Afs Final Term Project - Pia Financial Analysis

PAKISTAN INTERNATIONAL AIRLINES
ANALYSIS OF FINANCIAL STATEMENT

ANNUAL REPORT 2017
IQRA ABBAS
Page 1 of 25 JUNAID JAHANGIRI
INTRODUCTION
Pakistan International Airlines Corporation was incorporated on January 10, 1955, under the
Pakistan International Airlines Corporation Ordinance, 1955, which was subsequently
repealed and replaced by the Pakistan International Airlines Corporation Act, 1956 (the Act).
With effect from April 19, 2016, the Corporation has been converted from a statutory
corporation into a public limited company by shares, Pakistan International Airlines
Corporation Limited ("the Company" or " "PIACL").
The principal activity of the Company is to provide commercial air transportation, which
includes passenger, cargo and postal carriage services. Other activities of the Company
include the provision of engineering and allied services. The head office of the Company is
situated at PIA Building, Jinnah International Airport, Karachi. PIA is Pakistan's largest
airline and operates a fleet of more than 30 aircraft. The airline operates nearly 100 flights
daily, servicing 18 domestic destinations and 25 international destinations across Asia,
Europe, the Middle East and North America. In addition to commercial flight operations, PIA
also owns The Roosevelt Hotel in New York City, and the Sofitel Paris Scribe Hotel in Paris.
The airline operates a frequent flier program, PIA Awards +, and has several codeshare and
interline agreements, but is not part of any airline alliance.
Pakistan International Airlines Corporation Limited (PIACL) is majority-owned by the
Government of Pakistan (87%) while the remainder (13%) by private shareholders. The
airline is under the administration of Aviation Division and is managed by President & chief
executive officer as well as the board of directors. The Board consists of nine independent
non-executive members and has four sub-committees: An Audit Committee, Brand and
Advertising Committee, Finance Committee, and Human Resource Committee each having
its charter and chairman. The President & chief executive officer leads the executive
management of staff who run the airline. The airline's main headquarters are located at
Karachi, while smaller subhead offices are located in several cities within Pakistan.
The company once considered one of the best airlines in the world but now in a few years,
it’s not performing well and reason behind the fall of once best airlines is many, but increased
competition from Middle Eastern airlines, rising fuel prices, corporate mismanagement, and
over-staffing contributed the most to PIAs sharp decrease in revenues.
VISION
PIA’s vision is to be a world class profitable airline meeting customer expectation
through excellent services, on-time performance, innovative products and absolute
safety.
Mission
Employee teams will contribute towards making PIA a global airline of choice through:
 Offering quality customer services and innovative products.
 Using state-of-the-art technologies.
 Ensuring cost-effective measures in procurement and operations
 Developing Safety Culture.
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Core Values
 Customer Expectation
(Convenience, Care, Affordability)
 Service
(Personalized, Courteous, Passionate)
 Innovation
(New Ideas, Products, Value Added Services)
 Cohesiveness
(Respect for Individuals, Teamwork, and Effective Communication)
 Integrity
(Business Ethics, Accountability, and Transparency)
 Reliability
(Loyalty and Consistency)
 Safety
(Passengers, Employees, Environment)
 Social Responsibility
(Welfare, Health, Education)
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BOARD OF DIRECTORS
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ORGANISATIONAL STRUCTURE OF PIA
AUDITORS
The financial statements of the company are audited by two big names of the industry i.e.
1) EY Ford Rhodes
2) KPMG Taseer Hadi and CO.
AUDITORS OPINION
The report is identified as a Qualified report and the reasons that auditors have presented in
support of their claim are mentioned below.
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 The auditors have found out that because of the unavailability of adequate human
resource the physical verification of capital spares of RS. 3546 million and stores and
spares of RS. 3093 million is not done by the company.
Note: In physical verification company once or twice a year count, measure, weigh all the
items in stock and match it with the value of stock shown in the balance sheet.
 Moreover, according to the auditors the closing entries form part of determination of
financial performance and cash flows and they are not sure whether it was necessary
for the company to perform it or not.
 Till 2016 company was using sales and ticket utilisation data to calculate unearned
revenue for the particular year but according to the auditors it was not a practical
approach, in 2017 company implemented the Revenue Accounting system (RAPID)
and determined an unidentifiable balance relating to unearned revenue of RS. 3,985
million. Moreover, before 31 December 2017 company also executed an activity to
determine the balance of revenue-related taxes and detected an unidentified balance
related to revenue related taxes of RS. 47000 million.
The auditors have concluded the matter by giving out the following statement.
  Further Company has also not deposited a provident fund of RS. 10,997.823
million along with the mark-up of RS. 4,856.96 million within the deadline that is
against section 227 of the repealed company ordinance 1984 and section 218 of the
companies act 2017.
COMPANY STRATEGIC PLANNING

