Case Study- PIA

The newly appointed Managing Director of PIA “ Rao Qamar Suleman “ sitting in his plush
room at Head Office was studying the revival plan which he was required to present in front of
Prime Minister of Pakistan Raja Pervaiz Ashraf.

He was aware that his background and recent retirement from Air Force as Chief of Air Staff had
given impression that he lacked understanding of the competitive environment of aviation
industry, handling of unions, motivating the staff and corporate financial matters.

He told his team members that it was important that the strategies which he would present should
be realistic and practical that would help PIA to turn around and become what it used to be under
Air Marshal (Retd.) Noor Khan.

He further stated that I will work for PIA revival and will try to weed out corruption,
incompetency, lethargy from this organization. This presentation is very important and if I could
muster financial support from the Government it will start new journey for PIA in 2012. This is
the right time that we take our vision, mission and values very seriously.

Pakistan International Airlines Corporation, more commonly known as PIA, is the flag
carrier airline of Pakistan, based in Karachi. It is the 31st largest airline in Asia, operating
scheduled services to 37 destinations throughout Asia, the Middle East, Europe and North
America, as well as a domestic network linking 24 destinations.

The majority of the shares, 87 percent are owned by the Government of Pakistan (87%) and the
rest 13 % are with the public. PIA employed 18,000 people as of May 2012. 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, Boeing 737s and
Airbus A 310. The average age of fleet is 13 years.
PIA was a huge success story till mid 80’s and then things starting turning bad. Top management
with political connections and decisions based on personal gains and political motivation brought
decay the culture and financial position of the company.

Total accumulated losses of PIA in year 2011 stood at Rs.119 billion, PIA lost in one year
i.e.2011 Rs. 26 billion. The loss trend and financial situation is very serious and grave. The
losses trend has continued since last decade situation is becoming more and more grave with
every passing year.

Share of PIA is quoted in the stock market at Rs. 2.50 which is much less than its face value of
Rs.10. High fuel prices and depreciation of Pakistani currency against dollar to around 90 rupees
had a serious impact on the profitability of the company in year 2011.The prices of jet fuel
increased from US $ 80 to $ 110 in 2011. The current year is known for volatility in fuel prices,
turmoil in gulf countries, natural disasters and continued global recession. Continuation of

PIA Case Study – This case has been developed by Naveed M. Khan only for class discussions Page 1
circular debt problem, law and order problems with double digit inflation did not improve the
business environment in which the national airline is operating.

PIA faced a major general strike by all the employees in February 2011 which paralyzed the
operation for one week. The problem was resolved when the MD of the company was sacked
reflecting the control of unions in running the affairs of PIA.

PIA comes under Ministry of Defense and lot of Board members of PIA are government
nominees and do not challenge the decisions of the MD. According to one management
consultant the 3 reasons for the current bad financial position of PIA are:-

i)  Costs have gone up because of higher fuel prices since 2008, higher wages and higher
maintenance cost but revenues have not increased proportionately. Therefore, PIA had not been
able to manage its costs. PIA has old planes with average age of 13 years and fuel cost is 54% of
total revenue. Total revenue in year 2011 was Rs. 116.5 billion and total cost incurred was
Rs.145 billion.

ii) PIA is over staffed; the number of people per aircraft is very high: PIA has more than 430
employees per aircraft whereas the international standard is around 100 employees.
 
iii) One of the main problems in PIA is the governance structure. There have been compromises
on merit, on commercial considerations and on complying with law. Decisions which
compromised merit and professionalism by different Heads of PIA were never challenged by
Board of Directors.

 PIA has lost its international market share to airlines from Gulf countries like Emirates, Etihad,
and Qatar Airlines. PIA is confronted with new competition from these cash rich young airlines.
There are other serious issues like brand damage due to restrictions imposed by EU on PIA
flights to the European Union in 2008 although now the ban has been lifted but a severe damage
has been done to PIA reputation. Competition is another factor which is posing serious
challenges to PIA. On domestic front Airblue and Shaheen Airline market share is increasing at a
very fast rate putting lot of stress on PIA. While infrastructure limitations and lethargic work
culture are other factors hampering the growth of the Airline. Moreover media and press
coverage depicting PIA aircrafts as unsafe also add negatively to the above list. Earlier
leaderships established good infrastructure but in the last few years meager investment had been
made in that area. PIA required good workshops, trained mechanics and simulators for the newly
acquired Boeing 777 and ATR’s. Regarding work culture the decision making in PIA is
exceedingly slow. There is still file culture in PIA wherein each file goes through 15 different
people while the other airlines are operating with paper less environment. Disciplinary actions
can not be taken very easily while Sifarish culture is still prevalent and the lowest cadres had
connections with influential people. Lot of MNA’s and minister call the MD for promotion and
allocation of international routes to air hostesses.

