Submitted to:

Mr. Hassan Mujtaba Nawaz Saleem

Submitted by:
Syed Awon Hussain Shah

Roll No 226

Tauseef Raza Gillani

Roll No 227

Talha Ali Ansari

Roll NO 218

Session 2010 2014

Department of management science

Pakistan International Airline Downfalls

A famous proverb is that, A house is caught in fire from its own lamp.

History
Air transport has probably never been more important to the development of a new
nation than in the case of Pakistan. In June 1946, when Pakistan was still in the
offing, Mr. Mohammad Ali Jinnah, the Founder of the upcoming nation, instructed
Mr. M.A. Ispahani, a leading industrialist, to set up a national airline, on a priority
basis. With his singular vision and foresight, Mr. Jinnah realized that with the
formation of the two wings of Pakistan, separated by 1100 miles, a swift and
efficient mode of transport was imperative.
On 23rd October 1946, a new airline was born. Initially registered as a pilot project
in Calcutta, Orient Airways Ltd. had at its helm Mr. M.A. Ispahani as Chairman
and Air vice Marshal O.K. Carter as General Manager. The new carrier's base
remained in Calcutta and an operating license was obtained in May 1947.
Four Douglas DC-3s were purchased from Tempo of Texas in February 1947 and
operations commenced on 4th June 1947. The designated route for Orient Airways
was Calcutta-Akyab-Rangoon, which also happened to be the first post-war
international sector to be flown by an airline registered in India. Within two
months of Orient Airways' operational beginnings, Pakistan was born. The birth of
a new nation generated one of the largest transfers of population in the history of
mankind.
Orient Airways with a skeleton fleet of just two DC-3s, three crew members, and
twelve mechanics, launched its scheduled operations in a fairy-tale manner. The
initial routes were Karachi-Lahore-Peshawar, Karachi-Quetta-Lahore and KarachiDelhi Calcutta-Dacca. By the end of 1949, Orient Airways had acquired 10 DC-3s
and 3 Convair 240s which were operated on these routes. In 1950, it had become
increasingly apparent that additional capacity would have to be inducted to cater to
the growing needs of the sub-continent.
Orient Airways was a privately owned company, with limited capital and
resources. It could not be expected to grow and expand independently. It was then
that the Government of Pakistan decided to form a state-owned airline and invited
Orient Airways to merge with it. The outcome of the merger was the birth of a new
airline, named Pakistan International Airlines (PIA) on 11 March, 1955.

When Pakistan was founded in 1947 it comprised two territories

generally known as PIA; or Pakistan
International), is the national flag carrier and a state-owned enterprise of the
Government of Pakistan. It is primarily owned by the Government of Pakistan and
is regulated by the Ministry of Defence as an autonomous body Once regarded as
Asia's best airline, it is headquartered at Jinnah International Airport in Karachi
and operates scheduled services to 24 domestic destinations and 38 international
destinations in 27 countries across Asia, Europe and North America. Its main bases
are at Karachi, Lahore and Islamabad/Rawalpindi.

Problem in PIA
On December 18, 2012, PIA flight Boeing- 777 had to takeoff from Lahore to
Frankfurt at 8:00 am, when the time came, of loading the passengers, at 5:00 am ,
it was inform to Airport authorities that boeing-777 is not ready for takeoff because
leakage of fuel tank of the plane. It was announce that flight will take off at 11:00
am. But it could not takeoff at 11:00 am and then announced again to fly at 12 but
it failed to takeoff. So finally air port authority told the passengers at 2:30 pm, that
boeing-777 is not taking off today due to problems in planes. So 278 peoples
including men, women, children and old-age. They waited at least 10 hours at
airport, but nobody told the right information to the innocent passengers. Some
peoples were booked for next day flights, but most of the passengers who they
were from out site cities, gone back to home. According to the recent report, 2540
flights have been delayed due to weather, security, flaw of engines. Flight delays
and cancellations have become the norm rather than the exception. . Naturally this
situation cannot be tolerated for unlimited period. PIA will have to overpower its
weaknesses. It has failed to resolve issues of its organization.

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This case was prepared by Tauseef Raza, Talha Ali, and Syed Awon (MBA 5th eve) and It was written as a
basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Department of Management Sciences, Islamia University of Bahawalpur.

