KARACHI: With the Privatisation Commission (PC) giving permission to proceed with the privatisation process of Pakistan International Airlines (PIA), some political parties are politicising the issue by terming it unfair.
However, a close review of PIA’s financial statistics reveals that PIA has become a white elephant by massive corruption and privatisation is the only way out to save this national asset.
Earlier, PC approved the sale of the Heavy Electrical Complex (HEC), the National Power Construction Company (NPCC), and the divestment of a minimum of 26 percent shares of PIA to a strategic partner.
To understand the financial position of PIA, Sunrise Research stated in a report that PIA, being a state-owned entity with a government of Pakistan (GoP) holding of 2.43 billion shares or 84.64 percent, is suffering huge losses since more than five years.
There are various reasons behind the losses like corruption, incompetent management and political appointments. As per financials of nine months of 2013, losses of PIA stood at Rs 31.94 billion with an increase of 42 percent on yearly basis and so far PIA has accumulated a loss of Rs 180 billion, said the analyst.
The finance cost of PIA appreciated by 10 percent to Rs 9.32 billion while due to huge borrowings, liabilities of PIA stood at Rs 267.8 billion as compared to Rs 238 billion last year with an uptick of 12 percent.
In the current scenario due to consistent losses, PIA is unable to pay off its outstanding debt and due to which accrued interest is piling up and as of nine months 2013 it stood at Rs 11.26 billion with an uptick of 66 percent.
It is hard to believe that the airline with 26 operational aircraft supports a staff of 16,600 regular and 2,700 contractual employees, having 742 employees per aircraft, which is almost six times higher than the global average of 120 per aircraft. PIA is still having losses of approximately Rs 3.0 billion per month with Rs 1.0 billion mark-up included in Rs 3.0 billion amount.
PIA has exposure to fuel price risk and due to which its earnings are affected by changes in price of aircraft fuel. As per nine months of 2013, PIA’s fuel cost is Rs 40.8 billion and due to current tension in Iraq and Libya it is expected that it may disturb the supply of oil which may push the price further upward. If international oil prices appreciated by 10 percent from here onwards, it will further increase the fuel cost of about Rs 3.0 billion to Rs 4.0 billion and deteriorate financial position of the company.
PIA revenue streams are denominated in a number of foreign currencies resulting in exposure to foreign exchange rate fluctuations. In addition, PIA has substantial foreign currency borrowings and lease liabilities that are primarily denominated in dollar, Saudi riyal, United Arab Emirates dirham and pound. As per nine months 2013 financials, PIA lost Rs 6.13 billion due to changes in exchange rates. Since fiscal year 2014 to date the rupee has depreciated by about 7.31 percent against the dollar so it is expected that losses due to exchange rates may increase by about Rs 400 million. PIA manages some of its currency risk by utilising its foreign currency receipts to satisfy its foreign currency obligations.
PIA is also exposed to risk of interest rate that has the impact on the fair value or future cash flows of a financial instrument due to changes in market interest rates.
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