Pakistan International Airline is well on its way to improve operations with a new
management team on-board. The airline has lately been ensuring regular, on-time flying,
expansion to newer networks, and reopening of old routes. Taking this wave of change
forward, PIA has hired a new Chief Financial Officer, Mr Khalilullah Sheikh.
Following a rigorous and strenuous recruitment process, Mr Sheikh joined the PIA family to
further improve the organisation's financial management. His recruitment is also a part of
PIA’s broad and strategic business plan to revive the airline. Mr Sheikh brings with him an
extensive experience in finance, more importantly financial change management, with proven
record of contributing towards the turning of organisations to customer-centric and profitable
entities.
PIA feels the young professional will be a much needed addition to its team, and is proof of
the government’s commitment to improving the airline. Under the leadership of CEO Air
Marshal Arshad Malik, PIA now feels confident that the airline is shifting gears to a faster
flight. Recent positive changes in PIA include expansion in networks, improved flight
timings, greater hospitality and care by the airline's staff, increased cargo load factor,
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improved engineering services, an online passenger service system, leaner structure, and
greater transparency and accountability in operations. Other works in the pipeline include
additions to the fleet and further improving the in-flight experience.
In March, the Privatisation Commission’s Transaction Steering Committee discussed three
models for the financial restructuring and segregation of core and non-core assets and
liabilities of Pakistan International Airlines (PIA). The meeting was attended by the officials
of PIA, Aviation Division, Civil Aviation Authority, Ministry of Finance, and Securities and
Exchange Commission of Pakistan (SECP).
It was agreed that the proposal to restructure PIA will be finalised after due process in
accordance with the PIA Conversion Act 2016. Given the quantum of outstanding liabilities,
including the intrinsic value of underlying assets and operating cash flow of the business, it
was proposed to carve out legacy liabilities from PIA to improve the financial situation of the
core business and enable future investment. In order to limit the interest of potential strategic
investor to the ownership and management of core aviation function, it was proposed to carve
out non-essential assets and liabilities to a government entity. It also has been agreed that
non-essential real estate assets including Roosevelt Hotel in New York (USA), Hotel Scribe
in Paris (France), domestic and foreign properties, and Precision Engineering Complex would
be retained by the state.
The meeting was informed that the airline business would attain positive balance sheet after
transfer of legacy liabilities from PIACL which will further enhance its operational and
structural outlook. The consortium of financial advisers suggested undertaking the transaction
in two phases – formulation of restructuring and divestment strategy, and later facilitating
private sector partnership in the core operations of PIACL.
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FINANCE DEPARTMENT
OVERALL COMPANY’S ANALYSIS

FIXED ASSETS
A fixed asset is a long-term tangible piece of property or equipment that a firm owns and uses
in its operations to generate income. Fixed assets are not expected to be consumed or
converted into cash within a year.
Looking at PIA Balance sheet, 83% of total assets belongs to the fixed assets, majorly 75% of
the them operating fixed assets that include both one that company owns and the other came
from financing lease, almost 14% of assets from the financing lease (note that Finance lease
refers to the lease where company owns the asset legally during the tenure of the lease but all
the risk and reward associated with the asset are transferred to the lessee by the lessor), and
0.09% belongs to the long term investment of the company that include both investment in
the subsidiary company and in the associate company in a negligible amount (only for the
purpose of meeting international requirements) and in the Available for sale securities.
Judging it by the industry (73% of the total assets represent fixed assets) the company is
holding a high amount of fixed assets and further after analysing the ratio of return on asset
(ROA) that show -20 average return and fixed asset turnover that showing that company is
generating 0.63 sales against 1 rupees of assets, it’s clear that company is not utilising its
assets properly here the main reason behind this situation is may be that company have
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limited number of routes(right now with 34 aircraft operating domestic and international
routes mainly of middle east and gulf states) with the dozens of competitors and that’s one of
the reason that company assets are not being utilized properly which in result resulted in to a
bad performance of assets. Although in recent times efforts are going on to add more aircraft
and routes.
CURRENT ASSETS
Current assets represent all the assets of a company that are expected to be conveniently sold,
consumed, utilized or exhausted through the standard business operations, which can lead to
their conversion to a cash value over the next one-year period.
Under vertical analysis, PIA Current assets are representing 17% of the total assets, and
horizontal analysis of 2017 is showing an increase of 35% if compared with the year 2013,
the difference is smaller if compared to the year 2016 i.e. 15%. While the industry current
assets comprised of 27% of total assets, judging by the industry company is holding less
current assets and its debt paying ability of short term liability is not good, the current ratio
i.e. 0.51 also indicating the same idea.
Getting in to the details the 30% of the current asset is contributed by the Account
receivables/ Trade debt and 43% by the other assets that include stores and spare,
prepayments, and other receivables. The company is not facing as such problems with its
credit policies because the account receivables turnover and account receivables in days are
showing a reliable figure 10.56 times and 34 days respectively and horizontal analysis there
is no notable change in the account receivable in years.
NON CURRENT LIABILITIES

