PIA faces equity crunch

[PakN'US]

ISLAMABAD - Pakistan International Airlines (PIA) is facing serious liquidity crunch and Government of Pakistan has refused to entertain its request for Rs.6 billion equity injection asking it to arrange money from commercial banks, The Nation learnt on Thursday.
Operating with 40 aircrafts on international and domestic routes, PIA’s financial health is week as admitted by its Chairman Tariq Kirmani in two presentations made to Prime Minister Shaukat Aziz on January 16 and April 18, this year to help the national carrier pull out of the difficult situation.
The National Carrier requested the government to take over PIA’s interest in PIA Investment Limited (PIA-IL) and advance US $ 100 million to it or inject equity of Rs.6 billion. In case the arrangement is not made the National Carrier will suffer losses and cash flow deficit and will not be able to stay on course with its fleet renewal plans and to meet the financial commitments with Boeing and ATR.
PIA pleaded that due to extra ordinary increase in the fuel expenditure and non liquidation of PIA-IL properties it was faced with liquidity crunch. PIA is charging US $ 40 fuel surcharge on international return tickets to meet the increase in oil prices besides US $ 5 fiscal surcharge.
The Prime Minister did not entertain PIA’s request for equity injection and fuel hedging. However, he directed Finance Ministry to resolve the liquidity crunch and assist PIA in restructuring its balance sheet. PIA is making another presentation to the Prime Minister on July 12.
Finance Ministry asked PIA to obtain a short term loan from banks. PIA negotiated a short-term loan of Rs.3 billion with Standard Chartered Bank as Government of Pakistan provided sovereign guarantee.
PIA is also seeking another loan of the same amount in foreign exchange that amounts to US $ 50 million. The Government is likely to also provide sovereign guarantee for this loan that is being negotiated with one of the commercial banks.
Interestingly, in its balance sheet for first quarter (January-March) of the year 2006, first time PIA did not mention the cost of fuel incurred during the period however; it mentioned the price per US gallon that is Rs.113.88 at present.
The impact of increase in fuel prices was narrated in general terms in the initial paragraphs of the report. It says; “However, the high level of oil prices continued to adversely impact the revenue gains being made by the airline. The cost of services rose to Rs. 17.00 billion in 1st quarter 2006, comparing to Rs. 13.84 billion in 1st quarter 2005. The major increase of Rs. 2.32 billion (41% over 1st quarter 2005) related to unprecedented increase in Aircraft fuel cost.”
According to PIA’s own balance sheet of 1st quarters of 2005 the oil prices were Rs. 82.20 per US Gallon and in 1st quarter of 2006 it was Rs. 113.88 showing an over all increase of 26 per cent.
One of ex-bosses of PIA told The Nation that there was no equity crunch in the past one year despite increase in fuel prices. There are so many reasons that are causing financial losses to PIA but mainly it is suffering due to ‘gross mismanagement’, he added.
Top-heavy national entity is suffering losses despite increase in its fares and expansion of its fleet. The sources said PIA had suffered a loss of Rs.3.02 billion in the first quarter of 2006 and likely to add another Rs.3 billion loss in its balance sheet in the next quarter ended on June 30, this year.
The people privy to situation in PIA is suggesting right sizing of National Carrier. At present, PIA has 28 Directors and Senior Vice Presidents and 72 General Mangers some of them were recently recruited on a very high salary packages. The present Chairman is also getting Rs.2.4 million package, the sources said.

http://nation.com.pk/daily/july-2006/7/index8.php

[Jacobin777]

this just goes to show how mismanaged PIA truly is.....they need to bring outside people like Emirates, Etihad, etc. have done...

the also need to have focus and stop playing all this asinine politics...also, they need to figure out if what airport they must focus on..its obvious KHI is losing steam, but with such a large population, they could make it as a hub.....KHI has already been lost to many of the middle east carriers..I think ISB would be the best bet to "setup shop" as it probably will have the best yields..

flying a 777-200LR from ISB/LHE-KHI 1/2 full isnt' going to generate money....

they also need to provide seamless connections at ISB/KHI/LHE...as well as advertise themselves to business clients..that is where most of the money is...not the "ammi"/"abu" crowd who sit in the back..they are bunch of cheapies who kill yields....

[Amaad Lone]

PIA should sell its hotels and raise the money needed.

The airline must first concentrate on the core business of flying planes and filling them with passengers.

[PK777]

Is it me or does THE NATION always seem to release these anti-PIA and anti-777 reports recently ?

[Boeing 787]

I fully believe in you PK777. The most reliable source of news is the DAWN. THE NATION belongs to JANG group, which is famous for presenting news with extreme amplification and exaggeration by adding "mirch masalas".

[Amaad Lone]

The nation does not belong to the Jang Group, THE NEWS does.

[R.F.]

Well it's no big secret that the B777's acquisition was not a good move for a financially troubled carrier. Secondly PIA has been in dire straits not from now but for years due nepotisim, corruption and our self seving politicians the list goes on and on. What's been stated here is factual and every one has a good idea as to what has been happening in the past and based on that one doesn't have to be a rocket scientist to predict what lies for the carrier in the not too distant future.