Financial Losses
Pakistan international airline is struggling with financial losses from past few
years. It is also facing of such breakdowns, delay of flights, routes problem and
some other issues.PIA was the most profitable in the starts decades. Basically PIA
is under the ministry of Defense. But the government has changed many of
MD
5 y s. The Government keeps the people of its
own interest. It is also unlived that PIA, which made world record to cover the
distance from London to Karachi in 6 hr 43 minutes and five seconds, which still
world record today. But what is the reason that this is going down and down, day
by day.
PIA has, in all, 39 aircrafts in its fleet comprising of 4 Boeing 777-200 ER, 3
Boeing 777-300 ER, 2 Boeing 777-200 LR, 6 Boeing 737-300, 5 Boeing 747-300,
12 Airbus A310-300 and 7 ATR 42-500. A number of aircrafts have been
grounded due to shortage of spare parts or overhauling. These include Boeing
747s, Boisiseing 737s and Airbus A 310. It is generally believed that PIA high-ups
are responsible for the inconvenience of the passengers. The whole system needs
overhauling.PIA planes deprived of repairs, overhauling. The repair and
overhauling works of the aircrafts of national flag carrier have not been done
overseas due to financial crisis in PIA. Foreign companies refused to provide
engine to PIA due to non-payment of hundreds of thousands of dollars of dues.
Sources said that over 15 planes of the national flag carrier still remain grounded
due to unavailability of engines and spares. This has badly affected the PIA's flight
schedule both on domestic and international routes. The sources disclosed that PIA
has not been able to pay $ 25 million of dues due to its financial crisis.PIA has not
paid $ 6 million to Air France for engine repair; over $ 6 million remains unpaid to
Singaporean company Eagle Service Asia for the repairs of two engines while over
$ 4 million remains unpaid to a Jordanian company for repairs of five engines of
Boeing 747 aircraft.

Political Involvement
PIA employed number of employees in last 3 years on the political basis. There is
excessive recruitment without advertisements. Even though Ministry of Defense
and Chairman PIA did not know that how many employees are working in PIA. In
the question of media respondent, Naveed qamar told that 18000 employees are
working but the Chairman of PIA gave the answer of same question that, 20000

employees are working in PIA. But both of them were wrong. They do not even
know how many employees working under them. According to fact:
No. of employees; Approved Position = 19159
Employed = 1289
On daily wages = 3058
Total =

23605

23605 employees are working in PIA and PIA has 40 aircrafts. And for one plane
590 employees are working. Which is third time the international standard? It
means that on the basis of unnecessary recruitment, overstaffing issue is created by
the PIA. According to international standard 150-225 people are for only A plane.
But in this firm situation is very worse the average ratio of staff should not exceed
150-225 per aircraft while PIA enjoys more than 500 employees per aircraft. It is
overpopulated and needs to cut its coat according to its cloth. It needs some hard
decisions by the administration to run the system smoothly. Pakistan International
Airlines should give primary importance to the safety of the passengers and make
efforts to avoid any untoward situation. Several untoward incidents occurred in
PIA in the last decade. It is necessary to tackle with such incidents seriously to
minimize the losses. The passengers should not suffer in its custody.

Management Issue
Pakistan government is doing his job greatly to destabilize the firm and after this
showing de-stable firm and to sell the PIA to private authorities and by
privatization, so as far government could corruption of billions of rupees again.
The National Assembly's Standing Committee on Finance was informed here on
Tuesday that Pakistan International Airlines (PIA) losses had increased to Rs 142
billion and gap between revenue and expenditure continued to widen. The PIA
management conceded before the National Assembly Standing Committee on
Finance, which met with MNA Khawaja Sohail Mansoor in the chair, that the
number of employees (18,000) on the national flag carrier was relatively higher as
compared to other organizations. Moreover, the member of the committee said that

PIA flights were operating on economically non-viable roots due to political

pressure.
Senior official of the Finance Ministry blamed the PIA management for the losses
and termed their non-serious attitude responsible for the crippling financial
condition of the organization. DG Debt Masroor Qureshi said that the Finance
Ministry has on and off requested management of PIA to bring everything in black
and white before the Cabinet Committee on Restructuring (CCoR) as well as
business plan but the response, however, appeared non-serious.

