The University of Lahore

TOPIC:
WHAT ARE THE IMPEDIMENTS TO PRIVATIZATION IN AVIATION INDUSTRY.

SUBJECT MA.
REGISTRATION NUMBER 70073121
SECTION 7A

SUBMITTED BY UMAIR ALI ARIF

SUBMITTED TO MR. SHARJEEL

Submission Date 3 DEC, 2021

Due Date 03 DEC, 2021

Remarks:

Marks:

/ 10

Instructor’s Signature
  Introduction to Privatization
Privatization refers to the shifting of governmental functions, responsibilities, and
sometimes ownership in whole or in part, to the private sector.
 What is Airline privatization
Air transport sector with marginal profitability in many cases discourages
implementation of privatization in the way it is present in other industries.
Extremely dynamic market changes with continuous technology improvements
keep constant pressure on the need for new, relatively large investments. Airline
privatization can be categorized as
• Fully state ownership;
• Fully private ownership;
• Majority state ownership (> 50 percent)
• Majority private ownership (> 50 percent).
Policies present in the air transport field, drive the development of the industry,
bringing economic benefits for states, industry and consumers, such as growth in
passenger/cargo traffic and aircraft movements. Competition with a privately
owned airline has always been a different proposition from that with a state owned
carrier, which have been able to take greater risks in defining their business and
marketing strategies.
The basic reasons of airline privatization are strategic and financial
 Strategic reasons for privatization of airlines
1. Reducing the involvement of the state in the Provision of goods and services
2. Promotion of economic efficiency
3. Generation of benefits for consumers
4. Wider share ownership.
 Financial reason for privatization of airlines
1. Reduction of government budget deficits with these sources of cash
2. Allow space for reduction of taxes
3. Shifting the financial burden to another promising private sector
Faced with continuing losses and a liberalizing marketplace, many countries have
decided to privatize their state-owned airlines. This decision is driven by several
considerations,
 a) Growing free market economy with increases of national wealth and
the standard of living
b) Need to increase airline efficiency and competitiveness and
consequently, reieve the burden caused by continuing subsidies
c) Desire to create stakeholders with a vested interest in the financial
success of the airline
 Impediments or factors leads to airline privatization
• Serious financial difficulties;
• Too much frequent top management changes;
• No clear development strategy;
• Very powerful unions, and exhausting negotiations
• Inadequate fleet structure
• Bureaucratic and over-centralized management
• Poor service quality in the air and on the ground
• Political instability