 The Pakistan International Airlines is suffering from severe financial crisis. It is, in fact, passing
through a critical phase because of poor management, lack of maintenance, nepotism, corruption
and financial issues. There are complaints of terrible service, long delayed flights, emergency

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crash landings, cancellation of flights, fake booking by travel agents, shortage of planes, unclean
toilets that smell from a distance and non-serious attitude of the administration. These issues
create frustration among the passengers. They feel fear and life risk while travelling through PIA.
PIA has tremendous benefit of Hajj flights as all Pakistanis travel by PIA for performing Hajj. In
year 2010-2011 Hajj flights of PIA took 126,755 passengers to Saudi Arabia resulting in
tremendous revenue generation for the company. PIA also operates charter flights to carry Hajjaj
from other countries such as Kathmandu, Dacca and Kinshasa.

PIA Management had discussions with the European Air Safety Commission, who informed that
they would make a second check, however 11 out of 20 planes had been allowed to fly to
European destinations. The CAA should also check whether or not PIA planes are fit to fly to
Europe.

Debts were not paid on time as the company did not have the funds to make payments. The new
Management is creating a new debt profile through the market to bring the level of loans to a
reasonable level.

  Only 1% foreigners travelled by PIA in 2011 and 99% were Pakistanis. 61% Pakistanis
travelled on other airlines while travelling internationally. Domestic market is highly competitive
PIA has been able to increase its market share from 74% to 76% in 2011- 2012 after the
unfortunate airplane crashes of Air Blue and Boja Air in Islamabad.

PIA is over staffed but employees with critical skills like pilots and mechanics are short. Some
jobs have become redundant but still lot of over time is being claimed by these employees, but
retrenchment is not possible because of strong union. MD of PIA stated that before sacking
workers his priority is to replace its aging aircrafts. The new aircraft are fuel efficient while the
old ones are gas guzzlers and high on maintenance cost. Boeing 737’s would be replaced with A
320 aircraft. Boeing 737 and Air Buses would have to be replaced. The financial problems are so
deep that PIA needs financial help from the Government every year to remain functional.

PIA investments Limited operate Scribe Hotel in Paris and Roosevelt Hotel In New York. Both
prestigious hotels have made profits and have shown increase of 7.2% in revenues . MD PIA is
interested in knowing if the Board of Directors and Government would allow him to sell
Roosevelt Hotel in Manhattan, New York and Scribe Hotel in Paris as PIA is facing extreme
liquidity problem and his top management is interested in selling it off this hotel and using this
money for buying fuel efficient planes. According to market survey in 2010 the market value of
Roosevelt Hotel was around $ 1 billion and Scribe Hotel around $ 600 million.

PIA generated revenue of Rs. 116 .5 billion in the year 2011. Increase in revenue trend proves
that Pakistanis are willing to travel on PIA if the flight is available on their travelling route.
PIA also introduced extra baggage facility of 10 KG to UK passengers of PIA . This facility has
worked well against Emirates and Etihad. MD also stated that reducing the margins of travel
agents of PIA from 9% to 5% had positive impact on reducing the losses of the company.
On line ticketing service of PIA has been upgraded and customer services and complaints are
being handled on priority basis is being claimed by the present management. According to the

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IATA survey customers services is not being focused by PIA this is one main area where lot of
work needs to be done
PIA and Telenor have signed a co branding agreement for sales through Easy Paisa Outlets
which will provide customers with 12,000 more outlets for ticketing.
PIA has freight division which looks after the cargo business. To generate more revenues PIA
started a courier service known as Speedex which is delivering documents and parcels of any
size nationwide.
PIA Training Centre is approved by local and international regulatory authorities such as CAA,
ICAO and IATA. It is built around advanced training infrastructure that delivers the highest
standard of aviation instructions. PIA has flight kitchens in Karachi and Islamabad. The
company successfully met the IATA's deadline of May 31, 2008 to move to E-ticketing and now
98% of its network has been shifted to electronic ticketing from paper ticketing.
Travelling traffic is now increasing towards Africa, China, Russia and Brazil. Now with MFN
status to India on the horizon air travelling will increase many times. While travelling towards
Europe and America is facing declining trend.
PIA employees have to be motivated to make efforts to transform the national carrier in to a
viable airline; terrorism has dented the business of PIA and tourism in the country. Foreign
businessmen are reluctant to travel to Pakistan.
One management consultant was of the opinion that the only way forward for PIA is to have
empowered Board with professionals sitting on the Board leading the company out of financial
trouble.

