LAHORE - PIA management in a belated but welcome move cancelled contract with Transworld Aviation Fze - a Dubai-based spare distribution company with no credentials - after more than half of its fleet was grounded for lack of spares, leading to an estimated loss of over Rs70 billion, sources in the airlines said on Thursday.

As per sources, contract which effectively has contributed to above said losses was approved by former PIA MD Nadeem Yousafzai, when a letter dated September 24, 2011 was issued by Director Procurement & Logistics, Khalid Iftikhar addressed to Transworld Aviation, Chairman Abdullah Khamas Al Sulaimany, stating “This is to acknowledge and confirm that PIAC have appointed Transworld Aviation exclusively with first right of approval for a period of 5 years for all services pertaining to normal supply of aviation spares and repair of consumer material, chemicals and life limited parts with aggregated values of not less than $40 million annually, whereas Transworld Aviation has provided credit facility of up to $700 million if required to support PIA’s operation”. This suicidal decision was given post dated approval by politically nominated Board of Directors, who during Ahmed Saeed’s tenure had rubber stamped another such deal, which was also revoked subsequently.

During this contract costs escalated because of this self-created monopoly with most parts being bought on Aircraft On Ground (AOG) basis at escalated prices. It is worth mentioning here that when a plane is grounded due to technical reasons and its vendor is not at nearby destination to provide required spare, the same is purchased on far-high price on AOG basis. If airline wait for the arrival of spare from any distant destination, delay in supply of spare cost high to airline in the sense of parking fee of plane at any foreign airport, hotel providing to passengers and staff overtime etc.

Cash-starved PIA instead of embarking on aggressive cost cutting and revenue generation, in violation of PPRA rules had placed an advertisement on its website in 2011, instead of newspapers, and cancelled procurement of parts from a variety of over 150 manufacturer recommended vendors located on its international network, who offered it quick delivery on competitive rates with credit facility and instead appointed a single unknown vendor located in Dubai. PIA Board has twice grounded B747 fleet and then revived it each time wasting over $20 million on making them operational. Under controversial agreement with Transworld, PIA’s own spare parts inventory valued at over $1 billion was handed over to them for sale which raised concerns of transparency. While the deal stands cancelled and PIA has reverted to original vendors.

The Third Quarter 2012 Financial report acknowledged a net loss of Rs22.42 billion during July to Sept 2012, while accumulated losses have hiked from Rs 42 billion in March 2008 to Rs 141.303 billion as of 30 Sept 2012 i.e net rise in losses of 336.4pc.  Aviation analysts estimated that total accumulated losses as on December 31, 2012 are above Rs 158 billion. Scores of PIA flights were stranded at international airports for lack of spares involving stay of thousands of passengers in hotels. 

Revenue passenger kilometers decreased by 11.8pc due to drop in seat factor, flight cancellations etc. PIA current liabilities exceed its current assets by Rs 123.475 billion as on 30 Sept 2012, as compared to Rs 88.22 billion on 31 Dec 2011, qualifying it as technically insolvent this belated move by current management will only yield positive results if pilferages are cut down and more revenue generated once the grounded fleet becomes operational, along with bringing employee to aircraft ratio within saner limits.

A former senior PIA marketing executive demanded that those responsible should be handed over to NAB, instead of being on payrolls, doing active duty. The major culprits involved all have dual nationalities and kickbacks most likely deposited in foreign bank accounts. When contacted spokesman of PIA Tajwar said that airline has formed an accountability committee within department to look into such scams and Transparency International was also there. He said that if any irregularity was found in the contract both of the authorities could take-up the matter automatically.