Noncurrent liabilities, also called long-term liabilities or long-term debts, are long-term
financial obligations listed on a company’s balance sheet. These liabilities have obligations
that become due beyond twelve months in the future, as opposed to current liabilities which
are short-term debts with maturity dates within the following twelve-month period.
(Investopedia). looking at the PIA non-current asset portion it represent the 73% of the total
asset, means the 73% of the company’s assets are financed by long term liabilities making
PIA a highly leverage company, while the industry non-current liabilities represent only 49%
of its total assets, clearly making PIA very risky financially and unattractive for investors.
Horizontal analysis is also showing negative trends, if compared 2017 with 2013 there is 94%
increase in long term liabilities, every year the debt is increasing but the sales and profit are
decreasing at that’s something very concerning about the company.
A larger portion of non-current liabilities portion of PIA is represented by the long term
financing, that is also financing 40% of the total assets. This long term financing is mostly
taken from the banks through different kind of facility including, Term Finance (A loan from
a bank for a specific amount that has a specified repayment schedule and either a fixed or
floating interest rate.), Islamic term finance, Demand finance (A loan is granted to a
brokerage house needing short-term capital for financing the margin portfolios of clients. The
lending bank can demand the repayment of the loan at any time.), and Syndicate finance
(Also known as a syndicated bank facility, is financing offered by a group of lenders—
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referred to as a syndicate—who work together to provide funds for a single borrower. The
borrower can be a corporation, a large project, or a sovereign government.) with the time
period ranging between 2 to 9 years, payments made quarterly or monthly and are secured by
the banking companies. Company have also taken an unsecured loan of about 8 million in
2011 and since then they haven’t paid a single instalment, the overdue principal and mark-up
is 6700 million that now a part of the current maturity. In only 2016, PIA took a loan of $130
million by UBL and Suisse Singapore (Syndicate Financing) saying that this financing will
be utilized in improving passenger’s services and while the sources confirmed that they have
use it to repay the old debt (PakistanToday,2016) one of the reason of the 22% increase in the
long term borrowing section.
Company have also issued the term finance Certificate (A debt instrument issued by a
corporation to raise funds. TFCs typically offer higher rates of return than bank deposits and
government bonds) mainly for paying the debts and interest and that has to be repaid between
the year 2014-20. According to the financial statement of 2017, the TFCs have been
restructured in 2012 for 6 years, and which principal amounting 2,054 million and interest
amounting 366.03 million was due on august,2017 and November 2017 respectively was paid
on Jan 2018. Sukuk certificates are also issued the company in 2009 that has to be paid in
2013 but still not paid, instead have been restructured many times. The company have also
leased the aircraft and technical ground equipment, but the leasing related accounts shows a
decline which means that company is paying the leasing related liabilities on time. The other
liabilities include advance from the subsidiary company PIA Investment limited and
employee benefit obligation that on average represent 17% of the non-current liabilities, note
that from year 2016 to 2017 more than 1000 employees are fired by the company.
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In the nutshell, we can conclude that non term liabilities are increasing because company is
failing in generating a positive return on the money financed by debt, and as a result they are
failing to payoff that debt too. While the industry on average generating more sales than their
liabilities and increasing with a stable pattern and utilizing the financing in more efficient
way then the PIA.
CURRENT LIABILITIES
Current liabilities are a company's short-term financial obligations that are due within one
year or within a normal operating cycle. An operating cycle, also referred to as the cash
conversion cycle, is the time it takes a company to purchase inventory and convert it to cash
from sales. financial statement is stating that PIA’s current liability is 10% higher than their
total assets, means current liabilities are more than both their current assets and non-current
assets, and for any company it’s very unusual to have this figures and that’s why their ability
of paying short term debts are very weak and their current assets are very less for paying that
high amount. On the other side if we look at the industry, current liabilities represent 53% of
the total assets far below then the 110% of PIA. It’s represent that company is not paying its
dues on time which resulted in to this bigger amount, now the company is only operating
because of the government financial support
If we look at the details of the current liabilities it’s include Trade credits and other account
payables, short term borrowing, current portion of the non- term liabilities and other current
liabilities. All of them are almost in double percentages when compared to the industry.
Looking in detail, the trade credit mostly contains the Airport related charges that increasing
in an alarming rate year by year (no control on expenses). Accrued interest related to the long
term financing, term financing certificates, sukuk certificates, liabilities related to financing
lease, provident fund and advance from a subsidiary also contributing a lot in increasing
current liabilities. Here’s an interesting thing to note that although the government is paying
its liabilities but instead of decreasing liabilities are increasing rapidly and the reason behind
this is that company is taking more and more loan in a bigger amount then they are paying
which are increasing the long term liabilities and short term liabilities too because of
increasing interest on the liabilities.
PIA is financing its day to day operations with the short term borrowing in two ways, firstly
from the short term loans taken by the National Bank of Pakistan that has to be paid within a
year, and that decrease rapidly in 2015 (most probably because of the financial support of
NBP) rapidly and since then NBP is giving amount for GoP Guarantee. Only in 2018, ECC
approved GoP guarantee of Rupees 20 billion to PIACL mainly for their working capital
needs.
Current maturity of the non-current liabilities is also one of the main reason of pushing
current liabilities at this position, and this is increasing every year because of the non-
payment.
CONTINGENCIES AND COMMITMENT

A contingency arises when there is a situation for which the outcome is uncertain, and which
should be resolved in the future, possibly creating a loss. The accounting for a contingency is
essentially to recognise only those losses that are probable and for which a loss amount can
be reasonably estimated. Talking about PIA company have contingencies related to the sales
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tax and excise duty, cases are under trial in Appellate Tribunal inland revenue (ATIR), FBR,
Collector of Customs, Sales tax and Federal Excise but mainly company believe that the
result will going to be in their favour, so they haven’t kept any provision for this.
A commitment is some degree of existing liability that an organization has to take on an
obligation. Depending on the applicable accounting rules, this may result in disclosure of the
situation in the notes that accompany a set of financial statements. PIA have made
commitment related to the capital expenditure, outstanding letter of credit that company have
fulfilled as there is a decrease in the obligation amount. Further they have entered in to an
agreement to buy new aircraft but they didn’t pay within due date. The amount of future
payment related to 5 aircrafts also added in the commitment section.
PROFIT AND LOSS STATEMENT

