retard approved it. I personally think this was an attempt to diversify in case the whole airline thing doesn’t work out for them. You know…the whole don't-put-all-your-eggs-in-one-basket thing.

I believe at this point the only job PIA has is to provide jobs. They might as well shut the airline part of the business and save us some money on operation/maintenance costs and the import of fuel that our country can’t afford anyways.

Minerva said...

I'll tell you why.

Because like most of our governmental institutions, this one too hit the plummet, like the Steel Mills, like our telephone companies, like our power generators, PIA also faces everything that a government institution in Pakistan can possibly face.

Red-tapism, nepotism, military influence, lack of direction and oh let's not forget the backing of a structure (aka the government) that goes out of its way to create corruption and make millions out of it.

How could it all possibly be ANY different with Zardari in the President House?

How can we possibly expect otherwise? How can we possibly expect government institutions to run smoothly and NOT crumble into a mush of mess?

Pakistan khappay, man. It's only our own fault he's sitting there and failed institutions will keep crawling outta the woodwork until Pakistanis understand what it means to have good leadership.

takhalus said...

Pakistan's internal debt story is a total mess..the ads are silly but the facts are not surprising. The problem is two fold all the state owned industries are loss making ..reaching a high point of 180-200 billion rupees during the end of nawaz sharifs last stint in power(irony the one profit making one PTCL was sold!)..the second is a lot of the debt is circular in nature, the federal and provincial governments own these corporations money which they can't and won't pay and so the federal govt in turn subsidises these groups to continue loss making practices. At the same time the govt subsidises operations in areas which are loss making but popular (only 3 or 4 airports in pakistan turn a profit according to one report!). The provincial governments don't get paid their rightful share of money so inturn they default on payments to govt corporations. And so the circle goes on..

Ali said...

PIA is an important organization for the country. I, being oversees, value it's operation very much...however, I think PIA often overreaches, it needs to trim down on routes - make internet/telephone hotline's their primary resource for dealing with travelers and travel agents.

Bloated government organizations will continue to exist unless some private players are brought in. Government is always free to have a share, but management should be handed over to private players.

Above and beyond, one more issue that stares me in the face as far as PIA is concerned: PIA's offices are, internationally, located on the most expensive real estate there is - some examples: bloor st. toronto, champs eleysees paris, just off of picadilly circus in london.

I really do not see the point of having such centrally located offices in this day and age - when tickets can be bought over the internet, one can check in online etc. etc. (PIA's website, though improved, is absolutely shoddy)

Anyway, PIA will continue to head towards failure, unless they comprehensively cut costs.

Ahsan said...

AKS:

How am I being unfair to Athar? Even if someone is just on the board, shouldn't they be experts in their field? Do you think there are baseball players on Goldman Sachs' board?

And to answer your question, only people with a misguided sense of nationalism fly PIA if they have a choice (i.e. the "yeh hamaari airline hai" logic).

NAA:

Thanks for that input. Very useful.

Minerva:

To be fair, PIA has been crap for a long time, well before Zardari. I know we don't like him, but we can't blame him for everything.

Hamza said...

Ahsan: Good post. We really need to have a frank discussion in this country about what to do with PIA.

As far as I can see, there are a couple of options:

1. Status Quo: Do nothing, hope the management can sort things out, and we return to profitability. In reality, nothing will change, governments will continue to use PIA to give jobs to their supporters.

2. Privatize: Ideally, this makes sense. Remove PIA from government control, reduce the workforce, cut down unprofitable routes, etc. Painful, but neccesary. Then again, a few years ago, many people had high hopes for the KESC privatization. That, let us recall, hasn't turned out quite so well! In all fairness, though, the KESC privatization has gone wrong for other reasons, and we can't criticize all privatization ideas just because of one example.
The other problem is: Who the hell would want to buy PIA? The fleet are old gas guzzlers and Pakistan isn't really a good environment for foreign investment these days.

3. Maybe some sort of middle ground. I'm struggling for ideas here, so I apologize if this doesn't make sense, but giving the airline some sort of autonomy, while keeping it state hands is one possible solution. Get rid of political appointees, no more free tickets for government workers or anyone connected to the government. But keep some sort of government influence so that the airline continues to serve unprofitable regions in Balochistan or Southern Punjab.

Frankly speaking, these are all bad options. The quality of discussion on this blog is very high, so I'm curious as to what other think. Thoughts? Ideas?

