Tuesday, April 13, 2010

Update on Subsidizing PIA

I sent the previous post as a letter to DAWN, which they published, to which a reply was published soon after by the Managing Director of PIA. This is what he has to say:

This is apropos of Ahmad Sultan’s letter ‘PIA: govt needs to set its priorities right’ (March 21). Mr Sultan is unaware of the facts and has based his analysis on his misunderstanding of PIA’s financials.
For instance, PIA has not received any subsidy from the government since the present management assumed charge in 2008 – unlike the other organisations and departments -- nor have we asked the government to give us financial assistance to start new flights.
PIA suffered a loss of PKR 39.72bn in 2008 which was mainly due to abnormal increase in international fuel prices, which were over 34 per cent higher on a year-on-year basis and 24 per cent devaluation of the Pak rupee against the US dollar. The impact of these two items alone explains the reasons for the incremental loss in 2008.
With just a little research, it will be learnt that these high fuel prices impacted the whole aviation industry and had led to bankruptcy for several airlines.
The total industry losses in 2008 as per the IATA report are $16.8bn. These factors are beyond control of the airline although several measures have been taken to mitigate the loss.
The airline has reduced its losses by over 84 per cent in 2009 versus 2008. This is very a significant achievement given the ongoing recession in the international markets
Regarding the contention that PIA’s fleet is not cleared to operate in Europe, we are pleased to state that all such aircraft that PIA intends to use to fly to Europe have all the requisite clearances.
The overall technical reliability of PIA stands at 95 per cent and 99.5 per cent for Haj operations.
This great accomplishment was achieved by PIA’s highly skilled engineering staff.
Granted, we have our challenges of past accumulated debts, and of rebuilding this great national institution to return to the glorious past.
We at PIA are committed to keep the flag up and that we appreciate our customers to continue to guide us with their valuable constructive suggestions in meeting your expectation of being the great people to fly with.

Managing Director, PIA

I responded to his response in a letter that DAWN did not publish. Here is my response:

In this newspaper's article titled 'PIA seeks finance to start new flights', it was said that "The PIA management said that there were three options for improving its liquidity which include financial injection by the government." To me, this sounds like the Airline is asking for a government injection of money in absence of which things would be very difficult indeed. If that is not the case, then it is this newspaper's fault for publishing a report outlining events that, according to Mr. Haroon never happened. Mr. Haroon says that I have based my analysis on a misunderstanding of PIA's finances. Is it not a fact that the airline has lost money every year since at least 2007, which by the way was before the economic crisis that Mr. Haroon refers to happened?The author goes on to say that most of the loss is attributable to rising oil prices and the devaluation of the rupee. In light of this, I would like to ask him two questions: Are oil prices going down? The answer is that they are not; oil peaked at $86.84 only yesterday, this being an 18 month high price. While this is substantially less than the $140 all time high-price, the fact is that, by PIA's own prediction they will lose money this year too, and oil prices will only increase as the economic recovery gathers steam. Secondly, is the rupee devaluation going to stop anytime soon? All indications point to the contrary being true. In any case, it is not going to appreciate any great amount, which might curtail PIA losses. The article also says that "the respective governments have approved bailout package for Air India and Japan Airlines as the year 2009 has been the worst year in the aviation history." This was the point of my letter. If PIA had not been a public airline, it too would have failed. While the fact that the present administration has not taken any subsidies is appreciable, were PIA ever close to the point of bankruptcy, the government will act as it must: as a lender of last resort. This statement also doesn't hide the fact that PIA has, from 2007-2009, posted losses of 120 billion rupees. Where does the money to make up for this loss come from? Surely it comes from the government, which has bailed out PIA in the period before this new administration in any case. My point was merely that PIA provides a service that less than 1 percent of this country uses, yet gets bailed out to the tune of hundreds of billions of rupees, while the government sees fit to allocate Rs25.4 billion to health, something which affects 100 percent of Pakistanis. Surely this paradox isn't lost on Mr. Haroon?

This is the article I refer to:


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