A profit and loss statement is one of the three important financial statements used for
reporting a company's financial performance over a specific accounting period, with the other
two key statements being the balance sheet and the statement of cash flows. Also known as
income statement or the statement of revenue and expense, the income statement primarily
focuses on the company’s revenues and expenses during a particular period and provides
valuable insights into a company’s operations, the efficiency of its management, under-
performing sectors and its performance relative to industry peers.
REVENUE
PIA revenue mainly comes from the passengers, Cargo, Excess baggage, Engineering
services, Charter services, Handling and related services and mails. If divided by the
geographical segments the largest portion comes from Pakistan itself, then from Europe,
Middle East, and Asia respectively. (PIA Annual Report, 2017). As we compare the 5 years’
financial statements data of sales/revenue there is a trend of instability, when compared to the
year 2013, in 2014 revenue increased positively by 4% and then in 2015 its decreased to -5%
compared to year 2013 and since then its negative showing that company cost of doing
business is getting higher and higher while the return is failing to match the cost. Looking at
the industry, from 2014 their sales were also decreasing at a negative rate when compared to
year 2013, the sales sharply declined in 2014 but in later years it begins getting stable and in
2017 its shows stability mainly as a result of CPEC that resulted in too many successful
projects of transportation and communication, while the PIA still haven’t shown any positive
trend.
C0ST OF SERVICE
In cost of services, the main account is Salaries, wages and allowance that has been decreased
in 2017 in comparison to 2016, but the point to note is that PIA employees are decreased by
more than 1000 employees (a big number) but in comparison the salaries expense haven’t
decreased at the same rate and may be the outstanding liabilities related employee wages are
the reason behind it. Mostly other accounts as shown in figure have also shown a significant
increase. Aircraft fuel also have shown a greater increase; all this cost together is 10% more
than the total revenue of the company. Concluding that company is failing to cover their
operations from the revenue they are generating. Neither their revenue is increasing nor their
cost is decreasing and both together making the situation more miserable for PIA.
Further loses are then added by the general, administrative and other expenses. Interest
expenses for non-current loan is also adding more losses, and increasing rapidly because of
increasing non-current liabilities
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EQUITY
SHARE CAPITAL
Share capital is the money a company raises by issuing common or preferred stock. The
amount of share capital or equity financing a company has can change over time with
additional public offerings. Firstly, starting with the categories of shareholders, the major
shareholder with 91.56 % of total shares both A and B class of ordinary shares included.
Then there comes the PIA Employees empowerment trust with 4.43% share, public sector
companies and corporations with 0.10 % shares, Banks, development funds institutions, non-
banking finance companies, insurance companies, takaful,modarabas and pension funds with
26 shareholders and 0.09% shares, individuals (56,827) with 3.47% shares, Directors and
others. Coming to the share capital its firstly divided in to two portion,
 Authorised capital
 Issued, subscribed and paid up share capital.
Authorized share capital is the number of stock units (shares) that a company can issue as
stated in its memorandum of association or its articles of incorporation. Authorized share
capital is often not fully used by management in order to leave room for future issuance of
additional stock in case the company needs to raise capital quickly. Another reason to keep
shares in the company treasury is to retain a controlling interest in the business, PIA is a
national airline so mainly its shares are with the government in two categories Class A shares
and Class B shares (Note that Class A shares refer to a classification of common stock that is
accompanied by more voting rights than Class B shares, usually given to a company's
management team. For example, one Class A share may be accompanied by five voting
rights, while one Class B share may be accompanied by only one right to vote.
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The shared that are issued, subscribed and paid up share capital also have Class A and Class
B shares, which are issued against cash, other than cash, and as bonus share
RESERVES
In equity side, there are two accounts Capital Reserve (Reserve alludes to a fund, that is
created to finance long term project or write off capital expenses.) and Revenue Reserve
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(Reserve refers to the sum of money retained in business, so as to meet our future
contingencies.) In capital reserve there is an account of reserve for replacement of fixed
assets (used to maintain, repair and upgrade capital assets), Capital redemption funds (When
a company purchases shares back from shareholders, it must create a capital redemption
reserve fund and run it properly. Funds in the capital redemption reserve are non-
distributable) and general capital reserve.
Judging the capital reserve there is significant decrease in the year 2014 and note that capital
reserve can also be used for mitigating any capital losses, so here we can conclude that
capital reserve decrease to compensate the losses of the assets sold during the year 2014.
SHORT RATIO ANALYSIS

CURRENT RATIO
The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables
Company current ratio is 0.15 as compared to 0.43 of the company, overall the industry
doesn’t have enough assets to pay off their short obligation because ideally companies
against each rupee of liability should have at least 1 rupee of asset. But here the whole
industry seems not to be in a good position and PIA is in more worst situation, it doesn’t have
even have enough current assets to pay off their short term liabilities.
ASSET TURNOVER RATIO