PIA has been declared white elephant by the current finance minister and he feels that PIA is a
big burden on the Government and subsidizing its losses every year is a great drain on scarce
resources of Pakistan.
PIA fully sponsors Al-Shifa Trust, which provides relief and rehabilitation services to special
children suffering from cerebral palsy and other motor disorders, despite facing huge losses PIA
is still engaging in CSR activities.

Presentation of Rao Qamar Suleman went very well in front of Prime Minister but the amount
approved was $ 4.5 million which was like a drop in the ocean. On the request by the PIAC MD,
Rao Qamar Suleman, the Prime Minister said that the government would consider conversion of
a loan of Rs8 billion into equity by the Federal Government. The prime minister issued these
directives at a meeting during which he assured the PIA management that the government would
extend all possible assistance to PIA to ensure that it makes a turn around and regains its status
of a national carrier. He appreciated the business plan worked out by PIAC.

MD Rao Qamar Suleman after realizing the challenging job in front of him while coming home
from office got stuck in traffic. He was very disturbed and was thinking that it will be easy to
navigate my car back home safely but taking PIA to safety seems extremely difficult. He was
acutely aware of the fact that without new planes he would not be able to make PIA profitable.
He was also worried that because of strong unions he cannot fire employees. Corruption and
inefficiency is taking PIA towards disaster and he is only playing musical chair while PIA is like
Titanic moving towards eminent disaster. He was uncomfortable with the fact that during the

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past eight years nobody had lasted in his position for more than 18 months and all attempts to
turn around PIA had failed miserably. He was also not sure whether the present Government
wants to run PIA on professional lines or only interested in retaining jobs of people working in
PIA.

MD’s family was also concerned about his ailing health which resulted in his hospitalization. He
reluctantly decided to resign from his services as MD of PIA because he realized that present
challenges which PIA is facing would be too much for his deteriorating health condition.

End of Case

Financial Results of PIA (Rupees in Millions)

Year 2011 2010 2009 2008 2007 2006

Revenue Rs.116,550 Rs. Rs.94,563 Rs. 88,863 Rs.70,480 Rs.70,587
107,531
Operating Profit (Loss) ( 17,926) 720 (4,065) ( 31,636) ( 5,935) ( 8,577)
Net Profit/(loss) after taxes ( 26, 767) (20,785) (5,822) (36, 138) (13,398) (12,763)
Long-term debt 89,535 98,533 105,418 96,926 74, 284 62,650
Net-worth (85,933) (62,244) (40,054) (47,522) (11,903) (788)
Earning per share (9.73) (8.39) (2.72) (17.79) (6.61) (6.80)

Update -Current Situation of PIA

Air Marshall Arshad Malik is the new CEO of PIA appointed by the PTI Government. He started with a lot
of motivation and recorded a video message for all the stake holders that PIA glory days will be back.

In the year 2020, PIA started showing operational profit despite the huge net loss. Arshad Malik stated
that we are controlling cost and trying to increase revenue and we are also engaging with other airlines
to lease planes.

Unfortunately in May 2020, a PIA plane crashed in Karachi killing 97 people. Pakistan Aviation Minister
Ghulam Sarwar Khan while sharing the investigation report of the crash told the parliament that the
crash of PIA in Karachi was the result of pilot error and almost one-third of Pakistani pilots have fake or
suspicious licenses. The European Commission decided to ban PIA operations in member countries after
this statement came into the media. UK and USA also banned PIA flights on safety issues. This ban
initially was till December 2020 but it has been extended.

CEO of PIA stated that the open sky policy is causing huge losses to PIA but he is confident that PIA will
turn around the company in two to three years despite the covid-19 environment. The utilization of

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cargo space has been improved tremendously and PIA is now focusing only on profitable routes.
Business decisions are made collectively and political intervention has completely stopped.

Advisor to the PM on Institutional reforms Dr. Ishrat Hussain in a press conference revealed that
restructuring plan is being implemented on PIA We are reducing employees of PIA from 14000 to 7000.
Golden handshake policy has been introduced for 3000 employees who will be given three years' salary
at the time of departure from the company and almost 3500 employees will join the companies where
some portion of PIA work will be outsourced. From 500 persons per plane, we will bring it down 250.
Dr. Ishrat informed the media that accumulated losses of PIA is around Rs 450 billion.

According to him, it is easy to destroy state institutions but a lot of effort is required to strengthen them.

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