mujahideen
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PIA sell-off proposed to make it competitive
MUSHTAQ GHUMMAN
ISLAMABAD (January 24 2008): Disappointed with the overall performance, Pakistan International Airlines (PIA) Chairman Zaffar Ali Khan has proposed privatisation of the national flag carrier, with injection of Rs 53 billion to make it competitive in the global market.
"PIA, in government ownership, will find it difficult to compete; its basic restructuring and privatisation must be undertaken for long-term sustainability," he said while unveiling PIA turnaround strategy beyond 2008 corporate plan to the caretaker Cabinet on January 22. The PIA Chairman, who faced tough questions from Cabinet members, also proposed that a consultant of international standing should be engaged to help identify and evaluate turnaround options.
He also projected Rs 38.5 - 41.5 billion accumulated losses in 2007-08, of which Rs 11.8 billion were carried over from 2005. The losses for 2006 and 2007 were Rs 12. 8 and Rs 13.9-16.9 billion, respectively.
Sources told Business Recorder that Zaffar suggested six measures parallel to pursue revenue/cost optimisation beyond those incorporated in 2008 budget ie Voluntary Separation Scheme (VSS) for 5000 employees costing Rs 6 billion in three years; laying off redundant flight engineers; reduction in size of establishment; revenue management system catch-up; third-party engineering business; fleet and routes rationalisation; and lowering of financing cost with injection.
Besides privatisation of the national flag carrier, he recommended sale of property and other surplus assets, in addition to pursuing opportunities to outsource non-core activities, sources said.
While giving an overview of 2007, the PIA boss mentioned four key issues hitting the airline in financial and administrative terms which included erosion of market position; high fuel price; organisational issues; and burdened balance sheets.
"Ineffective marketing, open sky policy, increased competition, EU ban, brand damage, inability to pass through high oil prices, failure in hedging oil prices, use of old planes, oversized establishment, leadership vacuum, ailing corporate culture, negative equity and huge debt servicing bill were the major reasons of PIA's worsened financial position," sources quoted Zaffar as saying.
Giving details of actions taken in 2007, he said that EU restrictions were removed in quick time; 9/15 top managers were hired; several non-profitable routes were eliminated; cutback on expensive foreign/overseas staff and leased aircraft; average of hangars aircraft reduced from 7 to 3.
The PIA management also signed contract for induction of 7 new A-320 aircraft in 2009, commenced implementation of revenue management system and started structured employee engagement, sources quoted Chairman elaborating key actions taken last year.
He projected the economy to grow by 6 percent (plus); fuel prices to hover around $80 per barrel; and the rupee to be further weakened to Rs 62 per dollar. According to him, key concerns for 2008 were uncertainty of fuel price and rupee exchange rate, political scenario and huge Civil Aviation Authority's (CAA) claims.
The PIA board has projected 15 percent growth in passengers, followed by overall revenue growth by 13 percent and increase in limited fixed expense to 1.6 percent, sources added.
Key initiatives for 2008 would include new marketing leadership team, stepping up interaction with travel agents, greater accountability of sales management, launch of new routes/increase frequency on others, opening up of ticket sales on all GDS's, attaining 100 percent e-ticketing, revamping of cargo strategy and securing of Haj fare that recovers cost. PIA has projected Rs 13.2 percent growth in revenue to Rs 79.8 billion in 2008 against Rs 70.5 in 2007.
Operating expenses/fuel cost would increase by 6.9 percent to Rs 32.3 billion in 2008 as compared to Rs 30. 2 billion last year, whereas operating margin would decline to Rs 3.1 billion.
Financial cost would increase by 15.6 percent to Rs 8.4 billion in 2008 as compared to Rs 7.3 billion in 2007 and Rs 4.8 billion in 2006 whereas there will be no other income, and the Chairman termed it as 'worst case'.
Copyright Business Recorder, 2008
What do you guys think is the main problem with PIA? What do you guys think is the solution to PIA's woes, but remember to keep the ground realities in mind? Do you think that it can be fixed?
