EDITORIAL: Senate Standing Committee on Aviation was briefed on the existing financial instability and future vision for transforming Pakistan International Airlines (PIA) into a profitable entity. This objective was repeatedly invoked by the previous two administrations however while appropriate mitigating measures were identified time and again yet their implementation remained poor. The reason is partly attributed to a strong trade union movement within PIA and partly to overstaffing due to political intervention.
The PPP-led government (2008-13) used PIA as a recruitment centre, a practice associated with the party during previous tenures as well, whereby the parity between the optimal required work-force rose to levels that compromised the financial stability of the entity. PML-N (2013-18) while rhetorically supporting retrenchments to strengthen the finances of state-owned entities (SOEs) disturbingly hired another 1,000 in PIA by January 2016 at a time when the company registered cumulative losses of 254.7 billion rupees. Today PIA employs 500 per aircraft against Qatar Air’s 133, Etihad’s 211 and Emirates’ 231.
Ironically, the standing committee on aviation is headed by Mushahidullah Khan of the PML-N, a man accused in October 2018 by Fawwad Chaudhary, the then Information Minister, of inducting his three brothers in senior positions in PIA without the necessary qualifications or experience. Be that as it may, the Chief Executive Officer of PIA informed the committee members that Roosevelt hotel in New York will not be sold but closed down by end December 2020 - a decision based on persistent losses (previous administrations had also considered its sale) due to multiple factors (including high debt servicing, dilapidated building/rooms/public areas). In this context it is relevant to note that as per the Debt Limitation and Fiscal Responsibility Act 2005 the government was not allowed to issue “new guarantees, including those for rupee lending, bonds, rates of return, output purchase agreements and all other claims and commitments that may be prescribed, from time to time, for any amount exceeding two per cent of the estimated gross domestic product in any financial year.”
Sovereign guarantees add to the quasi-debt which is the reason behind the International Monetary Fund’s insistence that it be contained though the Fund did agree to revise the guarantee limit to 1922 billion rupees till September 2020 from 1556 billion rupees from the comparable period of a year ago. It would be up to the federal government, the IMF Resident Representative stated last year, as to “how much of this ceiling to be used for which sectors (CPEC or circular debt).”
Budget documents for the current year indicate that the government extended sovereign guarantees to the aviation sector to the tune of 199 billion rupees (11 percent of all guarantees to the SOEs with the lion’s share going to the power sector: 59 percent) with fresh/rollover guarantees issued between July-March 2019-20 aggregating to 115 billion rupees or 0.3 percent of GDP.
Needless to add, the financial position of SOEs, particularly the three white elephants PIA, Pakistan Steel Mills and Pakistan Railways, continue to deteriorate and reliance on borrowing and/or extending sovereign guarantees also continues. This implies that the urgency to formulate and agree to a plan of action is rising with the passage of time and one would hope that its implementation is speeded up though the climate created by the pandemic is not conducive to either sale or expensive refurbishment.
Copyright Business Recorder, 2020
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