[Jacobin777]

Well it's no big secret that the B777's acquisition was not a good move for a financially troubled carrier. Secondly PIA has been in dire straits not from now but for years due nepotisim, corruption and our self seving politicians the list goes on and on. What's been stated here is factual and every one has a good idea as to what has been happening in the past and based on that one doesn't have to be a rocket scientist to predict what lies for the carrier in the not too distant future.

the 777's were a terrific aquisition.....they need it to replace their ancient planes to stay competitive and have more efficient planes...

those 747's are becoming too old for a major carrier like PK to have...

PK has a bad business model....run by an inept management...some "house cleaning" would do very well..bring in people who KNOW what they are doing.....

[R.F.]

Trust me I am talking from an financial aspect not technical. If you want technical then Airbus family would have provided a much better option especially due cross crew, engineering and training costs wise.
Currently the financial crunch is so bad that the oustanding installment payments for the 777's is an issue for the company.

I do fully agree that new equipment was long overdue no doubts there, but not an expensive one. The 777's were thrust upon the airline due political pressures and was never an commercial decision, as always.

[PK777]

Here we go again another A340 vs. B777 battle...

[PakN'US]

This article and the replies are not about PIA bashing or a war between Airbus and Boeing. It is just about mismangmant at every level of our bureaucratic way of doing things.

"Nation" is a very respected newspaper and is under the umbrella of "Nawai-e-waqt". The editors of this newspaper are known to be very blunt and honst and they will not sugar coat the story. I do not wish to hijack this story or want to change the subject either but if I do, please forgive me.

The fact of the matter is that we bought 777 despite the fact they were economically not viable for a struggling airline. Look at Air India, they bought used ex United Airlines 777. That was not only the first mistake we made. We coupled it by buying even more expensive LR version. True it is a matter of "National Pride" to be the first airline in the World to own LR but as an old english adage goes, "first deserve, then desire". PIA needs to be reinvented. It has a far too many employees probably more per-capita per plane than any other airline in the World and most of them are deadwood that need to be fired. Too many General managers and Vice Presidents and much too many perks. All this need to be curtailed. May be we should give PIA to some consulting firm and have them run this airline for 10 year period Lease. Air Lanka has done it and are successful with Emirates running them.

The main issue again is our mentality as a Nation. Why don't we admit that we are a corrupt as a Nation? The country is run by an inefficient bureaucracy and inept legislature. Every bloody MNA or MPA thinks he has a birth right to do as he/she pleases. That they own this nation. That kind of mental attitude has to be stopped immediately. These bloody MNA/MPA's should be flogged in the public. How many times we hear stories about abuse of these people with "Napoleon Complex". This great nation of ours need a lot of blood only then perhaps we can finally see what went wrong! Follow the example of Chairman Mao and Ayatollah Khomeni. Sorry if I got carried away or hijacked the topic.

God Bless this great Nation of ours!!!

[PK777]

The fact of the matter is that we bought 777 despite the fact they were economically not viable for a struggling airline. Look at Air India, they bought used ex United Airlines 777.

They still took the Boeing 777 over the Airbus 340 even if they were in second hand condition and had been sitting in the desert for such a long time. Also as they liked the aircraft so much can you explain why they made an order of $11 Billion for more Boeing aircraft which included 8 Boeing 777-200LR "Worldliners" and 15 Boeing 777-300ER?

[Jacobin777]

Trust me I am talking from an financial aspect not technical. If you want technical then Airbus family would have provided a much better option especially due cross crew, engineering and training costs wise.
Currently the financial crunch is so bad that the oustanding installment payments for the 777's is an issue for the company.

I do fully agree that new equipment was long overdue no doubts there, but not an expensive one. The 777's were thrust upon the airline due political pressures and was never an commercial decision, as always.

no..I don't "trust you"...if the competing Airbus planes (A346, etc) were such "amazing' planes, why was there a 10:1 discrepency in sales last year? Why has Emirates said that they will "no longer take their multi-billion dollar A346 order"? Why has Airbus abandoned their A340 strategy? Why is according to rumours, Airbus attempting to design a large body twin-A370 to go against the Boeing 777?

Why is it for a fact that the operating economics of the 777-300ER crush that of the A346, the economics of the 777-200LR crush that of the A345 and the economics of the -200ER better than that of the A333?

The "cross-crew" training isn't why PK has having trouble..and the PK already has a sizeable Boeing fleet witht the 747's and 737's...

The disparity between the Boeings and Airbus are so much that carriers have even chosen to stop using their "engine of choice" to go with the better plane..CX ordered 20 777-300ER's, even though they have mostly RR engines (as well as the A346 in its fleet) and they could have gone with the A346 which comes with RR-engines...yet they went with the Boeings...the same thing with a bunch of other companies such as SQ, EK, etc..

I'll take their decision over your "expertise" any day of the year..

While the A332's are great planes, they are too small for many of PK's needs....

If PK went with Airbus, their numbers would have been even worse

Your argument holds NO water....

