As political strategists love to say, “All politics is local”. But not when it involves a national flag-carrier that flies globally. When the Aviation minister told the Parliament last week about pilots with dubious licenses at PIA, he was perhaps adhering to his government’s policy of exposing all that is wrong in Pakistan. The local audience lapped up the noble intent, but the global stakeholders seem thoroughly appalled. Since no homework was done to fix the problem beforehand and the strategic communication has been poor since the “revelation”, there are now consequences in the form of European Union’s ban on PIA flights, growing cases of suspension of Pakistani aviation professionals worldwide, and reputational damage.
However, it will be a mistake to conflate what is purely a technical issue with economic, political, and social issues that drag Pakistan. The “national decline” may be real, but the issue at the heart of this episode is ignoring the warning signs about cleaning house in the aviation industry. The issue regarding fake or suspicious degrees and licenses affecting the PIA staff has been around for some time. Earlier in January this year, the Aviation Division reportedly disclosed that over 400 PIA employees had submitted fake degrees over the past five years. The same month, the Chief Justice of the Supreme Court reportedly made an observation that pilots with fake licenses were flying the machines.
Based on the prior visibility of this issue, it should come as no surprise that the EU’s aviation body finally put its foot down and suspended PIA’s entry. Aviation regulators must be conservative and paranoid in their quest for safety. News reports such as those cited above would have likely triggered alarm overseas many months ago; the minister’s declaration coming on the heels of a fatal airline crash would have been just too much for the European body to keep ignoring the problem. The ban means that PIA also likely lost it appeal when the review was ongoing.
It is remarkable how the PIA is in the eye of the storm but the CAA, the aviation regulator, is rarely mentioned in this episode. If some airline pilots engaged in fraud by acquiring or renewing their licenses illegally, how does that absolve key management personnel at the CAA who signed off on those licenses? There are already reports that the sudden shift in CAA’s licensing regime in 2012 had opened the doors to massive discretion at the regulator’s end. The EU aviation body’s notice clearly betrays a lack of confidence in the CAA’s ability to act as a regulator worth its salt. Firing pilots alone won’t cut it; to restore credibility, Pakistan may need an independent and transparent aviation safety regulator.
Few other things about this debacle also need to be put into context. PIA getting a no-show from Brussels isn’t unprecedented either. It is common that some airlines, mostly from developing countries with lax aviation-safety standards, get restricted or banned from European airspace but then resume operations after deficiencies are addressed. Currently, as per European Commission, about a hundred airlines from 24 countries are banned from reaching European skies. These countries include Afghanistan, Iraq, Iran, Nigeria, Nepal, Sudan, Kyrgyzstan, Venezuela and Zimbabwe.
This isn’t a comforting company for Pakistan, but the point is that this sort of an embargo can happen to any country if it takes relevant regulations for granted or if its system of checks and balances is exposed. And there are pathways to reverse some of the damage as well. As per the relevant EU rules, PIA can still enter EU airspace by using a wet-leased plane with crew and maintenance staff of an airline that is not banned from operating in the EU and after complying with relevant safety standards.
The episode has also provided an opening to the commentariat to bash the political class for PIA’s woes. Well, not all of PIA’s troubles can simply be attributed to over-staffing by political or other organized interests. In any case, as per company information, the number of employees stood at 11,740 as of 2019 end, down by a third since 2014. Also note that revenue per employee has been on the up in recent years, reaching Rs12.5 million in CY19, a yearly growth of almost 50 percent. This is not to minimize the problems at PIA, for financially, the carrier isn’t out of the woods yet. In terms of key financial KPIs for an airline, PIA still fares poorly on measures of liquidity, profitability, and solvency. But recent financial numbers suggest that the situation may be ameliorating a little.
In the year ended December 31, 2019, the carrier grew its revenues to $1 billion on a consolidated basis, a growth of 25 percent year-on-year. In rupee terms, core PIA revenues grew by 43 percent year-on-year in CY19, continuing the double-digit topline growth run of recent years. Also last year, the management had some success in reining in the operating expenses, which used to swallow operating revenues in years past. After eight years, PIA scored a gross profit last year; operating losses were also reduced by a whopping 75 percent. Net loss of Rs55 billion is still colossal, but it is 20 percent lower compared to CY18.
In terms of key operational KPIs for an airline, the PIA has been getting more out of its fleet lately. The available seat kilometers have remained in the 18-19 billion range in recent years, signifying stagnant capacity due to issues in expanding the fleet. But traffic is on the way up, as revenue passenger kilometers touched 15 billion kilometers in CY19, a growth of about 7 percent year-on-year. Taken together, the two KPIs yield a high passenger load factor – or capacity utilization by paying customers – of 81 percent in CY19, up from the load factor of 77 percent in CY18.
There is also some chatter that the government created this crisis to make way for PIA’s privatization. Well, there may not be a method to this madness. The current government originally had PIA included in its list of entities for privatisation, but it reversed course in late 2018 and de-listed the carrier to focus instead on improving its operations. Earlier this year, the cabinet approved a five-year Strategic Business Plan (2019-23) to turn around PIA. The times they are getting tough, but the visible hand of the government is still backstopping PIA finances, a norm since 2008 at least. As Covid-19 hit the country, the government has issued letters of financial support to the PIA on two occasions in March and April 2020. Such support helps PIA in accessing long-term loans, issuing guarantees, and acquiring aircraft.
Also in the speculative spotlight is one Hotel Roosevelt in New York City. But the privatization chaps’ latest meeting on selling this ‘jewel’ – a notification of which was shared widely on social media earlier this week – may simply be a coincidence, or poor judgment. Recall that the government had announced in October 2018 that it would sell Roosevelt Hotel in NYC and Scribe Hotel in Paris within three years. A few meetings have happened since then. Earlier in March this year, the Privatization Minister suggested that government might lease Roosevelt to generate revenues for PIA. In short, if this sale takes place, it won’t be out of the blue. But the ongoing pandemic in the US may sap the valuation for some time.
Back to the original sin, there has been a clear and continued regulatory breach and it needs to be repaired as such. Blaming it all on the pilots or maligning the PIA would be akin to sweeping it under the rug. It is beyond time to commission an independent review into this fiasco and take corrective actions. The credibility of the entire aviation industry in particular, and the future of foreign investment and tourism into the country in general, are on the line.
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