The asset turnover ratio, also known as the total asset turnover ratio, measures the efficiency
with which a company uses its assets to produce sales. The asset turnover ratio formula is
equal to net sales divided by the total or average assets of a company. A company with a high
asset turnover ratio operates more efficiently compared to competitors with lower ratios.
Talking about the PIA and industry overall, Pakistan transportation industry was not
performing very well in the past mainly because of infrastructure and nonstable security
reason but now because of security stability and CPEC transportation industry have shown
positive trends but still the average turnover ratio is 0.54, means for every rupee of assets the
industry is generating 0.54 of sales and that’s something not favourable. Company is
generating 0.48 sales against, 1 RS of asset, clearly indicating that it failing to utilize the
company assets and manpower.
Moreover, 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
(Herald,2017) in 2016 there are 13,900 staff in PIA and 38 planes, which makes the ratio
approximately 366 while Emirates has 220 to 230 per plane and Turkish Airlines has less
than 100 employees to a plane. (Fridaytimes,2016) and this is one of the main reason PIA is
failing to utilize its assets, there are less assets and more people to operate them.
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RETURN ON ASSETS (ROA)

Return on assets (ROA) is an indicator of how profitable a company is relative to its total
assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's
management is at using its assets to generate earnings. Businesses (at least the ones that
survive) are ultimately about efficiency: squeezing the most out of limited resources.
Comparing profits to revenue is a useful operational metric, but comparing them to the
resources a company used to earn them cuts to the very feasibility of that company's’
existence. As expected by seeing the company in losses, the return on asset is negative (-
22.08) in 2013 and it’s showing clearly that company is not effectively utilising its assets, but
in 2014 it gradually decrease to -15 and its mainly because of the increased sales as the
Nawaz government has taken the bold steps including privatisation to enhance the national
flag carrier’s customer services, on time flight arrivals and departures with safety, then in the
next year, it has been tried to decrease the expenses that are clearly visible in the financial
statement of 2014 further in the same year the new board of director named Shujaat Azeem
has also been appointed and that brings a positive impact to the revenue. But looking at the
non- current asset side there is a huge decrease in it from 2013 to 2014 mainly because of the
decrease in fixed assets that also proven to be one of the reason of a better ROA, later in 2016
again it’s been noticed a great negative trend with -22 ROA, sales again decreased, financial
expenses increased because of acquisition of new aircraft on lease and payment of mark-up
on legacy loans. The company have acquired new aircraft that can be seen in the form of
increase in fixed asset of 2016 but still there is no impact seen on sales, means the assets were
not helping company in generating profits and the main reasons are the bad management and
oversupply of employees. Lastly in 2017 it’s almost the same as 2016. Now comparing it
with the industry, the ROA is negative almost -6 on average but overall the industry is
performing way too well than the PIA. After CPAC and better security the sales showing a
lot of positive trend and there is a significant increase in the investment too.
FINANCIAL LEVERAGE RATIO
the financial leverage ratios measure the overall debt load of a company and compare it with
the assets or equity. This shows how much of the company assets belong to the shareholders
rather than creditors. Looking at BT the PIA, the company have a negative financial leverage
ratio which indicates that company raised its investment using borrowed funds but borrowed
money has a greater cost, or higher interest rate, than the return made on the investment. Year
by year the company long term liabilities are increasing rapidly, notably in 2016 by 23% but
the sales get worsen at the same era and there is one important thing to notice that this is the
year when Nawaz government said good bye and this is the year when PIA converted in to a
public company.
BASIC EARNINGS PER SHARE
Basic earnings per share is a rough measurement of the amount of a company's profit that can
be allocated to one share of its common stock, it is the industry standard that investors rely on
to see how well a company has done, and PIA losses explaining what profit investors can
expect against their share, on average against one share the shareholders are bearing the loss
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of -10 RS,and bcause of this the company’s shares are selling at a discount rate, right now
6.53.
COMPARISON WITH THE AIRINDIA

REASON OF CHOOSING AIRINDIA AS A
COMPETITOR
Air India is selected as a competitor mainly because in Pakistan PIA is the almost solely the
one airline that is operating both in the national and international level, other airlines are very
small in terms of their operations and are mainly private and operate on a domestic level, so
there is no airline exist at the moment with whom PIA can be compared, Therefore AirIndia
was the best choice for a competitors because it’s the public airline of India like PIA, both
operate from the same region i.e. Asia and both Airlines are from developing countries and
both are largest international airline carrier in their respective countries.
INTRODUCTION
Air India is the flag carrier airline of India, headquartered at New Delhi. It is owned by Air
India Limited, a government-owned enterprise, and operates a fleet of Airbus and Boeing
aircraft serving 94 domestic and international destinations. The airline has its hub at Indira
Gandhi International Airport, New Delhi, alongside several focus cities across India. Air
India is the largest international carrier out of India with an 18.6% market share. Over 60
international destinations are served by Air India across four continents. The airline became
the 27th member of Star Alliance on 11 July 2014.The airline was founded by J. R. D. Tata as
Tata Airlines in 1932; Tata himself flew its first single-engine de Havilland Puss Moth,
carrying air mail from Karachi to Bombay's Juhu aerodrome and later continuing to Madras
(currently Chennai). After World War II, it became a public limited company and was
renamed as Air India. On 21 February 1960, it took delivery of its first Boeing 707 named
Gauri Shankar and became the first Asian airline to induct a jet aircraft in its fleet. [11] In
2000–01, attempts were made to privatise Air India and from 2006 onwards, it suffered losses
after its merger with Indian Airlines.
Air India also operates flights to domestic and Asian destinations through its subsidiaries
Alliance Air and Air India Express. Air India's mascot is the Maharajah (Emperor) and the
logo consists of a flying swan with the wheel of Konark inside it.
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FINANCIAL STATEMENT COMPARISON

