PIA failed in controlling exchange loss: Audit report

Pakistan International Airlines (PIA) Corporation failed to take any significant measures to control its currency risk, nor has it taken any corrective actions for future, according to Auditor General of Pakistan (AGP)'s Report-2010-11. The audit observed that around 55.7 percent of total accumulated losses of Rs 75 billion are attributable to 2009 and 2008 only.
The main constituent of these two years' losses was the exchange loss of Rs 31 billion which was Rs 7 billion against total loss of Rs 5 billion for 2009; and Rs 24 billion against total loss of Rs 36 billion for 2008. In other words, 74.4 percent of the two years' total loss and 41.4 percent of total accumulated loss was on account of exchange loss only. This reflected poor financial risk management in PIA.
The Report says that the corporation evidently did not take any significant measure to control its currency risk, and the resultant losses in future. An increase of even 5 percent in foreign currency rates may expose a company to further loss of Rs 3.594 billion on its closing balances. Long-term debt of Pakistan International Airlines (PIA) Corporation stood at Rs 121.58 billion by end of 2009 and exceeded its total equity of Rs 46.53 billion (revalued). Trade debt of PIA was Rs 8.34 billion during the year under review, against Rs 6.191 billion in 2008. PIA's current assets on December 31, 2009 stood at Rs 22.123 billion, which were considerably lower than its current liabilities of Rs 70.925 billion.
The audit report, exclusively available with Business Recorder, showed that the Corporation is extremely vulnerable to the risk of default on its debt obligation. The report says that the Corporation's short-term debt obligations seemed to be spiralling out of control and stood at Rs 23.982 billion on December 31, 2009.
"This poor financial health of the Corporation requires major corrective actions. The current portion of long-term financing stood at Rs 13.805 billion as at December 31, 2009, which means that the Corporation needs to pay this portion of its long-term debt within one financial year. The Corporation, however, registered a loss after taxation of Rs 5.22 billion for the year ended December 31, 2009, which means that the Corporation will have to resort to more borrowing to pay off debt servicing to its old debts," the report said.
The Report for 2010-11 further says that the efficiency of collection of receivables declined by 28.8 percent in 2009 as number of days for receivables' collection rose from 22 to 29. This indicated PIA's inability to control its rising trade debts warranting adoption of effective plan. The audit states that efforts are needed to realise the amount on priority basis in order to avoid their conversion into bad debt. This adverse position casts serious doubts over the Corporation's ability to meet its short-term debt obligations and its continuation as going concern.
The revenue load factor was 54 percent in 2008, which went down further by 2 percent in 2009. The report says that fuel cost of Rs 31.372 billion in 2009 declined by 30.8 percent but total operating expenses reflected a decline of 17.9 percent only. The report further says that salaries rose by Rs 6 billion - 49.4 percent more than in 2008. Audit noted that despite deteriorating managerial and financial performance, the number of PIA's executives rose to 2,227, costing Rs 4.341 billion, which was 100.1 percent and 74.7 percent respectively of 2008, and remuneration of MD also increased by 44.9 percent in comparison to 2008.