An audit of the Pakistan International Airlines (PIA) conducted with the main objective to examine its overall performance has declared that the national flag carrier will continue to burden the exchequer due to its “inefficient operations”.
In its special report examining the PIA’s economy, efficiency and effectiveness aspects through analysis of its financial statements, the Accountant General of Pakistan (AGP) said the organization is heavily dependent on debts, instead of equity and this has increased its financial risk.
The special audit for the years between 2012 and 2016 was conducted from July 16, 2017, to September 4, 2017 – long before Minister for Aviation Ghulam Sarwar Khan tipped the national airline from crisis to full-blown catastrophe.
The minister in July this year claimed that more than 30 percent of Pakistani pilots had fake licenses; were not qualified to fly; had not taken exams themselves and had paid someone else to sit it on their behalf. After this revelation, European and US aviation authorities had suspended PIA flights.
In its report, the supreme audit institution of the country found that the PIA was marred by financial crisis between 2012 and 2016 as all the key financial indicators of the corporation were in an unsustainable range and were depicting negative liquidity.
The AGP stated that there was an “abnormal decrease in fixed assets, net revenue and cargo revenue” while there was an “abnormal increase in trade deposits, accumulated losses, advances to employees, long term financing and operating losses.”
The report pointed out that the PIA had a “poor liquidity position”, “improper revaluation of aircraft fleet”, “non-disposal of aircraft surplus inventory” and “excess fuel consumption”.
It said the fixed assets decreased by 4.10% from roughly Rs147 billion in 2014 to Rs141 billion in 2015 whereas they were over Rs159 billion in 2013 and Rs156 billion in 2012.
The report said advances to employees – mainly including accountable advance (petty cash) and other suppliers – increased by 166% and 74% from Rs182 million and Rs536 million in 2014 to Rs483 million and R932 million in 2015, respectively.
It said the long-term financing increased by 27.3% from Rs50.5 million in 2014 to Rs64,362 million in 2015 due to the unconditional and irrevocable guarantee of the government to run the business.
In addition, the accumulated losses amounted to over Rs261 billion on December 31, 2015, as compared to over Rs227 billion a year ago – December 2014.
In the report, the AGP stated that the net revenue decreased by 8.14% from Rs113 billion in 2014 to Rs104 billion in 2015 – a major decline was observed in passenger revenue which declined by 7.8% from Rs90.3 billion in 2014 to Rs83.2 billion in 2015.
The cargo revenue decreased by 80.8% from Rs6,295.5 million in 2012 to Rs3,480.7 million in 2015; the operating loss of the corporation increased by 10.2% from Rs12.9 billion in 2014 to Rs15.6 billion in 2015 and the passenger load factor fell by 2.36% in 2015 when compared to 2104.
The special report found that the Revenue Freight Tonne Kilometers decreased by 54% from Rs273.4 million in 2012 to Rs125.5 million in 2015.
“Cash generated from operation decreased by Rs11,227.894 million from Rs20,222.098 million as on December 31, 2104 to Rs8,994.204 million as on December 31, 2015.”
During 2015, the report read, the world saw a substantial gain in the aviation industry which is the life blood of the global economy and infrastructure as the decline in jet fuel prices continued in 2015 and the average price of a barrel of jet fuel in 2015 was even lower as compared to previous year.
It said the aircraft fuel cost decreased by 41.1% from Rs48,033.8 million in 2014 to Rs28,256.2 million in 2015. “Although the fuel prices of the jet declined in 2015, the management sustained a net loss amounting to Rs32,131.182 million,” the AGP noted.
Analysis of flight logs for the month of August, September and October 2016 revealed that six B-772 aircraft burned off excess fuel as compared to the standard set in the operating manual.
The aircraft flew 3,797.60 minutes during three months and consumed fuel/burn off 25,230,911/kgs/hour against the standard consumption of 21,647.365/kgs/hour (average).
Loss due to excess fuel consumption by B-772 Aircraft, B-773 Aircraft and A-320 Aircraft, was Rs215 million, Rs39 million and Rs122 million, respectively, in the three months of 2016.
While assessing the quick ratio – to assess airlines’ ability to convert current assets into cash in a short period of time – the AGP said it is evident from analysis of quick ratio from 2012 to 2015 that the PIA is on high risk.
This will severely hamper its ability to secure loans from financial lending institutions and any loans that it obtains will entail higher than market interest rates.
On debt ratio, it said, the PIA is mainly dependent on long and short term and sukkuk financing.
“Debt ratio for the year 2015 has also reached an alarming level of 69.05% which is threatening for financial stability,” it added.
The AGP recommended that the airline needs to take corrective measures to increase efficient utilization of its assets and reduce cost of operations.
It also recommended that the abnormal decrease in fixed assets, net revenue and cargo revenue may be looked into by the management and increase in trade deposit should be addressed.
Also, advances may be granted keeping in mind the financial position of the corporation and decline in net revenue, especially, when the number for passengers increased by 4.5% in 2015 may be justified. He also suggested that the internal controls may be strengthened, it added.