BY: Syed Sharfuddin
This is a follow up to the article by Dr Tahseen Mahmood Aslam about PIA’s management challenges printed in the Weekender last Friday. The national flag carrier of Pakistan has reached a point where it needs to be placed under interim emergency measures. This is a bitter pill which ailing organisations run with public money are often forced to swallow when faced with serious governance issues with no signs of improvement in sight. The situation of PIA is further complicated by the fact that it is a massive organisation where if one of its operations is profitable, two others are in the red. And when PIA plans to shed off its loss making operations, it is stopped from doing so by whistle blowers who appear out the woodwork crying corruption. PIA’s employee unions are not prepared to allow any tough administrative decisions calling for massive admin and staffing cuts. The courts are also approached for protecting the rights of people affected by a major restructuring of the organisation in public interest.
PIA was born at a time when it was fashionable for newly independent countries in Asia and Africa to invest in sectors that required large public investments, which were beyond the pockets of national private investors. In return, these investments also gave the newly independent countries a much-needed national identity in the world. Between this self created necessity and the resulting advantage, almost all post-colonial countries either inherited or set up a national airline, a national shipping carrier, a national broadcaster, a national telecommunications agency, a national postal service and a national railway service. At that time, these projects were seen as important symbols of a sovereign state in the same way as its national flag and national anthem. In some countries such as Pakistan, these organisations also became the largest employers for the state satisfying the needs of its citizens to get jobs and get involved in the running of the country.
The CV of PIA as a commercial institution is reminiscent of a university student who got A stars throughout his primary and secondary exams; then passed his A levels with a reluctant B, but is now struggling to barely pass his university courses. Everything has been tried – tuition, external coaching, changing subjects and even taking a gap year; but nothing seems to be working. What remains is a stark choice of either closing down the national airline and privatise its domestic and international operations or place it under emergency measures with a view to reviving its past glory and profitability.
The reform of PIA should come in two stages. The first stage is a final attempt to let the organisation reform itself utilising its internal resources and strengths. The second stage should be initiated only if the first stage fails. Of course, the second stage will come with more drastic measures that will be highly unpopular with PIA employees, unions and vendors. But it is the only way to save the failing airline. A dying patient in an ICU ward cannot keep his marital, paternal or fraternal commitments. Something must give in, and when it comes to saving the corpus itself, all others can take a back seat.
The First Stage
The Government should expand the Board of PIA with 30% women Directors on the Board, which is a major omission and a clear sign why the Board is not able to overcome the management problems in PIA. Women are better managers than men, especially in corporate environment. The expanded Board should be in place in the next three months. If any Directors need to go, these should be the senior government servants represented on the Board. They are busy people and have no experience of running an airline on commercial lines.
The Government should task the Board to carry out a review of the administration and management of PIA and require from its existing senior management team to improve governance, financial management, increase airline outreach and profitability and underpin performance throughout the organisation to save it from total collapse under its own weight. The newly drawn key performance indicators (KPI’s) should include reduction of deficit in the PIA budget, 10% increase in flight operations; 10% increase in revenue from passenger and cargo carriage and 10% downsizing in admin expenditure through internal cost savings. The Board should be given a maximum of one year to produce desirable results.
The government should support the national airline in negotiating agreements with other countries on flight connections, passenger lifting, code sharing, additional aircraft acquisition on lease and other measures to help the airline’s modernisation and linkages with other international tour operators. In this stage, the government should give a clear mandate to the airline Board and senior management but should not interfere in PIA governance until the one-year deadline has lapsed.
The Second Stage
If the Board and the existing senior management of PIA fail to act with responsible care and skill, and fall short of their responsibility to oversee the affairs of the airline by improving performance against the given KPIs, the government should dismiss the Board and fire the existing management team and place PIA under the direct control of the President of Pakistan as an emergency measure. The President should be assisted by an ad-hoc all-party special committee of the parliament, appointed by the Prime Minister in consultation with the leaders of main opposition parties.
For the interim, the President of Pakistan should appoint a Change Manager in PIA who will be a national or dual national of Pakistan and an expert in salvaging ailing organisations. He/She will have full powers of the Chairman and the CEO to make whatever changes are needed in PIA to rescue it from corporate demise.
The TORs of the Change Manager should clearly define areas of PIA that need separation and self-sufficiency by maintaining integrity of funds, functions and operations. The Change Manager should identify profit making areas in PIA from within its international flights sector, domestic flights sector, cargo flights sector, chartered flights sector and non-flight real-estate investments sector,. The Change Manager should ring-fence those operations which are making persistent loss and need load shedding.