Air India somehow facing same problems financially as PIA, It serves 12.4 percent of the
domestic passenger traffic, and competes with aggressive private sector peers like IndiGo,
SpiceJet and Jet Airways who are constantly baying for passengers. Air India's performance
resulted in the gradual fall of share - from 14.8 per cent two years ago to 12.4 per cent in
Auguest,2018 and airline surviving on RS 4,600-crore annual bailout package. The airline
flies over 2.1 million passengers every month.
Air India's turnaround was so futile that even after pumping in RS 28,000 crore into the
airline, it could barely generate operating profits (not even net profits) of RS 403.03 crore in
two financial years (2015-16 and 2016-17). the operational capabilities are sub-par. The
airline most often tops the chart when it comes to poor on-time performance, flight
cancellations, passenger complaints and grievances redressal. For instance, the airline's
domestic operations registered 287 complaints in July, the highest among all airlines. While
all other airlines managed to address the issues, AI couldn't close 65 passenger complaints
against it. Whether the finance ministry doesn't approve the package for Air India, the airline
will continue to need government's financial support. Its ability to return to profitability
seems like an impossible task
in 2018-19, the airline's net loss stood at about RS 8,400 crore while total revenues touched
around RS 26,400 crore.
Coming to the balance sheet, they have maintained almost the same amount of current assets
in 2017 as they have in 2016, but only their other current assets decrease because the
company has a huge debt so they’ve planned to sell all the other currents assets that is not
needed for the operational activities , and because of that their CA that were representing
26% of total assets now stands at 16%, on the other hand PIA current assets shows an
increase of 6%, specifically their other current assets that increase by 13% as compared to
year 2016. Further the Current ratio of Air India has also decreasing rapidly year to year,
indicating that it also does not attain desirable solvency. Like their current assets, company is
also getting rid of most of their properties in order to gather amount to pay off their liabilities
and as expected its balance sheet confirms this fact. The total liabilities section also shows a
decrease of 10%, there was rumours circulating that they are paying off their liabilities by
decreasing their total assets because Airline soon closing its operations but company rejected
the claims and give this strategy an effort to get out of losses.
Air India has been facing losses like PIA since the past few years, its expenses are 10%
higher than its revenues same as PIA with 12% higher expenses then revenues only in 2017,
but overall they have controlled their financial cost, employee benefits and maintained the
Aircraft related expenses, their revenue have also increased by 9%, as a result the loss before
taxes and extra ordinary items have decreased but later on after paying tax, settling Cargo
Antitrust, Duty credit related cases that was unusual and infrequent in nature and resulted into
a greater loss.
SIMILARITY OF REASONS BEHIND THE LOSSES
Somehow, the reason of crisis of both the Airlines are very familiar, note the one of the
primary reason of PIA losses, was its huge amount of employees but Air India is facing the
same problem, according to the requirement, the company had 11,433 employees as against
the envisaged requirement of 7,245. In addition, there is underutilisation of pilots and cabin
crews led to loss for the airline. Further, there is a alot of operational inefficiencies in both
the Airlines, both are facing huge competition, but PIA is facing competition from the other
international Airlines while the Air India have competitors in the domestic level too, IndiGO,
Page 18 of 25
SpiceJet, Jet Airlines are the top names. Like PIA, Air India have a huge debt burden, and
ccost of paying interest on its massive debt resulted into losses.
On the positive note, both the companies in the recent year claimed the improve performance,
a restructuring plan for PIA is also getting prepared while Air India is doing efforts to reduce
its debt, that is the biggest reason behind its losses.
THE BIG PICTURE

