PIA loses Rs 60m in spares sale deal

[FULLTHRUST]

By Baqir Sajjad Syed

ISLAMABAD, Nov 19: Pakistan International Airlines (PIA) has suffered a loss of about Rs60 million in a shadowy deal to sell off its spares inventory under a consignment arrangement, which seems to be going nowhere despite a lapse of over three years, an internal audit report of the airline reveals.

PIA had entered into an agreement with the Hong Kong-based IAA Aerospace Group in Sept 2003 for the sale of its surplus inventory. The spare parts were of AB300, AB310, B720, B737, B747-200, Cessna, Twin Otter and DC10.

Spares having a book value of about Rs1.5 billion were delivered to the agent in the United Kingdom without any bank guarantee or standby letter of credit. Under the consignment arrangement, PIA was to get 80 per cent of the price the parts were sold at.

As per the agreement, the IAA Aerospace Group was to furnish guarantee amounting to $833,333, which was equivalent to the minimum revenue target per annum given to the agent.

The audit report says that the parts were illegally transferred by the IAA Aerospace Group to another company, the IAA-UK, although the two never had any legal connection. The parts are now stored at a warehouse of the IAA-UK without any legal documents for keeping the spares inventory. The transfer was never notified to PIA, which owns the parts till they are sold.

By December 2005, only 3.6 per cent of the inventory could be sold and 138,963 parts are still in the warehouse.

The audit found out that the agent deceitfully withheld sale of parts worth over Rs6.6 million from November 2003 to February 2004. PIA was told that the sale began after February 2004.

Several other instances were noticed where parts were sold by the agent as of PIA but the credit was given to other suppliers.

From February 2004 to December 2005, the audit report says, it was found that in several cases material was sold and invoices raised, but either the invoices were under-paid or omitted from the payment list provided to PIA by the agent.

It is estimated that this caused a loss of Rs15 million to the national flag carrier.

Another loss of Rs15 million was incurred because the agent did not pay PIA’s 80 per cent share from the sale proceeds after August 2005.

PIA also has to recover Rs1.8 million as interest on delayed payments during the period.

Thousands of spares have been lost. There is no exact estimate of the resulting loss, although some put it at around Rs15 million.

The auditors after a comparison of surplus inventory sent by PIA with that provided by the IAA-UK revealed that 6,570 parts were missing.

PIA, it has been learnt, had on a number of occasions requested return of some of the parts, which were required by the airline, but this couldn’t materialise and the national flag carrier had to buy the parts at a much higher cost from the market to keep its jets flying.

Spares worth Rs3 million had to be purchased due to lack of coordination and non-reconciliation of items lying with the IAA-UK.

The IAA-UK attributes extremely slow sale of parts to their poor condition, whereas a report of PIA says that most of the items were being sold at higher rates than that at which they were purchased by the airline.

Inspection of the parts by the auditors revealed that the spares were in good condition and some of them had been procured on ‘aircraft on ground’ basis, on a price much higher than the market value, but never used.

PIA Senior Vice-President, Procurement and Logistics, Jawaid Shaikh, told Dawn that the case was being referred to the airline’s board for a final decision.

He said two options were under consideration -- purchase of the entire inventory by the IAA-UK or its return to PIA. Financial negotiations, he said, had been completed.

However, it is not clear if the airline would like to identify as to who was responsible for the venture.

http://dawn.com.pk/2006/11/20/top5.htm







Everybody Knows him!!!!!!!!!!!!

[Amaad Lone]

Why is PIA still sitting on spare parts of DC-10s (withdrawn 20 years ago), 720Bs (withdrawn 20 years ago).

How come these DC-10 spare parts were not transfered to CP Air at the time of the 747/DC-10 swap in 1985.

Also while PIA withdrew its 720B fleet in 1986, other airlines including Air Malta flew them till much later. Why were these 720B spares not sold to an airline like Air Malta while the 720Bs were still operational.

Why is PIA not trying to sell these spares directly, trying to get a better price then going through a broker???