The loss making ring-fenced areas of the airline should be restructured drastically for revival on self-financing basis. Where this is not possible these should be stripped down for auction to the private sector to operate on lease.
The profit making areas of the airline should be supported with heavy IT investment, aggressive marketing, innovative operations and staff reduction strategies for increased profit turnover. In the international airlines area, PIA should adopt the model of other successful international airlines that have itemised costs for every service and added these on to flight tariffs.
Although PIA has already started doing this to a certain extent, it can further make progress by keeping airfares the low to remain competitive internationally, but charge separately for inflight meals, seat allocation, speedy boarding, baggage check-in, SMS or email confirmation of boarding pass and in-flight supplies such as blankets, newspapers and entertainment equipment. As part of cost cutting measures, all commissions to travel agencies, sales agents, suppliers and vendors should be stopped. Rented shop floors and offices should be vacated and shifted to cheaper rent buildings. All supporting staff should be made redundant. Technical and executive staff should be multitasked to make their own phone calls, write their own reports and correspond on their own corporate email addresses. Flight staff should receive only salary but no airline incentives nor free travel vouchers. New sectors should be opened where the airline can pay for its operations and show profit after deducting costs.
The emergency measures should be introduced with a view to reinforcing the point that the airline has reached the verge of collapse and cannot continue on ‘business as usual’ model. Any staff that cannot accept the changes to be introduced for PIA’s survival can resign and leave without compensation.
The Change Manager should be given a free hand. His term should be for a fixed, non-extendable two-year time limit to turn around the airline and improve its profitability. The Change Manager should directly report to the President of Pakistan. His salary should be capped at a level agreed by the parliamentary committee and should come from PIA budget. Should a need arise to continue the interim arrangement for another year or two years for stability and profitability of the organisation, a new Change Manager should be recruited who is capable of carrying forward the airline on the new foundation laid by the outgoing Change Manager.
During the period of emergency measures and change management, all posts in the organisation should be terminated and automatically renewed on a two-year contract, renewable against performance and KPIs. Salaries should be revised. All currently admissible facilities for housing, transport, education, medical treatment, qualification allowance, or paid leave for staff should be valued in cash and merged with one take home but taxable salary. Government should exempt PIA under law from making any new appointments on the basis of employment quotas. PIA employee Unions should be disbanded for at least five years, and any existing supply or procurement contracts should be reviewed. The Change Manager should have full powers to renegotiate them on new terms to meet the requirements of a restructured national airline.
When PIA is completely changed in a period of 2 to 4 years, a new Board should be appointed which in turn will recruit a new CEO of the airline. The new CEO will then decide which areas of the airline are to continue doing profitable business and which to be closed, if required, based on the work done by the Change Manager to carry forward the airline.
The new Board members should be Pakistanis or overseas Pakistanis and qualified in their respective fields of expertise to have successfully led or operated a large profitable organisation. They should not include any political appointees or senior officers from civil or military bureaucracy and include at least 50% women. An international recruitment firm should shortlist Board members that should do likewise in selecting the CEO of PIA through an international public advertisement.
Prior to initiating these measures, the Parliament should enact a law to place PIA under emergency measures. The act of parliament will protect PIA from any lawsuit filed by a dismissed employee or discontinued vendor or anyone else in the name of public interest and give the court the legal cover to quash such petitions.
It will be naïve to think that there are no competing interests in the restructuring of the national airline. A strong lobby of workers would resist change because it could mean an end of their perks and jobs, irrespective of whether or not the airline is able to pay for them.
There are also political and business interests that will want to see PIA go down as a national airline so that they can benefit from its dismemberment and privatisation.
There are also federal and provincial interests where loss of jobs by a large number of people belonging to one province or ethnic group may be viewed as an attempt by the federal government to disregard provincial representation in the organisation.
There will also be spoilers who would resist change in order to save their own reputation because they couldn’t improve the ailing organisation when they were in charge and when gross neglect, incompetence and corruption set the rot in the organisation.
Whatever the challenges, PIA is a national airline of Pakistan and its issues must be addressed wisely with one step at a time. If PIA was once a rising airline of Asia flying great people around, it can again become a top airline given the intention and effort to make PIA serve Pakistan and its people because they deserve better.