Home »Business and Economy » Pakistan » AGP report: PIA losses jump to over Rs 360 billion

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  • Oct 3rd, 2018
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The Auditor General of Pakistan (AGP) report said that accumulated losses of Pakistan International Airlines Corporation (PIAC) up to December 31, 2017 were Rs 360.117 billion while these were Rs 72.353 billion on December 31, 2008.

The Supreme Court on June 30, 2018 had directed the AGP to conduct a special audit of the PIAC for the last 10 years (2008 to 2017). The purpose of the audit was to ascertain the causes of accumulated losses sustained by the PIAC.

The report is based on financial statements, Board of Directors (BoD) minutes, policies and decision, record relating to appointment (BoD member, MDs/CEOs etc), procurement matters, acquisition of aircraft on dry/wet lease, inventory issues, contract management, financial management, fuel hedging and conservation, revenue losses through leakages and operations, etc.

The report pointed out that the main cause of accumulated losses was the absence of the professional and experienced leadership. The federal government being the majority shareholder i.e. 84.64 % nominated 9 out of 11 members of the Board of Directors including chairman. So far 44 members of the BoD of the PIAC were nominated by the various governments during 2008-17. None of them had relevant experience of the aviation industry. The majority members were serving/retired civil/military bureaucrats, politicians and businessmen. The role of the BoD committees' was also not up to the mark in guiding the board in various strategies issues. The exorbitant pay and allowances were granted to MDs/CEOs in violation of instruction of the Ministry of Finance.

The report said that the review of the Aviation Policies 1998 and 2000 revealed that the Aviation Policy 2015 did not safeguard the interest of the Aviation Industry and Pakistan. The flying/grounding rights were accorded to Gulf and Turkish carriers especially after Aviation Policy 2015. In 2017, 4.72 million passengers from Pakistan traveled to third countries under sixth freedom through Gulf and Turkish carriers thereby depriving national airlines of their potential share in revenue of Rs 117 billion.

In 2008, the PIAC fleet consisted of total aircraft (owned 35, leased 8), while in 2017 PIAC fleet comprised total aircraft - owned 12 and leased 24 (dry lease 20, wet lease 04). The audit observed the feasibilities of dry leased aircraft were prepared in fictitious figures without proper justification. The audit highlighted the losses/irregularities in dry/wet lease having financial impact of Rs 56 billion.

The report said that no sound mechanism existed in determination of air fares. Schedule of power is silent on competent authority to approve fares. As per practice in vogue, the director commercial was final authority to determine fares, both for domestic and the international routes. The record of fares was not maintained properly either by revenue management or the revenue accounting department. There was no involvement of BoD in approving fares.

The PIAC incurred losses on almost every station/route. The decisions were based on ad hoc basis without due diligence and farsightedness, causing shrinkage of its network. The audit pointed out irregularities/losses of Rs 8.5 billion.

The role of engineering & maintenance (E&M) department was insignificant in the process of induction of aircraft (dry/wet lease basis and ownership purchases). The minutes of technical evaluation committees were neither properly written nor kept for administrative and audit purpose. The chief technical officer and other chief engineers of the E&M department failed to provide record of 25 aircraft, which have been grounded permanently during 2008 to 2017. The audit pointed losses/irregularities of Rs 31.12 billion.

The report also observed the gross irregularities including non-disposal of inventory of Rs 11.61 billion, unnecessary purchase of spare parts at higher rates worth Rs 362.5 million, non-settlement of rejected/defective inventory of Rs 67.48 million, purchase of technical items at higher prices i.e. Rs 418.74 million, and fraudulent contract agreement for sale of surplus inventory of Rs 1.577 billion.

The report said that the PIAC supply chain department failed to perform its primary functions. The audit observed the number of cases of procurements at exorbitant rates, excessive procurements, frequent violation of Public Procurement Rules, 2004 and PIAC own rules and regulations. Sale of A-310 aircraft, up-gradation of cabin and purchase of iPads on rental basis were serious issues. The audit pointed out losses/irregularities of Rs 3.5 billion.

The fleet choice and the lack of consistencies in flying programme had severely restricted the ability to sell cargo space. From 2010 to 2017 total unutilized cargo space was 56 %. The audit observed the losses/irregularities due to sale of aircraft space on 'hard block' basis worth Rs 500 million, decrease in revenue due to imprudent award of contract to M/s Globe Air of Rs 675.87 million, default by the cargo agents of Rs 235.262 million and violation of rules in award of Cargo GSSAs.

The report says that both the cockpit and the cabin crew were under-utilized. Pilots were enjoying guaranteed minimum 75 flying hours per month whether they fly or not. The audit further observed that duty timings of the cabin crew were relaxed in comparison with Indian and European airlines, which caused an extra burden of Rs 2 billion.

The PIAC incurred heavy expenditure of Rs 436.344 billion on account of jet fuel during the last 10 years, which was around 44% of the revenue during 2008 to 2017. The fuel expenditure was highest 57% in 2013 and lowest 30% in 2016. Due to non-professional way of fuel hedging, the Corporation sustained a loss of Rs 4 billion.

The report noted that Roosevelt Hotel, New York, USA, earned an overall profit of US $ 49.862 million during 2008 to 2017, but sustained loss of US $ 5.19 million during 2015 to 2017. Skyrooms sustained an accumulated loss of Rs 140.16 million as on December 31, 2017.

Internal Audit Department of PIAC remained ineffective in ensuing compliance with relevant rules/regulations and financial propriety which was evident from the fact that the audit observation involving financial impact of Rs18.25 billion remained outstanding, while audit paras of Rs 24.35 billion were settled without adhering to proper procedures and supporting documents. Instead of enhancing the in-house capacity of internal audit department, the function of the department were co-sourced with charted accountant firms having financial impact of Rs 71.48 billion.

The report concluded that the PIAC has been run like a non-business entity, governed by non-professional BoD, managed by CEO lacking industry specific experience, adhocism in decision making, poor HR, procurement, marketing, contract, fleet, inventory and financial management.

The report recommended that National Aviation Policy and ASAs with Gulf and Turkish airlines be reviewed on the basis of bilateral commercial interests. An efficient and dynamic BoD may be constituted.

The CEO/MDs be appointed on merit. Unnecessary interference from the government be stopped. Interference of various staff/officer associations be stopped forthwith. The policy of merit-based appointments/ transfers/ postings be adopted.

Copyright Business Recorder, 2018


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