Report finds fault with Open Skies Policy for PIA's decline
A parliamentary fact-finding
committee has concluded that the Open Skies Policy, which allowed Gulf airlines
to expand their operations, was the primary cause behind the decline of
Pakistan International Airlines (PIA). The policy enabled these airlines to
operate beyond the intended scope of bilateral service agreements, contributing
to PIA’s shrinking market share.
As a result of the policy, PIA’s
market share plummeted from 50% to just 20%. In addition, frequent management
changes and the appointment of inexperienced individuals further exacerbated
the airline’s struggles. The findings were presented in a report to the
National Assembly Standing Committee on Privatisation.
The committee also recommended the
establishment of an Inquiry Commission to probe former Aviation Minister
Chaudhry Ghulam Sarwar for making a statement that allegedly caused PIA $600
million in losses over four years.
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The report, presented by the
committee led by Pakistan Peoples Party’s MNA Sehar Kamran, highlighted the
impact of the Open Skies Policy, which allowed foreign airlines to operate 100
flights per week to Pakistan. Other contributing factors to PIA’s decline
include an outdated fleet, lack of funds, and high taxes on fleet expansion.
According to the report, PIA’s
liabilities now exceed Rs740 billion, including vendor dues, fuel charges, and
government-backed loans. The committee recommended implementing structured
financial support, similar to international models where national carriers
receive subsidies and tax exemptions, and called for stable leadership to
improve PIA’s future.
While the Open Skies Policy was
designed to enhance competition and improve service quality, it ultimately
harmed PIA, which struggled to compete with foreign carriers, particularly
those from the Gulf, who benefit from significant government subsidies.
The committee pointed out weaknesses
in the agreements, which lacked passenger and carrier limits and did not impose
restrictions. “The Open Sky Policy contributed to reducing PIA's market share
from 50% to just 20%,” said Kamran. The influx of Gulf carriers, including
Emirates, Qatar Airways, Turkish Airlines, and Etihad Airways, which operate
more than 100 flights per week to Pakistan, further dominated international
routes, forcing PIA into a defensive position.
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Over the past decade, PIA has
focused mainly on domestic and a few international routes, while Gulf airlines
expanded aggressively. As a result, PIA carried 26% fewer passengers in 2024
compared to 2000, even though Pakistan’s population, especially the middle-income
group, has grown.
The inquiry also looked into various
factors, including the implications of the Open Skies Policy, sovereign
guarantees to PIA, the grounding of 21 aircraft—including Boeing
777s—staff-to-aircraft ratios, and the status of non-core assets. The committee
also reviewed the government's failed attempt to privatize PIA, with the
Secretary of the Privatisation Commission, Usman Bajwa, revealing that $4.3
million had been paid to financial advisor Ernst & Young, with an
additional $2.6 million owed for the second privatization attempt.
Currently, only six of PIA's 12
Boeing 777 aircraft are operational, while the remaining planes are grounded
due to financial constraints. Out of a total of 32 aircraft, only 19 are in
service. High taxes on fleet expansion and delayed procurement of essential
components have worsened PIA's financial troubles, making it difficult to
compete with regional rivals.
In an attempt to mitigate the fleet
shortage, PIA began wet leasing aircraft, but this led to financial losses. For
instance, a wet-leased aircraft operating on the Islamabad-London route under
the Premier Service caused Rs2.9 billion in total losses, including Rs1.1
billion in operational losses. Despite feasibility studies predicting losses,
the London Premier Service was launched.
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The committee also noted that a
code-sharing agreement with Turkish Airlines, meant to expand PIA’s
international connectivity, was abandoned prematurely due to internal
resistance from the PIA Pilots’ Association and political opposition.
Furthermore, the introduction of the
Golden Handshake Policy, which led to the dismissal of 3,000 employees,
resulted in the loss of skilled engineers and technical staff, many of whom
joined competitor airlines.
The report also highlighted high
workforce costs, with PIA’s employee-to-aircraft ratio standing at 215,
slightly above the industry average of 200.
Recommendations
The committee made several
recommendations to revive PIA, including ensuring leadership stability,
investing in fleet expansion, improving service quality, implementing financial
restructuring, and strengthening aviation policy support.
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The committee also emphasized that
any future privatization efforts must include strategic restructuring,
addressing past mismanagement, ensuring transparent governance, and securing
sustainable financial backing. It urged PIA to focus on regaining its presence
on key international routes and improving service delivery to win back
passenger trust. Additionally, the government should reconsider and renegotiate
the Open Skies Policy to ensure a fair competitive environment for PIA.
Finally, the committee proposed
forming an Inquiry Commission to investigate the former Aviation Minister’s
statements regarding PIA pilots, which led to a ban by the European Union
Aviation Safety Agency (EASA) and an estimated $600 million loss in revenue
over the past four years.
Source: Express Tribune