I'm going to stick my neck out and vote for the privatization option. Things can't get worse, can they?

Anonymous said...

I, for one, couldnt see much wrong with the dawn article. Its just run-of-the-mill business reportage with facts and figues in comparison to previous year.

AKS said...

"Do you think there are baseball players on Goldman Sachs' board?"

Ahsan first of all that's a ludicrous comparison; secondly, the minister and secretary of state being there makes more sense now that I've found out that the PIA is owned by / falls under the Ministry of Defence.

Major shareholders get represented on the board, that's how it works, therefore its only right that the MOD be represented through their minister and secretary.

I don't think that even in the best run companies you'll find a lot of experts on the board, in fact the strongest boards will have people from diverse business areas fields and only one or two experts.

Moving on I think we should also look into the indirect aid the PIA receives from the civil aviation authority, I've heard from a number of people that the CAA charges exorbitant rates from foreign airlines for the use of airport services, etc., resulting in an added disincentive for them to fly to Pakistan.

@ Ali

PIA is only important because we allow it to be important. Perhaps if we leveled the playing field by not subsidizing PIA as Ahsan suggests than we would have private carriers who could step in and offer much better services. Even in the current climate, Air Blue kicks PIA's ass when it comes to service and economy (it is fucking shameful that AirBlue, unsupported by the government, is usually cheaper than PIA on domestic routes).

In any case Emirates is now our new national carrier.

@ Hamza

I'm not entirely sure that privatization will work: who in their right minds would want to buy PIA?

Seriously though I would begin with restructuring the PIA into two companies: 1) Essential Services - connecting un-popular / unprofitable areas with the rest of the country and supplying areas (such as Gwadar, Turbat, Gilgit, etc.) with supplies, newspapers, post, etc; and 2) Commercial Services - international flights and popular domestic flights.

PIA Essential Services could continue to be supported by taxpayers but PIA Commercial Services should not be, at the same time if private companies are willing to provide the same services as PIA Essential Services then they should be provided with the same tax payer support.

Ali said...

to be fair to PIA's current management..

considering they reported a 35 billion annual loss last year a half-year loss of 5 billion is almost a huuuuge improvement (so much so, that it sounds dubious)


@AKS

PIA is important despite what you may feel. a functional profitable PIA would be far more desirable - but many Pakistanis would rather have a national airline connecting millions of overseas Pakistanis to their cities in Pakistan, than not have one at all.

Minerva said...

Ahsan,

I'm not blaming Zardari for PIA's demise. I'm blaming the structure that stands as the Pakistani government and inevitably so provides us with a president as inept as Zardari.

His current status as our premier is enough to tell us about how things work around here.

Ahsan said...

Hamza:

Don't privatize it, just stop giving it money. It will collapse under its own weight, except for those parts that are actually viable and profitable. I don't buy this distinction of essential and non-essential services that AKS has laid out because that's a slippery slope. Just stop giving it money. End of story.

Ali:

If PIA is allowed to collapse, in time we will get a "national" airline arising from within. Already Air Blue services a bunch of destinations abroad (though not nearly enough). As it continues to grow, and subsidies to PIA end, it will be able to compete better on foreign routes. And in the interim, airlines like Emirates, Ittehad and Qatar Air can do the business just fine. Hell, they're cheaper and give better service anyway, so why not?

Minerva:

Ok, fair point. By the way, I'm not sure you'll agree, but you should check out Cyril Almeida's latest column. He sort of argues AZ has been fairly effective as Prez. Even if you disagree, you should go read it, if you haven't already.

AKS said...

Ahsan,

It may be hard to define and limit what constitutes 'essential services' but its hard to deny that PIA offers services that are essential but can never be profitable, such as flying to Turbat with medical supplies.

One could argue that the government should shift these duties to the air-force. The other option, as I mentioned earlier, would be to offer incentives to private companies to continue providing these services, perhaps by awarding a tender to the company that undertakes to provide these services at the lowest cost, the tender would guarantee that the companies will get paid even if the route doesn't make a profit at the same time PIA would have to compete with the likes of AirBlue.

Ali,

Apart from the emotional attachments I don't understand the need for a 'national airline.' Surely all that overseas and lowly underseas Pakistanis really need and want is an airline that can get them to their desired destinations in Pakistan, now if the market place is made freer (by the government booting PIA on its ass, and reducing taxes, surcharges and duties) then these passengers will be a lot better served.