Karachi
Privatization Eyewash
PIA cannot be fixed in isolation unless the entire aviation machinery is fixed.
The privatization of Pakistan International Airlines (PIA) has been a heated debate for many years due to various challenges the airline has faced. As shown below, here are several reasons why privatization is often considered necessary for PIA:
Chronic Financial Losses
For many years, PIA has consistently reported financial losses, significantly burdening the national treasury. These losses are often due to inefficiencies, mismanagement, and a significant debt burden. As a state-owned enterprise, the government frequently bails out PIA to keep it operational, requiring taxpayer money that could be utilized in other sectors like education, health, or infrastructure.
Inefficient Management and Bureaucracy
Public sector organizations, including PIA, often suffer from bureaucratic red tape and inefficient management practices. Decision-making is slower due to layers of bureaucracy, which can hinder the airline’s ability to adapt to market changes quickly. Political interference in hiring, procurement, and decision-making has also been cited as a significant factor in the airline’s inefficiency.
Overstaffing and High Operating Costs
PIA is known to have a higher staff-to-aircraft ratio than many other international airlines, which leads to inflated operating costs. Overstaffing often results from political influence, as government-owned entities can be pressured to employ more staff than necessary. Privatization could lead to restructuring, streamlining operations, and optimizing the workforce to meet industry standards.
Quality and Reputation Issues
Over the years, PIA’s service quality and safety standards have been criticized. Delays, poor customer service, and a deteriorating reputation have led to declining customer trust and brand loyalty. A private management team will likely focus more on improving customer service, safety, and operational efficiency to remain competitive in a market-driven environment.
Competition in a Liberalized Market
The aviation market in Pakistan has been liberalized, meaning private airlines can compete directly with PIA. Private airlines, like Air Blue and Serene Air, have shown greater flexibility and efficiency, challenging PIA’s market share in domestic and regional markets in the Gulf region as well as to/from Saudi Arabia, besides the ongoing liberal aviation policy for treatment with foreign carriers who encroach into long haul markets from Pakistan to the UK, Europe, and North America with unjustified grants of excessive capacity.
In a privatized model, PIA would be forced to operate like a business rather than a state-subsidized service, allowing it to compete on a level playing field and potentially improve its market position.
Reduced Political Interference
Political influence has historically affected the decision-making process in PIA, often leading to non-commercially driven decisions. This includes politically motivated routes, hiring, and appointments. Privatization could help depoliticize the airline’s management, allowing for more professional and commercially driven decisions focusing on profitability and sustainability.
Accountability and Transparency
A private company is often subject to greater scrutiny and has more accountability to shareholders and the market. This can lead to better transparency in operations, financial management, and reporting. In contrast, state-owned enterprises can sometimes be less accountable due to political shielding, making it challenging to address corruption and inefficiency.
In a privatized model, PIA would be forced to operate like a business rather than a state-subsidized service, allowing it to compete on a level playing field and potentially improve its market position.
Challenges for Successor
While privatization has many potential benefits, it’s essential to acknowledge some challenges:
Employees might resist privatization due to fears of job losses or changes in working conditions. The successor’s more significant challenge is modernizing and inducting aircraft into the current ailing fleet.
PIA’s fleet, including the leased aircraft, only consists of 17 aircraft. In this scenario, the group going for privatization has to invest heavily from day one to make the current fleet operational or have aircraft from the market. The position of the two major companies, Boeing and Airbus, is that their production lines are full, and if you order a new aircraft today, you will be lucky if it gets delivered before 2030. The other alternative is to go for a dry lease. Considering the market availability and process involved in procuring these aircraft going through the bidding process, this process will take at least 8 /12 months. For a short-term fix, if one resorts to the wet lease of aircraft, an expensive option will be allowed for 3/6 months max until the aviation policy is revised. In the present policy, you can’t have wet-lease aircraft for a longer duration.
This is the biggest challenge for any group purchasing PIA in dealing with the aircraft issue. If any big Airline is interested in purchasing, they can manage from their existing fleet for a certain period before getting aircraft for PIA. These are practical aspects that one not sure anyone involved in the privatization process since February 2024 thought of before expecting a hefty purchase price.
With only five wide-bodied aircraft, no airline can be turned around. Another issue that persists is the EASA ban, which does not allow PIA to operate in Europe or the UK. The present international markets of Saudi Arabia/Gulf and Kuala Lumpur are not enough to have a sizeable revenue base to support the corresponding cost structure. With all these basic facts, one doesn’t see much happening on privatization unless one of the existing big airlines picks up PIA.
The writer is an aviation professional with over four decades of experience. He served the PIA for 37 years as Director of Corporate Planning, Marketing/Commercial, and Customer Services.
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