PIA: Striving for past Glory – Blue Chip Oct 2015 Edition

The following is the original draft of the article published in the renowned “Blue Chip” journal as an exclusive Op-Ed on Aviation in its October 2015 Edition

Online Version Link (Blue Chip)

PIA: Striving for past Glory

By: Omer Zaheer Meer

Preamble:

It was the one of the top airlines of the world. It was also the first airline throughout Asia to operate a Boeing 737 as well as the first Asian airline to induct a jet plane in an era still stranger to them. Development, expansion and growth were not only the key goals of management but the vision driving forward a young airline of a new country on a global stage.

Yes, we’re talking about our very own Pakistan International Airline (PIA). Founded a year before Pakistan’s birth in 1946 on the direct orders of Quaid-e-Azam Muhammad Ali Jinnah to a leading industrialist M.A. Ispahani. Quaid’s strategic vision and foresight had him realize that with the formation of the two wings of Pakistan, separated by 1100 miles with enemy territory in between, a swift and efficient mode of air-transport was critical for the upcoming nation. The airline formed was named Orient Airways Ltd and was merged in the national flag-carrier PIA after its’ creation in 1955. Orient Airways has not only established a fleet of thirteen (13) aircrafts for air-transportation but also built a crucial setup of overhaul and maintenance facilities, trained pilots, engineers and technicians,. All this proved to be a great asset for PIA during its infancy phase. However the glory PIA achieved from such humble beginnings were hard to envision at that time.

Past Glory:

Under the likes of Air Commodore Nur Khan and Air Vice Marshal, Asghar Khan PIA not only grew regionally but implanting its’ signatures on a global level. Opening up of new routes, taking bold yet successful initiatives and delivering a top-class customer experience turned PIA into a truly great service to fly with. It was a success story of a newly born nation achieving many firsts, creating historic records (some of which are still unbroken to this date) and helping other countries build their national carriers. Some proud achievements from those golden years are as below:

• In 1962 PIA set the record for the fastest flight between London and Karachi by completing the flight in just 6 hours, 43 minutes, 51 seconds, it is a record which still remains unbeaten to this day even after 53 years.
• On 29th April, 1964 PIA became the first airline from a non-communist country to fly into the People’s Republic of China. PIA’s Boeing 720B flew from Karachi to Shanghai via Canton.
• In 1960’s PIA continued to expand its fleet further with the addition of Boeings, Fokker and other top airplanes.
• During both the 1965 and 1971 Indo-Pak wars, PIA played a major role in providing logistical support to the Armed Forces by operating special flights airlifting soldiers and ammunition. With these contributions, the prediction of Quaid e Azam came true in that the Pakistan Air-force (and defense) needed the support of a civil airline in special circumstances, and this was evident during these wars.
• Such was the charisma and lead of a confident national carrier at this time that PIA hired the renowned French designer, Pierre Cardin to design new air-hostesses’ uniform which was another first and trend-setter in the aviation industry, immediately imprinting PIA’s brand as one of the aviation leaders on world stage.
• PIA became a household name in Pakistan in the sixties.
• During 1970’s PIA reached a level where it started providing technical as well as administrative assistance and/or leased aircrafts to foreign airlines including Somali Airlines, Philippine Airlines, Air Malta and Yemenia.
• Through one of its’ subsidiary, PIA also started providing hotel management services in United Arab Emirates towards the end of the 1970’s.
• During the 1980’s PIA continued its’ journey towards excellence and helped establish Emirates’ Airline by leasing two of its airplanes, Airbus A300 and Boeing 737 (737-300), as well as by providing technical and administrative assistance to the carrier.

It was during the 1990’s when private airlines were allowed to operate within Pakistan that PIA faced domestic competitive pressures. However with bold and creative measures including “air safaris”, adding new destinations, starting non-stop flights to key destinations, not only did PIA successfully faced off the competition but continued to register profits after a slump. However despite some achievements like being the first Asian airline to touchdown in Oslo, Norway, the second half of the 1990’s saw PIA nose-diving.

Intriguing Queries:

This all should lead us to questions worth pondering such as:

• Where does PIA stand now?
• What exactly did go wrong?
• How did a national carrier that did so brilliantly despite strong odds fell so low when the going got easy compared to the challenges of its’ early days?
• What’s being done to revive the ailing flag-carrier that once stood for national pride and identity?
• What, if anything can be done to reverse its’ fortunes and itself to its’ past glory?

The Present:

At present, PIA is owned by the Government of Pakistan which holds 87% while private shareholders already own 13% of the national flag-carrier. The Pakistan Muslim League–Nawaz government that took over in May, 2013, created an Aviation Division to look after the affairs of PIA, the Civil Aviation Association and the Airport Security Force, all under the defence ministry until then.

As for PIA’s own corporate management, it entails a Chairman, Managing Director (MD) and a Board of Directors. The Board includes nine independent members amongst its ranks to ensure independence and has several sub-committees including an Audit Committee, Brand and Advertising Committee, Finance Committee, and Human Resource Committee. The MD leads the executive management of staff who run the airline. As you must already be aware, PIA’s headquarters are located at Karachi Airport with smaller offices located in several cities across Pakistan.