PIA’s troubles go far beyond the everyday operational issues or ordinary workers’ resentment
at being taken for a ride. The big issues lie elsewhere. The man in the PIA cockpit is Irfan
Elahi, the EX-chairman of the organisation. His tenure is marked by a number of murky deals
and practices that have either seen the bypassing of PIA by laws or decisions made to the
outright detriment to the organisation. Some of Elahi’s choices have had larger consequences
to the organisation. Let’s suppose Elahi is exceeding his boundaries as chairman of the
PIACL boards of directors, the question really is who can possibly stop him? The board,
perhaps. And if they fail, the Aviation Secretary of the Cabinet Division Secretariat. Here’s
the twist: how can someone summon themselves — Elahi is also the aviation secretary.
though bureaucratic nonchalance comes with the territory, hiring and posting irregularities —
an almost universally accepted baseline for nepotism — is the least of the allegations against
Elahi. The big charges relate to the concentration of power, the operational opacity this
omnipotence allows, as well as the siphoning of taxpayer money to companies abroad
without receiving any services in return.
The following three stories have largely been extracted from official PIA paperwork and
correspondence that were exchanged, copies of which are available with Eos. Each story
points to instances of how damage was dealt to the interests of the national flag carrier. The
common link is Irfan Elahi, the man in whom trust was reposed to steer PIA away from
turbulence.
CASE OF AIRCRAFT FOUND IN GERMANY
An Airbus-310 (A-310) that was owned by PIA was first rented out to a film company by
Procurement Director Air Commodore (retd) Imran Akhtar, brother of former director
general of the Inter-Services Intelligence (ISI), Rizwan Akhtar. The plane was flown to Malta
for the film company. The A-310 was a “fly-worthy” aircraft. And yet, with it having been
taken out of service for filming purposes, it never returned to the PIA fleet. Three
departments — Marketing, Finance and Corporate Planning — were entirely bypassed by the
procurement director. And the plane itself landed in Germany, in Leipzig, to be displayed at a
museum.
Rizwan Akhtar removed Operations, Engineering, Marketing, Finance, and Corporate
Planning from the loop and made the transaction without any kind of approval from the board
of directors. The plane had working auxiliary power units, avionics and landing gears, among
other parts. The film company offered 245,000 Euros for the aircraft while the German
museum charged 45,000 Euros in marketing fees for displaying the aircraft in their museum.
The market value of PIA’s A-310 was in millions of dollars but it was sold for just 5.3
million rupees by the people who don’t even had the right to sell it.
Page 19 of 25
THE CASE OF ADMINISTRATIVE CHAOS

After the incident of plane crash in 2016, PM Sharif handed PIA to Aviation Secretary Irfan
Elahi, marking the latter’s second tenure as chairman of the national flag carrier. The
outgoing chairman had brought in a former professional of German airlines Lufthansa, Bernd
Hildenbrand, first as a chief operating officer (COO) before elevating him to the position of
acting chief executive officer (CEO), However, the German later became embroiled in a
number of corruption cases — the most prominent of which is the sale of an A-310 aircraft.
After the removal Hildenbrand left the country on May 4, 2017 after his name was put on the
ECL and mysteriously removed following the German Embassy’s intervention. Later on even
after having the choice of the 11 competent professionals that have a remarkable experience
of civil aviation chooses Musharraf Rasool Cyan as CEO while the Zia Qadir Qureshi was
chosen COO. A university teacher by profession and without any aviation experience, Cyan
submitted documents with two different dates of birth: the date on his Matriculation
certificate is March 12, 1967. The date of birth according to his CNIC is November 4, 1967.
According to chapter 34 of the PIA Personnel Policies Manual, only a matriculation
certificate or a valid birth certificate could be accepted at the time of hiring. But here’s the
twist: more than 350 employees have been dismissed on charges of discrepancies in their
dates of birth as detailed on CNICs and educational documents, while 250 cases were
pending at that time.
But both hiring’s set the tone of Elahi’s PIA. Hiring’s and firings came on ad-hoc basis, often
without any justifications. Meanwhile, on the PIA WhatsApp group — which is a means of
communication between senior officers — there are rumblings of dissent and dismay at how
the national carrier is being run. Some senior personnel have announced that they intend to
leave the airline rather than being made scapegoats for the questionable decisions being taken
by senior bureaucrats, who they feel will escape accountability.
THE CASE OF THE NEW YORK ROUTE

Without any warning came the proclamation that the Pakistan International Airlines (PIA)
was shutting down its New York City operations. The argument made was that the expenses
incurred by PIA on flying to New York did not make financial sense to the company
anymore. Five weekly flights would fly to New York and three other American cities but PIA
surrender the route altogether. Management claimed that he airline incurred losses of 1.5
billion rupees from its New York operations, but an insight source said that there is a
possibility that PIA can also surrender the route in favour of another airline. Word from the
inside is that this route is being surrendered to Etihad Airways, this happened in 2017 and
still in 2020, nothing has been done to investigate the matter.
CURRENT YEAR PERFORMANCE