Reason of Failure
The committee was briefed by the PIA deputy managing director regarding reason
for the current state of affairs such as aging fleet, volatile fuel prices, exchange
loss, interest on non-fleet loans and aviation policies. He added that PIA has taken
almost 66 percent businesses from narrow body aircrafts and fuel financial effect
on different aircrafts is approximately 54 percent of the total cost.
The committee was further informed by the deputy MD that PIA had paid Rs 59
billion to Gulf Airlines under the aviation policies.
The committee was told by the PIA chief financial officer that PIA has almost
23000 employees, out of which 1,500 employees were drawing more than Rs
100,000 salary. The committee was also informed by the deputy MD that PIA had
14 consultants, however, former MD and chairman had reduced these
appointments and now they were seven. He further informed that about 45 general
managers were still working in PIA and PIA has planned in its transformation
process to reduce non-operational areas, which will be done through normal
attrition. He said that HR rationalization plan will result in a cost reduction of
approximately Rs 3.8 billion over a period of five years. The committee has shown
its reservation about the huge number of postings of general managers, the
committee was told by the PIA representative that employees cost to PIA is 16
percent of the budget.
The PIA management informed the committee the reasons behind the losses to the
national carrier were aging fleet, volatile oil prices, exchange rate losses, interest
on non-fleet loans, geo-political situation, and delay in aviation policy, inconsistent
policies and services on commercially unviable routes. It was further informed that

PIA's fleet loans amount to Rs 54 billion and financing cost of these loans is
around Rs 1.5 billion and exchange rate loss has been worked out at Rs 4 billion.
The non-fleet loans are estimated at Rs 98 billion and their financing cost is Rs 9.7
billion and exchange rate losses have been worked out at Rs 2.1 billion annually. It
was also informed that jet fuel price per US gallon was $123.5 in 2006, which has
shot up to $270.1 per gallon in 2011, projecting an increase of 119 percent.
Similarly, exchange rate was Rs 61 a dollar in 2006, which has gone up to Rs 90 a
dollar in 2011. The revenues of the national carrier were Rs 43.6 billion in 2001,
which have increased to Rs 116.6 billion by the end of 2011.
Ministry of Finance (Debt) director general has informed the committee that PIA
could not prepare its proper business plan and PIA management was not looking
serious towards business. He proposed that PIA should make its strategic business
unit, said units should make separation of non-core business activities from airline
business through speedex, flight kitchen and ground handling services etc.
The committee was informed by the standing committee chairman that he came to
know through some reliable sources that a senior officer of PIA is involved in
corruption of procurement in different parts of PIA aircraft. The Standing
Committee has shown its dissatisfaction on the presentation given by PIA
management and decided to call another meeting on the same agenda. The
committee was of the opinion that present team of P1A has no business vision and
PIA is operating on the wishes of people, because they don't have any proper
administration.
The committee has recommended that details of the recruitment made in last five
years may be furnished to the standing committee, PIA chairman, MD and defense
secretary may be called in the next meeting of the committee.

Competitors
It said Pakistan had become a lifeline for foreign carriers, mainly from the Gulf
region, which were sucking away the resources of Pakistan (Pakistani passengers).

g
b g
T
eport regretted that foreign airlines had been increasing their capacity
on Pakistan routes because of the facility of liberal traffic rights. Successive
governments have allowed foreign airlines to fly to and out of the country without
offering any reciprocal rights to PIA to fly to their countries. As the rightful

revenues of PIA were taken away by the ambitious airlines of oil-rich countries,
PIA was unable to invest in new aero planes, it said, adding that no aircraft was
inducted into its fleet from 1992 to 2002. This was the period when the airline
started incurring losses. The report said PIA had lost as many as seven million
potential passengers to other airlines on the US and UK routes between 2009 and
2012 because of the unilateral liberal traffic rights given to foreign carriers. The
rights were given despite the fact that PIA was operating direct flights to the two
T
bb
R 150 b
y

External competitors:
American Airline
British Airways
Sheehan Air International
Internal competitors:
Aero Asia
Air Blue
Shaheen Air international

Recommendation
Recently, the management announced a 5-year turnaround plan and has asked the
government to write off losses of $1. 7 billion to prevent bankruptcy. The plan
envisions cutting costs and buying new planes that are more fuel efficient. News
items suggest the likelihood of government accepting the plan is low, and thus PIA
will either have to resort to more borrowing or declare bankruptcy over the next
few years.
*Financial Statements of PIA are given at the end.