Despite all odds, PIA is still the largest airline of the country with a fleet comprising of 35 aircrafts some of which are not serviceable. The fleet includes thirteen (13) Airbus 320s and five (5) ATRs leased over the past year. Moreover, four (4) additional A320s and two (2) Boeing 777s are expected to join later this year.

Despite improvements over the past year, the service standards deterioration over the years with a reputation of late flights, unfriendly airhostess and rude support staff topped up with undesirable food has built a negative impression of PIA over the past decade

Root Cause(s) of the downfall:

The political hiring and nepotism during the 90’s brought the airline down from the high standards it had placed itself on. The interference reached a level where currently, despite some positive steps recently, PIA has the highest employees to aircraft ratio in the world of 690 compared to a global average of approximately 150 employees per aircraft. This should lay bare the extent of the problem. Moreover most of these hirings in the past had nothing to do with merit and as such caused unnecessary burden on the ailing airline. This all was happening against the backdrop of increasing competition along-with end of PIA’s monopoly over local market due to the Government’s open skies policy and allowing of private airliners.

The Impact:

In addition to the financial pressures, these unnecessary hirings against merit resulted in a serious slump in the service standards. Food became stale, cabin crew unpleasant and support staff unhelpful. To make matters worse a culture of being late was accepted as a norm which is perhaps the worst that can be done in air travel which often is time-constrained anyway.

Unionism went on rise within PIA with powerful unions of pilots as well as other workers. Incidents of smuggling rose as a result of the pressures from these unions placing favored crew on international flights, hiring based on fake degrees rose, the lack of competencies and slackness resulted in maintenance standards falling resulting in fines and bans on PIA flights intro certain developed countries, employees started side businesses as contractors and/or suppliers with cover providing sub-standard items to the national carrier. Nepotism and strong union culture along with a focus on corruption resulted in the practices going unpunished.

The result was a not so surprising down-fall in business and a tarnished reputation resulting in massive losses that seemed to continue accumulating with an upward trend for years on the trot.

Remedial actions undertaken for revival:

While it is very easy and a national trend to criticize public institutions, it takes vision and courage to see deep and state the truth perhaps even against the widely held false beliefs. That is precisely what we’ll be doing in this section of this write-up.

Over the past one and a half year, the PIA management has taken various steps to address the problems plaguing it with the aims of upgrading service standards and boosting employee morale.

The most critical issue of unnecessary non-competent staff and corruption has been addressed. Earlier this year, in an unprecedented move, three hundred and eight (308) fake degree holder employees were terminated from service after a move of credential verification of around sixteen thousands (16,000) employees was initiated in line with the apex courts’ decision.

Similarly to address quality issues and corruption allegations all aircrafts’ parts procurements is now been made from original equipment manufacturers, closing the doors for middle men and agents.

Also a focus has been made on competent employees with a through process initiated to hire top-qualified and experienced professionals who can think out of box to assist in the revival attempts for the national carrier.

Moreover as mentioned above modern fuel-efficient planes have been leased into the airline fleet while more are in process to join the airline addressing the critical employees to aircraft ratio as well as the high fuel costs. The four (4) additional A320s and two (2) Boeing 777s are expected to join later this year have the potential further strengthen PIA while generating additional revenues. These result in serious reductions in fuel and engineering costs.

Under previous administrations some aircrafts were planned to be leased under “wet lease” which is short-term and includes the complete crew, maintenance and insurance from the lessor too. This was astonishing considering that PIA is already heavily over-staffed regarding crew, maintenance and flight support services. However the current administration has leased and plans to lease future aircrafts under longer-term “dry leases” which addresses this serious issue of additional constraints negating one of the prime purposes of expanding the fleet.

The top management is leading by example with unprecedented moves like Chairman PIA Mr. Nasser N.S. Jaffer travelling in ordinary flights taking the last seats and personally visiting airports to first hand observe the delivery standards and seek passenger inputs.

The punctuality issue and improvements in in-flight service is also been addressed and not only witnessed first-hand by this writer but shared by many frequent flyers. The flight schedule integrity (operating the flights on scheduled time) has improved to high nineties (though finance minister recently appreciated the 88% on time flights of PIA) while seat factor (seat occupancy) is now in high seventies as per official claims of PIA, which are indeed marked improvements. Similarly the critical Haj operation is underway and PIA claims punctuality of 96% so far which is largely in line with its past gold standards.

The Change Agent:

An apt saying often quoted is that it is the man behind the machine who matters. Similarly the men at the helm of affairs in large institutions like PIA can make or break them. We do not need to borrow examples of this from other countries or even institutions as the PIA’s own history with the glory attained under the likes of PAF big names Noor Khan and Asghar Khan as well as the shambles under the reign of some not so competent heads is a testimony to the same.