MUSHTAQ GHUMMAN
ISLAMABAD (January 24 2008): Disappointed with the overall performance, Pakistan International Airlines (PIA) Chairman Zaffar Ali Khan has proposed privatisation of the national flag carrier, with injection of Rs 53 billion to make it competitive in the global market.
"PIA, in government ownership, will find it difficult to compete; its basic restructuring and privatisation must be undertaken for long-term sustainability," he said while unveiling PIA turnaround strategy beyond 2008 corporate plan to the caretaker Cabinet on January 22. The PIA Chairman, who faced tough questions from Cabinet members, also proposed that a consultant of international standing should be engaged to help identify and evaluate turnaround options.
He also projected Rs 38.5 - 41.5 billion accumulated losses in 2007-08, of which Rs 11.8 billion were carried over from 2005. The losses for 2006 and 2007 were Rs 12. 8 and Rs 13.9-16.9 billion, respectively.
Sources told Business Recorder that Zaffar suggested six measures parallel to pursue revenue/cost optimisation beyond those incorporated in 2008 budget ie Voluntary Separation Scheme (VSS) for 5000 employees costing Rs 6 billion in three years; laying off redundant flight engineers; reduction in size of establishment; revenue management system catch-up; third-party engineering business; fleet and routes rationalisation; and lowering of financing cost with injection.
Besides privatisation of the national flag carrier, he recommended sale of property and other surplus assets, in addition to pursuing opportunities to outsource non-core activities, sources said.
While giving an overview of 2007, the PIA boss mentioned four key issues hitting the airline in financial and administrative terms which included erosion of market position; high fuel price; organisational issues; and burdened balance sheets.
"Ineffective marketing, open sky policy, increased competition, EU ban, brand damage, inability to pass through high oil prices, failure in hedging oil prices, use of old planes, oversized establishment, leadership vacuum, ailing corporate culture, negative equity and huge debt servicing bill were the major reasons of PIA's worsened financial position," sources quoted Zaffar as saying.
Giving details of actions taken in 2007, he said that EU restrictions were removed in quick time; 9/15 top managers were hired; several non-profitable routes were eliminated; cutback on expensive foreign/overseas staff and leased aircraft; average of hangars aircraft reduced from 7 to 3.
The PIA management also signed contract for induction of 7 new A-320 aircraft in 2009, commenced implementation of revenue management system and started structured employee engagement, sources quoted Chairman elaborating key actions taken last year.
He projected the economy to grow by 6 percent (plus); fuel prices to hover around $80 per barrel; and the rupee to be further weakened to Rs 62 per dollar. According to him, key concerns for 2008 were uncertainty of fuel price and rupee exchange rate, political scenario and huge Civil Aviation Authority's (CAA) claims.
The PIA board has projected 15 percent growth in passengers, followed by overall revenue growth by 13 percent and increase in limited fixed expense to 1.6 percent, sources added.
Key initiatives for 2008 would include new marketing leadership team, stepping up interaction with travel agents, greater accountability of sales management, launch of new routes/increase frequency on others, opening up of ticket sales on all GDS's, attaining 100 percent e-ticketing, revamping of cargo strategy and securing of Haj fare that recovers cost. PIA has projected Rs 13.2 percent growth in revenue to Rs 79.8 billion in 2008 against Rs 70.5 in 2007.
Operating expenses/fuel cost would increase by 6.9 percent to Rs 32.3 billion in 2008 as compared to Rs 30. 2 billion last year, whereas operating margin would decline to Rs 3.1 billion.
Financial cost would increase by 15.6 percent to Rs 8.4 billion in 2008 as compared to Rs 7.3 billion in 2007 and Rs 4.8 billion in 2006 whereas there will be no other income, and the Chairman termed it as 'worst case'.
Copyright Business Recorder, 2008
What do you guys think is the main problem with PIA? What do you guys think is the solution to PIA's woes, but remember to keep the ground realities in mind? Do you think that it can be fixed?
if people have a problem paying it they can always walk.as other private companies will no hesitate to pass on the cost.
