Daily Times

Privatisation of Pakistan International Airlines (PIA) has become a hot political issue in the country. The government is bent on privatising the body, owing to its commitments to the International Monetary Fund (IMF). PIA worker unions and opposition parties have decided to resist the government’s plans to privatise PIA, even accusing it of serving vested interests through privatisation. And, in all the heat, anger and aggression some key perspectives seem to be lost.
The government’s plea is that PIA has been a loss-making institution for decades now and is a drain on the national treasury. It is one of the most inefficient airlines in the world and has the highest ratio of staff per aircraft in operation. The government believes that transferring a sizable minority stake to a private entity, along with management control, will help revive the airline’s dwindling fortunes, for the losses of the airline are a drain on the national exchequer every year. And just when quite a few facts that the government tables make sense, this, unfortunately, is not the whole picture.
For one, though PIA has been in financial loss for over a-decade-and-a-half, it has posted an operating profit in the years 2010-13, the years of significantly high oil prices around the world. Its financial problems stem from its debt burden, particularly enhanced under the deals to acquire aircraft during Musharraf’s era. PIA’s total long-term financial liabilities (excluding tax and deferred liabilities) stand at around Rs 100 billion. Out of this, Rs 85 billion are the debt component while Rs 14 billion are owed to long-term leases of aircraft, which may be reviewed under any restructuring plans. For a government that can sustain the payment of some Rs 400 billion in one go for circular debt, restructuring of Rs 85 billion over time should not be an issue and, with this debt off PIA’s back, the prospects of it turning profitable even in its current lethargic, inefficient state become quite real. As for PIA’s negative equity of around Rs 185 billion, for one, even if the airline turns profitable it is a sunk loss, and so does not matter. Secondly, it is exaggerated because the airline’s real estate valuation on the balance sheet, most likely, is not marked-to-market and thus is potentially worth more than reported.
But the biggest reason I believe the privatisation of PIA may not be the right answer is because of the lack of understanding of the role of a national carrier in the overall economic activity of today’s era. For one, most of the top modern airlines in the developing world are state-owned (and that includes Emirates, Qatar, Etihad, etc). These airlines have a utility for economies even beyond being cash-minting corporations, for they provide the countries with branding, access to global business and a leisure treasure market, and stimulant for economic activity. Airlines usually are not a profitable venture for the most part and even in the west, airline bankruptcy is a recurring theme in a five to seven year cycle. Secondly, in the region and across the globe, the airline business has now become a business of scale. PIA with its fleet of 38 aircraft has to compete for the market with Turkish Airways with a fleet of 300 aircraft, Emirates with a fleet of 250, Qatar Airways with a fleet of 173 and Etihad Airways with a fleet of 119. So, probably, PIA’s problem is not that it has too many employees for its fleet but that it has too few aircraft to compete effectively in the market. This is also evident from the fact that the ratio of administrative expense to the revenue of PIA is lower than that of most competitor airlines. This lack of aircraft also hinders PIA’s negotiating increasing landing rights with countries whose airlines have been given open-sky access to Pakistan.
What PIA needs is an expansion plan that makes it competitive through economies of scale and at the same time caters to the overall travel hub branding needs of the broader economy of Pakistan. Restructuring of its debt, acquisition of more aircraft and opening up of more routes, offloading non-core businesses and assets in a transparent manner, and strategic partnerships with airlines will be part of the equation. More importantly, what it needs is not firing of human resources but restructuring of human resources and training them. And then it needs to shake up its perception of being a lethargic, inefficient airline that is synonymous with delayed flights and poor service. The easy way out is to hand it over to the private sector but, in this way, the utility of a national carrier and its potential associated benefits will be lost for good. Both the airline staff and government need to take a step back and reassess their options. Clear-headed thinking will reveal that it is in their mutual interest to shake things up while PIA remains a public sector enterprise run autonomously with public oversight. In this way, the airline can be aligned with the broader economic agenda. In the meantime, shunning privatisation and restructuring can be taken as a much needed marketing cost by the economy.

The author can be reached on twitter at @aalimalik