In was in this context that Mr. Shujaat Azeem was appointed as a Special Advisor to PM (SAPM) on Aviation. Due to some legal technicalities there were issues on his initial appointment which were sorted out in an amicable manner. Not many people outside the aviation industry know about the uniquely technically sound, experienced, gifted, business minded, astute and visionary person that Mr. Azeem is.

His career spans decades and is multi-dimensional. Not only has he been a fighter pilot for twelve (12) years and later became a commercial pilot serving as the chief pilot of ex-Lebanese PM Mr. Rafique Hariri’s fleet, the size of an airline, he also has vast experience of aviation related businesses. He successfully ran airline handling business in Canada while a successful business focusing on terminal services, cargo/ramp/ATC operations handling other than ticketing with clients such as Saudi Airline, Etihad Air, Gulf Air, Qatar Air was run in Pakistan. In line with the best corporate practices and ethical standards, he resigned from all family business when appointed to serve the national carrier.

He has brought with him the vast experience of not only the flight but the technical aspects, topped up with an astute corporate understanding. This has enabled him to have a tact-fully put in action a plan based on his solid understanding and vision to turnaround PIA. In order to execute his vision, meritorious placements at the top level in PIA have resulted in many positive things happening in the national flag carrier.

The appointment of Mr. Nasser N.S. Jaffer as Chairman PIA on Mr. Azeem’s recommendation was one such step and critical. Not only is Mr. Jaffer a successful businessman with a proven track record but has already won over many friends and fans with his hands-on approach focusing on revamping the dwindling standards of PIA.

So when an institution as much in slump as PIA has to be revived, top guns must be got on board. Although we often criticize incumbent Governments and in many cases rightly so, perhaps we should also be honest enough to give credit where it’s due. The placement of Mr. Azeem seems to be one such instance of good execution of discretionary authority which is bearing bruits for the barren lands of PIA.

To privatize or to not:

In September, 2013 the incumbent government decided in principle to partially privatize the national carrier, selling approximately 26 per cent of its shares, and to privatize its management. While the proponents point towards the past dismal performance, the opponents of the proposals also have a strong case to plead.

• Firstly the track record of privatization has been dismal in Pakistan with a lack of regulation and investor interest.
• The privatization of recent past has resulted in surplus institutions posting losses, Government been forced to pump funds to ensure provision of vital services, outstanding sums of investments on controversial pretexts and a deteriorating level of services.
• In a particular case, a disaster of sorts, a public owned enterprise of an Arab country has been given the control of a public owned institution in Pakistan, citing that public owned institutions cannot be run efficiently. The irony is unmistakable.
• Furthermore, no investor will come forward for or offer a good price for an airline in the state that PIA had been.
• With an injection of capital and a ban on unions, PIA did become profitable in early 2000’s. There is no reason why this cannot be achieved again.
• Things have started to improve with initiatives moving in the right direction as outlined above.

The solution to PIA’s woes lies in resolving the issues facing it with initiatives such restructuring, inducting new aircrafts, needs based hiring of competent professionals, improving service standards and punctuality along-with a brand makeover rather than privatizing particularly in light with the past experiences resulting in even worse situations for some national institutions that had been privatized.

PIA has proven that it can be successful and the initiatives by the current management including particularly the leasing of fuel-efficient modern aircrafts and improving service standards have the potential to revive it. The impact of the initiatives has translated in financial results as PIA’s operational loss of under Rs1 billion in the six-month period to 30^th June 2015 is actually more than half of the loss it incurred the same period of the last year. Keeping in view of this, the current PIA team should be given a chance and time to prove their abilities in taking it to newer heights

Proposals to regain past glory:

The problems with PIA have been more due to past political interference and manageable. Some crucial issues and the proposals to resolve them are presented below:

Key Issues:

• Aging fleet with average age of seventeen (17) years
• Political interference
• Perception of low service standards and non-punctuality
• Exorbitant employees to aircraft ratio
• High debt servicing costs

Proposed Solutions:

• Dry leasing of additional modern, fuel-efficient aircrafts which will not only increase revenues but also cut down costs
• Improving service standards particularly the hospitality and punctuality aspects
• Continuing the process of weeding out the incompetent employees
• Boosting morale of the other genuine and competent workers by merit based promotions and future hirings of competent professionals with a global outlook
• Focusing on additional regional routes and capturing larger share of international routes
• Shift most if not all of PIA’s debts to ideally a cash rich government institution in return for transfer/co-ownership of its’ renowned hotels including Roosevelt Hotel which alone is estimated to be worth around $ 1 billion
• An alternate could be to create a separate entity with the above mentioned assets and liabilities transferred to it, giving PIA a thinner, focused look and resolving the issue of costly debt servicing
• Amending the rules of PIAC prohibiting political interference

These core reforms proposed above, if properly implemented with a focus to rely on and develop indigenous capabilities, can resolve the current enigma facing the PIA. With the above actually implemented, there is no reason, why PIA cannot stand on its own feet and becoming a leading airline not just in the region but the whole world, attaining its’ past glory once again. Let us hope that our representatives in parliament give this all a serious thought while considering the future of PIA.

NB: More detailed procedures and sub-proposals regarding the above can be shared with key officials and those interested.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk