LAHORE - A fact sheet issued Friday by the Institute for Policy Reforms made recommendations for revival of PIA. It urged the government to make a well thought outdecision about PIA’s future.

It said that it is well known that PIA’s finances are in a disarray. As of September 2015, PIA had negative equity of Rs 167 billion and long-term debt of Rs 109 billion or more. Its current assets of Rs 24 billion are a mere 12% of current liabilities of Rs 197 billion, payable within twelve months. Furthermore, for years, the airline has generated negative cash flows.

Payroll cost, which seems to be at the centre of recent discussions, is 19% of total cost (17%, if finance cost is included). The equivalent number for Emirates, another public sector airline, is 14.3%. According to the airline’s annual report 2014, its average number of employees is 16,243. Consequently, each employee contributed Rs6.1 million to revenue. PIA’s available capacity per employee is 147,502 tons km. The corresponding numbers for Emirates are Rs. 55 million revenue per employee and 1.1 million tons km. PIA does not do well in the critical indicator of capacity utilization. Its passenger seat factor is an acceptable 72%, but overall capacity utilisation is a sub-par 59%. Corresponding numbers for Emirates is 80% and 67% with a breakeven point of 64%.

To hold PIA’s workforce responsible for its weak performance is misplaced, according to fact sheet. The key to PIA’s woes is that it is not run as a business. Government plays a major role in many operational decisions. Too many non-commercial considerations become PIA’s responsibility. Government also appoints senior management, and often intervenes in appointment of operation and support staff, sometimes beyond actual needs. Government also sets the policy framework in which PIA operates. The most obvious example of this is the open sky policy.

IPR said PIA needs reforms and a new business model. It is for government to decide whether reforms required in PIA are best achieved by keeping it in the public sector or by finding a strategic partner. The fact sheet stated that even a strategic investor for 26% equity would expect the government to clean the balance sheet and assume PIA’s over Rs. 190 billion long and short-term debt. As the majority owner, government must bear this liability whether PIA remains in the public sector or not.

To revive its financial health, PIA needs a robust business model and must have the ability to increase revenue. For this, it must compete with other airlines that fly to Pakistan. There is yet no indication of the value of PIA so it is difficult to say if 26% new equity will be enough to upgrade equipment and enable the airline to compete on quality and safety. The airline’s landing rights at most major world airports are of considerable value. If presently these are not fully utilized, there is considerable potential for revenue increase here.

In addition to capital injection, PIA’s management must have full say in operational decisions. Its management should decide routes and flight schedule entirely on the effect they have on the bottom line. Government must enter into separate contracts for special operations such as for Haj, Umra, and evacuation. Government must bear the cost of any subsidy that these entail. Similarly, VIP charters must be under contract that accounts for all costs and of revenue foregone.

In order to compete, PIA must have a workforce at par with other airlines. As this is a national issue, all political parties must assist management establish a new contract with employees to ensure performance based incentives. They must also revisit some of the employees’ benefits. PIA must increase manifolds its investment in employee training and in improved systems. It cannot compete with the present work force and management systems. And it must show respect for its employees who are to bring PIA back on track. Employees too must cooperate to rebuild the company.

If PIA remains in the public sector, government must follow rigorously a policy of arm’s length with the airline and help PIA reform itself. It must set targets for the top management and hold them to account. It must also give management full autonomy in decision-making.