Bank Terms Overstaffing as Root Cause of PIA Financial Woes

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Abbas Ali
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Bank Terms Overstaffing as Root Cause of PIA Financial Woes

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Central bank terms huge workforce root cause of PIA’s financial woes

Shahnawaz Akhter

Wednesday, December 21, 2011

KARACHI:
Huge workforce is identified as the root cause of Pakistan International Airlines (PIA) financial miseries, it was revealed by the State Bank of Pakistan (SBP) after comparison with other airlines on the basis of employees per aircraft.

In its Annual Report on the State of Pakistan’s Economy in 2010/11, the central bank compared PIA’s performance with other Asian airlines, including Singapore Airlines, Thai Airways, Emirates and Cathay Pacific and found that huge workforce is the root cause of PIA’s financial miseries.

Politically-motivated inductions have been the major cause of the significant increase in human resource burden in this organisation, it said.“However, the situation has worsened to the extent of rendering this airline almost financially unviable and cannot be corrected without taking drastic steps for rightsizing and increasing operational efficiency of this airline,” it said.

The central bank said that though in 2010, PIA recorded a nominal operating surplus, the real impact of this improvement was minimal, as the airline is on the brink of insolvency and needs immediate financial support from the government.

The SBP study identified that PIA hires more than 450 employees per aircraft, which indicates overstaffing in the organisation. In case of Singapore Airlines and Cathay Pacific, this ratio stands below 200, whereas for Emirates and Thai Airways it ranges from 200-300, it said. The overstaffing in the PIA resulted in heavy wage bill that eats into a relatively large portion of the airlines’ operating revenues.

“For instance, during 2009 and 2010, on an average, expenses in the heads of wages and salaries of PIA claimed 17.5 percent operating revenues, whereas this ratio was significantly less for other airlines,” the SBP said.

As compared to the size of its workforce; PIA’s revenue operations are quite limited. The available seat kilometres (ASK) per employee for PIA stand merely at around one million, whereas for other Asian airlines this ratio ranges in between three-eight million.

Operational efficiency of the domestic carrier is also widely below the mark because of limited flight operations, it said.PIA’s annual revenue per aircraft stands below $30 million, whereas for other airlines the annual earnings are widely above $50 million per aircraft.

“This is due to lower passenger capacity utilisation, 70 percent in the case of PIA, which is less than the international standards, eg, capacity utilisation ranges around 78 percent for Singapore and Emirates Airlines and 80 percent for Cathay Pacific,” the study revealed.

“Similarly the available seat kilometres per aircraft for PIA range around 500 million, whereas for other airlines this ratio stands fairly above 700 million,” it added.The improvement in PIA’s financials hinges upon better operational efficiency. This may be achieved by expanding flight operations, closing loss-making routes and reducing the human resource base, thus, enabling the airline to benefit from lower operational costs per unit, it suggested.

Presently, PIA Corporation is negotiating another restructuring arrangement with the Ministry of Finance. These negotiations are based on a five-year business plan, prepared by PIA, which outlines a number of revenue enhancing and cost cutting measures to improve profitability. However, the foremost objective of PIA is to avoid imminent insolvency for which it is negotiating rollover of long-term loans or fresh equity injections from the government.

Source: The News
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A340-600
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Re: Bank Terms Overstaffing as Root Cause of PIA Financial W

Post by A340-600 »

not true, infact despite the overstaffing PIA's employee cost is among the lowst in the industry. PIA's empoyee cost is less thna 15% of the revenue where as the industry avergage is around 30%. PIA's reveue is lost on fuel payments/ spares and debt servicing. This is no way justifies the overstaffing at PIA which is definitely way above the industry average.

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Re: Bank Terms Overstaffing as Root Cause of PIA Financial W

Post by Amaad Lone »

PIA spends 52% of revenue on fuel costs, while I am sure the industry average is much lower.

This is obviously because PIA has an old fleet, take out the 777s and ATRs the average is around 24 years.

The question is not if PIA is spending 17% of revenue on salaries versus others spending much more, the real question is:

Why keep 20,000 people for a job, that even 8,000 can do in a much better way.

What are these 12.000 extra workers doing in PIA.

Lazing around counting their salaries and perks, and looking forward to the next golden handshake scheme.

Airline business is a very lean operation and every penny saved is penny earned.

PIA needs a shakeup, but who will do it, for sure not the PPP government.
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Re: Bank Terms Overstaffing as Root Cause of PIA Financial W

Post by CombiFan »

I have to disagree with SBP's and Mr. Lone's simplistic view of PIA's problems. No matter what statistics you use, it is a fact that PIA's wage bill is around 17 to 18% of its revenue which is much lower than the industry average of about 25%. When we compare employees per aircraft ratio of some of the other airlines we tend to ignore that many of their functions are outsourced to outside contractors just like PIA has done at all its foreign stations. Outsourcing does reduce the employee per aircraft ratio but it does not reduce the total salary bill.

I work at a major PIA station where functions such as Ground Handling (Check in), Ramp Handling, Cargo Handling, Engineering, Security, Catering, Ground Transport etc are all outsourced because highly specialized contracting companies exist here and they provide reasonable service. Obviously the total number of PIA employees at my station is much less than a similar size station in Pakistan, but does it reduce my salary bill? No. Because I have to pay the contractor for each staff or service he provides. The overall impact on PIA's pocket is nearly the same.

As for the outlandish claims that PIA can do with 8000 or 10000 employees, can anyone claim that PIA is overstaffed in Engineering, Flight Services, Flight Operations, Marketing (including Sales, Reservations and Ticketing and Cargo), Finance, Catering or Passenger Handling? When we give sweeping statements like 'PIA is overstaffed' we should specify which Departments.

PIA has multi faceted issue going back 25 years, blaming it on overstaffing is over simplyfying the issues, I am not saying that we are truly lean in that department, but employees surely are the least of PIA's problems.

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Re: Bank Terms Overstaffing as Root Cause of PIA Financial W

Post by Abbas Ali »

Finance Ministry Explains Financial, Management Issues of PIA

Sunday, December 25, 2011

KARACHI:
The Ministry of Finance has explained its position on the financial woes and management issues of public sector enterprises, including Pakistan International Airlines (PIA) as reported in the annual report recently released by the State Bank of Pakistan (SBP).

The official spokesman of the ministry in a statement issued on Friday said that the Cabinet Committee of Restructuring (CCOR) is steering the process for restructuring of the national flag carrier.

“An overarching restructuring plan has been finalised, which addresses corporate governance, human resource rationalisation, financial and operational restructuring, engineering improvement, procurement and logistics, marketing and fleet, airport services and dispatch reliability among others,” it said.

The spokesman said that increased fuel cost has been a major downside risk to the financial strength of PIA and effective measures have been put in place to mitigate the effect. “Various other cost minimization and revenue enhancement measures have been put in place to reduce revenue expenditure gap in the medium-term,” the spokesman said.

Besides, the statement said that fleet renewal and addition is being planned and Strategic Business Units (SBUs) are being established for outsourcing non-core functions of PIA. It is often pointed out that PIA has a relatively higher employee per plan ratio. However, PIA has the lowest SASK (staff cost in $ per ASK: available seat per kilometre).

This reflects a lower staff cost as compared to the airline industry, which could be due to a lower salary structure in Pakistan. “However, PIA has a high number of employees, but does not have correspondingly high cost of maintaining that pool,” it said.

“Rationalisation of employment in PIA is being addressed through attrition and no new hiring is being undertaken except operational staff,” it added. The spokesman said that the financial restructuring plan has been finalised, which includes equity injection and financial restructuring.

Source: The News
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