ISLAMABAD - The special audit conducted by Auditor General of Pakistan on Tuesday revealed before the Supreme Court that the accumulated loss of the Pakistan International Airline Corporation (PIAC) mounted from Rs72.353 billion to Rs360.117 billion in the last nine years.

The audit report said that the accumulated loss of the PIAC was Rs72.353 billion on December 31, 2008, which was mounted to Rs360.117 billion on December 31 of 2017.

The report of special audit further revealed that losses to the tune of Rs56 billion incurred on account of leases while passengers shifted to other international airlines costing loss of Rs117 billion to PIAC.

The damning special audit report comprising 500-pages was submitted by Additional Attorney General Syed Nayyar Rizvi in the top court in a suo motu case regarding handing over profitable routes to other airlines.

The special audit stated that none of appointees by Government of Pakistan had relevant experience in Aviation Industry while majority of members were serving and retired civil military bureaucrats, businessmen and politicians.

"So far, 44 members of Board of Directors (BoD) of PIAC were nominated by the government during 2008-17. Due to lack of relevant experience, the successive BoDs neither efficiently formulated any strategic business plan/ policies, nor effectively executed the best practice of the airline industry. Absence of Secretary Finance is most of the BoD meetings was also serious concern," the report stated.

The special audit observed that exorbitant pays and allowances were granted to Managing Directors (MDs) and Chief Executive Officers (CEOs) in violation causing extra burden of Rs98.111 million on Corporation.

Similarly, appointments of DMDs/Chiefs/Executives Directors in the Corporation were also not transparent and serious irregularities including the fixing of pays and allowances on liking and disliking basis were pointed out in the audit report.

“Thus, appointment on key managerial positions without observing the principle of right person at right place severely created efficiency issues leading towards mismanagement.”

The overall HR management, the report stated, was in pathetic state having no uniform merit policy for appointment, promotion and postings. Foreign postings were made on favouritism without observing merits resultantly the sales targets were compromised.

“Almost, 457 employees were appointed on fake degrees includes 16 pilots, 52 Engineering staff, 67 officers from AM to DGM and 33 airhostesses.”

Further, PIAC suffered loss of Rs160 million due to non-commercial decision of establishing flying academy. Despite financial crunch, policy of granting vehicles at depreciating rates to the employees even more than once was completely unjustified, the report added.  

Review of the Aviation Policies revealed that Aviation Policy 2015 did not safeguard the interests of Aviation Industry. The flying and grounding rights accorded to Gulf and Turkish carriers especially after Aviation Policy 2015 were beyond any justification and without considering bilateral commercial interest.

“During 2008-2017, the international airlines’ market growth of Pakistan was 54 per cent, whereas capacity granted to foreign carriers by GoP was more than 300 per cent.”

Regarding skewed aviation policies, the special audit stated, “In 2017, 4.72 million passengers from Pakistan travelled to ‘third countries’ under sixth freedom through Gulf & Turkish carriers thereby depriving national airlines of their potential share in revenue of Rs.117 billion.”

Audit observed that feasibilities of dry leased aircrafts were prepared on fictitious figures without proper justification. Marketing and commercial departments devised high estimates of revenue before induction of aircrafts but the same were never achieved.

Rate analysis proved that management acquired aircrafts on drying lease at exorbitant rates in comparison to other airlines. Audit pointed out losses and irregularities in terms of leases having financial impact of Rs.56 billion.

Interestingly, in PIAC, no sound mechanism exists for determination of Air Fare. “As per practice in vogue, Director Commercial was final authority to determine the fare, both for domestics as well as international routes. It is manual system based on acumen of marketing officers without supporting evidence.”

“There was no involvement of Board of Directors in approving the fare. Thus, fare preparation was inefficiently managed, causing mismanagement in RBD/leakages and revenue losses. Audit pointed out irregularities/leakages worth Rs164.15 billion.”

The report stated that PIAC incurred losses on almost every station and routes adding that there was huge difference in target versus actual sales, showing lack of professionalism in planning and execution of commercial strategies.

“Decisions were based on ad-hoc basis without due diligence and far sightedness causing shrinkage of its network. Audit pointed out irregularities/losses of Rs8.5 billion.”

Since 2014, expenditure under Engineering and Maintenance (E&M) Department increased beyond three-fold since induction of aircrafts were not compatible with available engineering facilities, therefore, engines & major components were sent abroad for overhauling and repair.

“The Chief Technical Officer (CTO) and other Chief Engineers of the E7M Department failed to provide record of 25 aircrafts which have been grounded permanently during 2008-2017. Audit pointed out losses/irregularities of Rs31.124 billion.”

Audit observed gross irregularities including non-disposal of inventory of Rs11.61 billion, unnecessary purchase of spare parts at higher rates worth Rs362.5 million, non-settlement of rejected/defective inventory of Rs67.48 million, purchase of technical items at higher prices of Rs418.74 million and fraudulent contract agreement for sale of surplus inventory of Rs1.577 billion.

Unfortunately, the report stated, PIAC’s Supply Chain Department failed to perform its primary function. Audit observed number of cases of procurement at exorbitant rates, excessive procurements, frequent violation of PPRA Rules and PIAC’s own ruled, up-gradation of cabins, purchase of iPads on rental basis were serious issues. Audit pointed out losses/irregularities of Rs3.5 billion on this account.

Regarding mismanagement of cargo revenues, the report stated that total utilized cargo space from 2010 to 2017 was 56 percent. The audit observed losses due to sale of aircraft space on ‘hard block’ basis worth Rs500 million, decrease in revenues due to imprudent award of contract to M/s Globe Air of Rs675.87 million, default by the Cargo Agents of Rs235.262 million and violation of rules in award of Cargo GSSAs.

“Pilots were enjoying guaranteed minimum seventy five flying hours per month whether they fly or not.” Further, audit observed that duty timing of the cabin crew were relaxed in comparison with Indian and European airlines which caused burden of more than 2 billion in last 5 years.

“Despite having own hotel at Karachi Airport, the crew was accommodated on luxurious hotels in city centers having huge financial impact on the financially crippled organization. Non-recovery of Rs1.43 billion from pilots showed level of favoritism and mismanagement in the organization.”

PIAC incurred heavy expenditure of Rs436.344 billion on account of jet fuel in last 10 years. Audit observed that no attention was paid by the successive management to adopt fuel conservation program.

“Due to non-professional way of fuel hedging, Corporation sustained loss of Rs4 billion. Management wasted Rs26.5 million in 2015 on appointment of fuel hedging consultant without achieving the objectives of the consultancy services.”

It further stated that due to non-availability of record in Pakistan, audit could not ascertain the reasons of losses and transparency in the utilization of funds by the PIAC Investments Limited (PIAIL), the subsidiary of PIAC, management. It further stated that Skyrooms, another subsidiary to PIAC, sustained accumulated loss of Rs140.169 million as on December 31 of 2017.

Audit further observed the increase in litigation due to mismanaged contract execution adding cases at UK stations were highly objectionable involving billions of rupees.

The report further stated that PIAC’s internal audit was not effective and audit paras of Rs24.352 billion were settled without adhering to proper procedure.

“Instead of enhancing the in-house capacity of Internal Audit Department, the functions of department were co-sourced with chartered accountant firms having financial impact of Rs71.48 million.”

During audit, it was observed that in many cases either important papers were missing from the files or record being not maintained at all which created doubts on the authenticity of the record.

The report recommended that National Aviation Policy as well as contracts with Gulf and Turkish Airlines should be reviewed on the basis of bilateral commercial interests. It further recommended that CEOs and MD should be appointed on merit and unnecessary interference from government be stopped.