This article and the replies are not about PIA bashing or a war between Airbus and Boeing. It is just about mismangmant at every level of our bureaucratic way of doing things.

"Nation" is a very respected newspaper and is under the umbrella of "Nawai-e-waqt". The editors of this newspaper are known to be very blunt and honst and they will not sugar coat the story. I do not wish to hijack this story or want to change the subject either but if I do, please forgive me.

The fact of the matter is that we bought 777 despite the fact they were economically not viable for a struggling airline. Look at Air India, they bought used ex United Airlines 777. That was not only the first mistake we made. We coupled it by buying even more expensive LR version. True it is a matter of "National Pride" to be the first airline in the World to own LR but as an old english adage goes, "first deserve, then desire". PIA needs to be reinvented. It has a far too many employees probably more per-capita per plane than any other airline in the World and most of them are deadwood that need to be fired. Too many General managers and Vice Presidents and much too many perks. All this need to be curtailed. May be we should give PIA to some consulting firm and have them run this airline for 10 year period Lease. Air Lanka has done it and are successful with Emirates running them.

The main issue again is our mentality as a Nation. Why don't we admit that we are a corrupt as a Nation? The country is run by an inefficient bureaucracy and inept legislature. Every bloody MNA or MPA thinks he has a birth right to do as he/she pleases. That they own this nation. That kind of mental attitude has to be stopped immediately. These bloody MNA/MPA's should be flogged in the public. How many times we hear stories about abuse of these people with "Napoleon Complex". This great nation of ours need a lot of blood only then perhaps we can finally see what went wrong! Follow the example of Chairman Mao and Ayatollah Khomeni. Sorry if I got carried away or hijacked the topic.

God Bless this great Nation of ours!!!

PK couldn't get the 777's they need 2nd hand..and they got a good deal on the -200LR's...they are already using it on one route to its fullest extent..once they can get the FAA/CAA/pilot situation cleared, they will be able to use both -200LR's to its peak potential..as well as open up a few routes.....

the higher MTOW of the -200LR over the -200ER will allow it to carry more pax and be more economical over the -200ER over 5000nm....

the 747-200 and 747-300 are gas guzzlers..the 777-300ER will be able to keep good yields and provide much more efficiency over the 747's..

what PK need to do is come up with a solid business plan....

and I agree....God bless Pakistan (zindabad)...

[R.F.]

Without going into a long drawn Boeing vs Airbus debate, the reasons for the Airbus to come up now with an A370 is because the A350 was a knee jerk reaction to the 787 moreoever with the entire resources trapped in the 380's they expected airlines like QR to bail them out with the initial investments.
After evaluations it was decided to enhance the 350 hence the A370, which would any time of the day blow away the B777's and would give the 787 a tough competition.

The A330's are basically the replacements of the A300-600R's with extended range, they were never in the run with the B777's.

I don't know what crushing ecnomics are you refering to, 'cause there are definately more A330's around as compared to the B777's, pick up an issue of flight magazine, should speak for it self. Read carefully again my post does not at any point reflect upon the selection of any particular engine type, or do you see some thing I don't.

PK needs I am sure you're no expert on either,I donno how you've concluded that the A330/340 would not suffice, in terms of economics they're much cheaper and yes I do agree that with 2 engines on the 777's provide cheaper operating costs. However the cost of a B777 vs an Airbus is a consideration along with the terms and flexibility of repayments that Airbus offers is no match for the Boeings.
PIA being in a financial crunch and that is pretty evident with them having difficulty paying employees salaries which in most cases isn't prior to the 1st week or even later of every month speaks volumes about the airline financial health itself.

We can be as idealistic as possible talking about 'Solid business' plans etc. well that 'll never be because this is PIA and you have no idea of their internal workings as to how they go about it. Should you get an opportunity do sit in one of the meetings will see how detached they are from the ground realities.
Kindly do read my post carefully I am not advocating the existance of the B747-200 or the 737 in the PIA fleet and neither have I projected myself to be an expert in the field, this is my opinion and am entitled to it since this being a public forum.
Whether you trust me or not is of no significance to me, it was just a figure of speech and please relax, your's or my views have absolutely no bearing on the decisions that'll be taken in PIA, it is not and never will run on any commercial lines, so don't waste your energy comparing it to EK or CX.

Have a nice day !

[sAAd]

As it is, PK is not allowed direct flights to the US. They should had thaught about this before they ordered the 777s. This makes the LR completely useless as they can only fully use it on direct routes to CANADA. Even this is a temporary market as AC will start KHI next year via DXB.

The A330s shud had been the obvious choice. They have enough range to serve destinations in Europe and can go on to the Americas from there.

They could also had ordered the B787 Dreamliners to replace the A310s because these aircraft also offer good range, and brilliant fuel efficency. They are a lot cheaper than the 777s (List price difference is around $100million) and would help the airline generate more revenue.

As faar as the 747s are concerned, i think the 300s baught from CX can be operated for another few years, but the 200s should be phased out immediately.

With upcoming competion from Air Blue on European routes, i think that the 777 will prove to be more of a liability on PK than an asset.