December Issue 2015
In Search of a Sale
A video was recently leaked online which showed crewmembers on a PIA flight singing and dancing in the cockpit. The clip itself may have been a rare moment of levity — although it is not clear if any rules were violated — but, at a time when the national carrier is on the verge of privatisation and job losses an inevitability of that outcome, there is precious little for PIA’s 22,000 strong workforce to celebrate.
Part of the reason PIA’s performance has been so dismal is that the majority of its labour force has no reason to exist. The airline’s employee per plane ratio is the highest in the world, standing at a scarcely believable 780 employees per plane. This gives PIA the distinction of having the highest ratio of any airline in the world. Other international airlines have a more manageable ratio of between 100-250 employees per plane.
The easy scapegoat for the problem of overstaffing have been PIA’s powerful unions. It is certainly true that the dozen unions within PIA have made life difficult for management, threatening and carrying out strikes regularly and refusing to accept any downsizing. But the story is more complex than that.
No one can doubt that PIA has far too many employees given its current fleet, but the problem lies not just with staffing policies. PIA has a fleet of 37 planes but many of those are not fit for use. Secretary of the Aviation Division, Mohammed Ali Gardezi, had told the Public Accounts Committee that PIA is currently flying 26 aircraft. In fact, according to a spokesman for the Pakistan Airline Pilots Association (PALPA), “The salary bill for PIA is less than 20 per cent of its total costs,” which he says is about 10 percentage points less than most international airlines.
This does not mean that PIA cannot do with some slimming. Labour costs in Pakistan are lower than most countries and so comparing PIA to western airlines is unhelpful. On top of that, most airlines outsource a lot of work like catering and baggage handling that PIA does in-house. But it does show that the management needs to not just cut costs but raise revenue by improving the performance of the existing fleet.
And revenue does need to be raised immediately. The most recent figures available, for the financial year ending in 2014, showed losses of Rs. 32 billion. For years, the PIA management had complained that profitability was impossible because of the high international price of fuel, but with oil prices at an all-time low now, this has had scarce effect on the airline. In 2013, PIA had recorded its highest-ever loss of Rs. 44 billion and so it could argue that it is now losing Rs. 12 billion less. But its savings in fuel costs, which dropped by more than 12 per cent in the period, total more than that amount. The cost of maintaining an aged fleet and the ever-increasing interest payments on PIA’s debts have more than wiped out those gains.
The government, along with its overlords at the IMF, believes the only way to stem these losses — and perhaps even make the airline profitable again — is to privatise it. Privatisation Commission chairman Mohammed Zubair says that the process will be completed by March next year. Under the current plan, the government will sell a 26 per cent share and hand over management control to the buyer.
But the privatisation plan still faces significant hurdles. The PML-N only controls 26 seats in the Senate, and will need the help of the PPP to approve the sale in the upper house of Parliament. So far, the PPP, led by the vocal opposition of Raza Rabbani, has refused to countenance privatisation.
PPP Senator Farhatullah Babar, who filed a motion in the Senate to discuss PIA’s performance, says the government is to blame for the airline’s losses. According to him, “PIA has allowed Middle Eastern airlines unlimited traffic rights.” In fact, Pakistan adopted an open-skies policy in the late 1990s, and it was in the early 2000s that the Gulf airlines started taking over PIA’s market share.
Babar’s fears raise an additional worry. If, as is likely, shares in PIA are sold to a Middle Eastern airline, there is a genuine fear that they will utilise PIA’s assets, such as the Roosevelt Hotel in New York City and its precious landing slots in Europe and North America, for itself and relegate PIA’s routes only to hubs like Dubai and Qatar. It would be up to the government to ensure that any privatisation agreement safeguards against this but the track record of the current and previous governments does not leave much hope.
The labour unions will be another impediment, particularly the powerful PALPA. In October, it went on a four-day go-slow, de facto strike leading to the cancellation of dozens of flights, and that too only to protest contract negotiations. When it finds that the jobs of thousands of its members are at stake it will surely react fiercely, and in that it will have the support of other PIA unions too. Since most of these unions are backed by different political parties, it will only increase pressure on the government to back down.
The power of PALPA and the other trade unions was demonstrated in 2011 when it went on strike to protest the handing over of some routes to Turkish Airlines under a code-sharing agreement. The strike affected nearly 500 flights, caused losses totaling Rs. 250 million and directly led to the ouster of then chairman Aijaz Haroon. In the end the PIA management had to back down in the face of union threats. Similar protests, which will probably be more intense, will surely be a threat to the privatisation process.
Even before PIA can be privatised, it faces additional — and immediate — threats. Recently, the Federal Board of Revenue froze its clearance receipts from the International Air Transport Association (IATA) in an attempt to collect Rs. 2.2 billion in dues.
That PIA is so heavily indebted goes back to a policy in the 1990s when, under a golden handshake scheme, the airline tried to reduce its workforce. What ended up happening was that it borrowed $10 billion to finance this scheme and ended up losing its most competent people, while those who couldn’t find employment elsewhere, stayed. Since then, in an ever-more vicious circle, PIA’s losses have been mounting and the interest on its debt compounding. This is why it has been unable even to pay taxes it has already calculated and it is the IATA which will suffer as a consequence. PIA’s liabilities now, says Gardezi, stand at Rs. 288 billion and it is paying Rs. 3.2 billion per year in debt servicing. The worry now is that the government will retain these debts in any privatisation scheme rather than passing them on to the entity which will have operational control over PIA.
Gardezi, adopting the government line, blames the unions for PIA’s problems. He says, “Different unions for pilots, flight engineers, maintenance, cabins have different agendas,” which he believes pulls the airline in different directions. He recommends concentrating on profitable routes into the UK, Middle East and Malaysia while scaling back flights to New York, China and Japan, as well as privatising tasks like ground handling and repair work. But this, too, will not stand with the unions.
With the problems facing PIA seemingly unsurmountable, there is one question the government faces: how will it make PIA solvent enough to either turn it around or attract a buyer that doesn’t simply strip it off its assets and leave it for dead? So far it has not come up with a convincing explanation.
This article was originally published in Newsline’s December 2015 issue.
Nadir Hassan is a Pakistan-based journalist and assistant editor at Newsline.