Restructuring of PIA planned to cut losses

ISLAMABAD: The government on Thursday directed the Ministry of Civil Aviation to immediately put up a comprehensive summary for restructuring of Pakistan International Airlines, coupled with a business plan that could reduce its current Rs3.3 billion annual losses.

The directive was issued at the meeting of the Economic Coordination Committee (ECC) of the cabinet, presided over by Finance Minister Ishaq Dar.

The meeting was informed that Pakistan's oil stocks had improved to provide coverage for 36 days compared with 23 days last year because of clearance of energy sector circular debt that improved cash flows of Pakistan State Oil, but it noted with concern a rising trend in international oil prices.

The government has already made up its mind to divest almost 30 per cent shares along with management transfer of the national flag carrier and had paid last month over Rs7bn to clear international liabilities.

A Rs16bn restructuring plan finalised by PIA's board of management is pending approval by the federal government.

The PIA Turnaround Strategy, approved by its board of management, recommended immediate induction of 10 fuel efficient new generation of aircraft either Boeing737NG of the US or Airbus320 from France on dry lease instead of purchasing new aircraft.

The induction of 10 new generation aircraft will generate an annual revenue of Rs36bn at 85pc seat factor and at 12.5 hours fleet utilisation per day, according to PIA management which also sought to refurbish 777 fleet to the highest level and use them only on long haul flights, particularly for the UK, US, Europe and Canada.

With cost estimation of over Rs16bn required at the upfront, the management claimed that PIA could be brought in 6-8 months to a level where it can attract strategic investor to take 25 to 30pc stake and management of PIA.

The PIA management also presented a plan for restructuring of the corporation into a number of small business units.

Out of total fleet of 34 aircrafts, PIA's 24 planes are serviceable.

It operates 24 domestic destinations with 76pc market share and 34 international destinations having 39pc market share.

The overall market share of PIA stands at 48pc while the remaining 52pc is shared by domestic private and international airlines.

The average fleet age of PIA aircrafts is 16 years while its total number of employees stands at about 18,799 persons. The per aircraft-to-employee ratio of PIA currently stands at 571 compared to global average international employee to a aircraft ratio of 120, suggesting that the staff strength is abnormally higher.

The ECC also deliberated in detail about the recent pressure on prices of essential commodities and noted that it was seasonal phenomenon usually witnessed in Ramazan but wanted the provincial governments to keep a check on essential food items so that hoarders and speculators did not make undue profits.

The meeting was informed that Karachi Stock Exchange 100-index reached 23,437 points showing 17.7pc increase since May 11, 2013 while United Nation's Business Confidence Index for Pakistan at negative 34pc last year had now turned positive to 2.0 points, a testimony of the market confidence in the economic policies of the new government.

The ECC rejected a proposal made by Gilgit Baltistan that foreign funded projects, namely 26MW Shagharthang Skardu and 4MW Thack Chilas, be exempted from the conditionality of relending and repayment of loans and that instead Government of Pakistan may pick up Rs7bn loans of these projects.

The committee desired that GB-government should properly prepare these projects on commercial lines.

The Ministry of Petroleum and Natural Resources informed the meeting that tendering process for LNG import, including Fast Track Engro Project, and SSGC LPG Retrofit Project would be carried out as per public procurement rules 2004 to ensure transparency without seeking any exemption.