Tuesday, 24 January 2017

Flying low: Everyone seems to have a solution for PIA

by Asad Sayeed

PIA's first international flight, London Heathrow Airport, 1955
Photo credit: Wikimedia Commons

Asif Ali Zardari and Pakistan International Airlines (PIA) are two subjects that Pakistan’s chattering classes love to loathe when they get together. However, unlike the helplessness they feel about Zardari’s continued role in politics, everyone seems to have a solution for PIA. The problem is deemed to be overstaffing due to nepotism and corruption by political governments; and the logical conclusion is that the airline should be privatised. As with most issues in Pakistan, it is useful to introduce some complexity to the equation.

PIA’s financial woes have been in focus for at least two decades now. It is interesting to note that issues regarding the airline’s viability became salient after greater liberalisation of the economy took place in 1991 and – consequently – containing the budget deficit became an important priority. Before that, the size of the subsidy that was going to cover for PIA’s losses was not known, simply because state subsidies were not monitored in the budgeting process closely.

Having said that, there is no denying that PIA has one of the highest employees-to-fleet ratios. According to some estimates, this ratio is in the range of 400-500 employees per aircraft. The range for airlines in other developing countries is between 200-300 employees per aircraft. But are PIA’s woes caused entirely by its large workforce?

The relevant indicator for this will be the ratio of cost of wages to total revenue. And this turns out to be somewhere in the range of 10 and 13 per cent and has been declining consistently since 2009. This ratio is at par with other airlines, mainly because the cost per unit of PIA’s employees is lower. This, in turn, suggests that the problem with the airline is on the revenue side of the ledger and not with the wages and perks bill.

Enhancing revenues and managing staff rackets (of which there are many in PIA) is the responsibility of the higher echelons of management. If one looks through the chairmen, managing directors and board of directors at PIA over the last two decades, the names read like a veritable list of Pakistan’s corporate glitterati. Successive governments have tried to fix the management problem of PIA by inducting the best and the brightest that the corporate sector has to offer. PIA’s continuous decline over the decades speaks for itself about the competence and capacity the corporate glitterati has brought to the organisation.

This brings us to the matter of privatisation: the most commonly proposed solution to resolve PIA’s woes. Rather than delve into the vexed debate on the state versus the market, if we judge the issue on the altar of efficiency and the safeguarding of public interest as the only guiding principle, the matter of who will be its buyer will crop up. If the assumption is, as it generally is, that it will be the Pakistani corporate sector, then one should pause and reflect on the performance of the private sector bigwigs who have performed dismally while at the helm of PIA.

The reason, perhaps, is that the aviation business is too complex and competitive for the Pakistani corporates to competently manage. They have excelled in working with simpler technologies on a smaller scale and in an environment where international competitive pressures are not so acute. As such, if privatisation is the solution, it should only be pursued with international buyers. One can imagine how the handing over of the national flag carrier to a foreign entity will be perceived as an affront to patriotic sentiment.

Even if one overcomes all these hurdles, there is the important matter of collusion and lax regulation that will need to be resolved prior to privatisation. The appointment of Shujaat Azeem, who had a clear clash of interest while working as the prime minister’s advisor on aviation, and the role of Shahid Khaqan Abbasi in the previous Nawaz Sharif government tell us that collusion with regards to PIA’s privatisation is a clear and present danger.

Moreover, the regulatory capacity of the Civil Aviation Authority (CAA) has also contributed to PIA’s performance in no small measure. Fixing CAA, in turn, will require cracking the monopoly of the Pakistan Air Force over CAA, inducting professionals who are familiar with commercial aviation regulation.

Addressing PIA’s woes leads to no quick fixes.

*This article was originally published on Hearld


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