In September 2019, CEO Air Marshall Arshad Mahmood claimed airline had increased its
revenues by 41 per cent in the last six months, and is ready to induct more aircraft by the end
of the year. Earlier in April, he had claimed that PIA has “achieved breakeven at the
operational level”, meaning its revenues almost matched its operating costs, minus financing
costs, but the management has been unable to release any financial statements for the airline
beyond the year 2017. Air Marshal Malik also announced that overall the airline is going to
add 12 new planes to PIA's fleet by 2023. But in the initial stage, only four planes will be
added to the fleet by 2020.Additionally in October 2019, Pakistan International Airlines
(PIA) has increased its flights to the UAE, Kuwait and Saudi Arabia in order to improve its
performance in the aviation sector. It has connected more cities to the UAE as it launched
flights from Faisalabad and Multan to Dubai. The first flight from the Faisalabad-Dubai
Page 20 of 25
sector to fly on Thursday while the inaugural flight from Dubai to Multan landed on Monday.
The flights will operate twice weekly
Although the new CEO, claims of reducing expenses and increasing revenues are all over the
news but still the financial statements of year 2018 and 2019 are now declared, and his claims
can be proven only after verifying it with the financial statements therefore it can’t be
concluded right now that whether the Airline is doing better or worse than the year 2017.
Further, he Pakistan Stock Exchange (PSX) on October 2018 has placed Pakistan
International Airlines Corporation Limited (PIA) in the defaulters’ segment for not holding
its Annual General Meeting and submitting its Annual Audited Accounts for the year ended
December 31, 2017.also if company fails to submit its annual accounts for two consecutive
years, trading in shares of the company would be suspended immediately by the Exchange
and the company will be given 90 days to rectify the non-compliance, failing which, the
Exchange shall initiate further actions against the company commencing from Regulation,
since then the company is in the list of defaulters and its stock are trading on a discount rate
and prices of the shares decreasing too.
Page 21 of 25
REFERENCES
https://www.google.com.pk/amp/s/www.pakistantoday.com.pk/2016/11/29/pia-raises-130-
million-in-loans/amp/de
https://fp.brecorder.com/2018/05/20180523373660/
https://www.dawn.com/news/1103074
https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/air-india-
posts-rs-4600-cr-operating-loss-in-2018-19-aims-operating-profit-this-
fiscal/articleshow/71136113.cms?from=mdr
https://www.businesstoday.in/current/economy-politics/a-loss-making-airline-for-almost-a-
decade-air-india-has-no-reason-to-exist/story/281813.html
may-lower-prices-of-its-properties-to-draw-more-buyers/articleshow/71193876.cms
may-lower-prices-of-its-properties-to-draw-more-buyers/articleshow/71193876.cms
https://money.rediff.com/companies/air-india-ltd/16600003/ratio
suffered-loss-of-rs-430-crore-due-to-pakistan-air-space-closure/articleshow/70260295.cms?
from=mdr
https://www.investopedia.com/articles/investing/042413/financial-statement-extraordinary-
vs-nonrecurring-items.asp
https://www.business-standard.com/article/companies/six-reasons-why-air-india-is-going-
downhill-117031001155_1.html
https://www.thehindu.com/opinion/op-ed/stuck-on-the-tarmac/article24039868.ece
https://www.businesstoday.in/sectors/aviation/why-air-india-is-like-a-house-of-
cards/story/379651.html
https://www.thehindubusinessline.com/economy/logistics/does-air-india-still-need-to-keep-
flying/article26890270.ece
https://finance.zacks.com/negative-leverage-ratio-10536.html
https://www.investopedia.com/terms/r/returnonequity.asp
https://www.investopedia.com/terms/b/basic-earnings-per-share.asp
https://www.thefridaytimes.com/whats-wrong-with-pia/
https://en.wikipedia.org/wiki/List_of_magazines_in_Pakistan
https://herald.dawn.com/news/1153649
https://dailytimes.com.pk/224957/pia-the-rise-fall-and-decline-of-a-national-flag-carrier
https://www.dawn.com/news/1507266
https://dps.psx.com.pk/company/PIAA
https://www.investopedia.com/terms/c/currentratio.asp
https://dailytimes.com.pk/308400/psx-places-pia-in-defaulters-segment/
https://www.khistocks.com/company-information/financial-highlights/PIAA.html
https://www.khistocks.com/company-information/financial-highlights/PIAA.html
http://www.airindia.in/images/pdf/Domestic-Fare-Sheet-effective-01JAN20-31DEC20.pdf
Page 22 of 25
https://www.axug.com/HigherLogic/System/DownloadDocumentFile.ashx?
DocumentFileKey=6b150445-c447-4d8f-8d89-e63fb55b0e9f
http://www.finance.gov.pk/survey/chapters_16/13_Transport.pdf
https://www.piac.com.pk/corporate/images/tenders/Tender-Document-for-Wet-Lease-of-
Narrow-Body-Aircraft-Mar-2019-05-03-2019.pdf
https://shodhganga.inflibnet.ac.in/bitstream/10603/153262/16/14_chapter%207.pdf
http://www.airindia.in/writereaddata/Portal/FinancialReport/1_434_1_notes-forming-part-
ofs-the-financial-statements-for-the-year-ended-2016-2017.pdf
http://www.airindia.in/images/pdf/Domestic-Fare-Sheet-effective-01JAN20-31DEC20.pdf
http://www.js.com/wp-content/uploads/2016/09/Annual-Report-2015.pdf
https://financials.psx.com.pk/lib/DownloadPDF.php?id=133588
https://www.piac.com.pk/corporate/images/corporate_reports/March%20PIACL%20-
%20Consolidated%20(1).pdf
http://www.sbp.org.pk/departments/stats/FSA(Non).pdf
Page 23 of 25

Afs Final Term Project - Pia Financial Analysis

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PAKISTAN INTERNATIONAL AIRLINES

ANALYSIS OF FINANCIAL STATEMENT

PAKISTAN INTERNATIONAL AIRLINES

ORGANISATIONAL STRUCTURE OF PIA

COMPANY STRATEGIC PLANNING

OVERALL COMPANY’S ANALYSIS

NON CURRENT LIABILITIES

CONTINGENCIES AND COMMITMENT

PROFIT AND LOSS STATEMENT

SHORT RATIO ANALYSIS

ASSET TURNOVER RATIO

RETURN ON ASSETS (ROA)

COMPARISON WITH THE AIRINDIA

FINANCIAL STATEMENT COMPARISON

THE BIG PICTURE

THE CASE OF ADMINISTRATIVE CHAOS

THE CASE OF THE NEW YORK ROUTE

CURRENT YEAR PERFORMANCE

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