As Pakistan International Airlines Corporation (PIA) faces the prospect of privatization, it is imperative to examine global precedents for lessons and cautionary caveats. The privatization wave that swept across the globe has been a patchwork of successes and failures, each offering unique insights.
The theory of privatization, rooted in the belief that the private sector’s efficiency can revitalize failing state-owned enterprises, gained prominence in the 1980s under leaders like Ronald Reagan and Margaret Thatcher.
This view was further propagated by institutions like the IMF and the World Bank. However, the outcomes have been mixed. While some privatizations have led to more efficient and competitive markets, others have resulted in increased inequality and loss of public assets.
For instance, the privatization of utilities in the UK initially resulted in improved services and reduced fiscal burdens. Over time, however, concerns about monopoly power and price hikes surfaced. In Eastern Europe, rapid privatization post-communism led to significant wealth disparities and, in some cases, economic instability.
The aviation industry has witnessed its share of privatization failures. Aerolineas Argentinas, after being privatized in the 1990s, faced numerous challenges, leading to its re-nationalization in 2008. The privatization process was criticized for its lack of transparency and the subsequent financial instability it caused the airline.
Another example is that of SABENA, the Belgian national carrier. The airline’s strategic partnership, part of its privatization strategy, did not lead to the expected turnaround, and SABENA went bankrupt in 2001. This demonstrates the risks associated with privatization when not accompanied by a robust strategic plan.
Alitalia, Italy’s flag carrier, faced numerous financial challenges after privatization and underwent several failed rescue attempts, costing the Italian government billions in bailouts.
Despite efforts to revitalize the airline, including a strategic partnership with a UAE-based airline, the Italian carrier eventually folded, leading to the creation of a new national carrier, ITA Airways.
The acquisition of Air Italy by another carrier was meant to create synergies and save the struggling airline. However, this move did not yield the expected results, thus highlighting the complexities of airline privatization and the importance of strategic planning.
The concept of an Airways Partner led to a series of financial losses and restructuring efforts, serving as a reminder that aggressive expansion without a clear turnaround strategy can lead to dire financial consequences.
Our local aviation industry has not painted a bright future for private airlines; there have been several failures in the recent past. AeroAsia was suspended in 2007 due to managerial and financial issues, followed by the closure of Shaheen Air in 2019, the second-largest Pakistani airline at the time. In the early ’90s, Hajvairy Airlines operated briefly before failing due to poor financials.
These examples underscore the critical need for a thorough and transparent privatisation process. It’s not just about initiating the process or determining who leads it, but ensuring a robust regulatory framework, stakeholder engagement, and a focus on long-term societal benefits. The case of PIA’s privatization should be approached with caution, learning from these lessons to avoid repeating past mistakes.
The regulatory framework of the aviation industry in Pakistan has inherent weaknesses that need to be addressed promptly to match the pace of the privatization process.
The Pakistan Civil Aviation Authority (PCAA) has been criticized for its capacity to manage airlines and provide an affordable, faster, and hassle-free alternative to road and rail transport.
Since its inception over 76 years ago, we have only been able to construct and operate three civilian airports, compared to a twelvefold increase in the length of roads in Pakistan. Globally, road transport is the most expensive means of transport, indicating that our infrastructure, while effective, has not been efficient.
With the recent approval of the National Aviation Policy 2023, there is a focus on enhancing safety standards and fostering a low-tax regime to attract investments in the aviation sector. However, the effectiveness of these measures remains to be seen, and the EASA ban on Pakistani pilots continues to persist.
There is a misconception that the ban is specific to PIA, but it is not on the airline but on the pilots it employs holding PCAA licenses. These same pilots, with certifications ratified by other regulators, continue to fly in and out of EU and UK airspace.
This narrative has led to a prolonged delay in addressing the root cause and rationale for PIA’s privatization, despite the airline posting historic revenues exceeding PKR 230 billion in passenger sales alone for 2023 and closing the year with an operational profit of PKR 7 billion.
Social media, political opponents, and bureaucrats continue to focus on peripheral issues while structural reforms in testing and licensing at PCAA remain absent. Western culture and society embody the concepts of corrective and preventive measures, which can be verified by paper and sight.
The regulatory framework of Pakistan’s aviation industry, overseen by the PCAA, is undergoing significant changes to enhance its capacity to manage the aviation sector effectively.
The National Aviation Safety Plan 2022-24 outlines strategic initiatives for improving aviation safety and aligns with the International Civil Aviation Organization’s (ICAO) standards.
The PCAA’s commitment to adopting internationally recognized programmes, such as the IATA Operational Safety Audit (IOSA), demonstrates a firm intention to improve safety performance and oversight capabilities.
The IATA Operational Safety Audit has been a mandatory requirement for IATA membership since 2004-5, and PIA has remained compliant, securing annual certification from independent third-party auditors.
Aviation industry expertise is lacking in Pakistan, primarily because the aviation industry or private ventures never flourished or were encouraged. The PCAA continues to be dominated by former uniformed servicemen and bureaucrats, constantly vying for top positions.
These positions were earlier held by personnel who, right or wrong, had the necessary expertise from working in the civilian aviation industry both domestically and internationally.
The National Aviation Policy of 2019 was a comprehensive document aimed at guiding the growth of the aviation industry in Pakistan. It emphasized the importance of aligning with international standards and best practices to maximize aviation growth potential.
The policy revisions in 2019 sought to address the challenges faced by the industry, including the need for a competitive yet flexible operating environment for airlines. It offered some degree of protection to the local industry from predominantly Islamic countries and their city-state airlines.
The open sky policy, adopted in 1992 with the commissioning of Jinnah International Airport in Karachi, was designed to liberalize the aviation market. However, this policy led to a capacity glut, severely impacting the competitiveness of Karachi airport and resulting in financial losses for the national exchequer as foreign airlines siphoned off traffic that could have been served by Pakistani airlines.
For the complexities of overseeing PIA’s privatization, it is crucial to ensure that the regulatory framework is robust and capable of managing the transition effectively.
The lessons learned from the open sky policy and the revisions in the National Aviation Policy must inform the approach to privatization, ensuring a sustainable and competitive future for PIA and the broader aviation industry in Pakistan.
As PIA navigates the turbulent skies of privatization, the pace at which the process has been initiated is another cause for concern. The swift movement towards privatization, reportedly necessitating a comprehensive 30-step plan, is projected to take anywhere from six months to a year. This rapidity, while indicative of a decisive approach, may lead to significant loopholes in oversight.
The absence of a robust regulatory framework and questions about the capacity of the PCAA to regulate the nation’s largest airline, with a workforce of approximately 7,000 to 8,000 employees, are particularly troubling.
The PCAA, while overseeing aviation safety and security operations, must now rise to the challenge of ensuring that the privatization does not compromise the integrity of the aviation sector.
The need for a meticulous and transparent process is paramount to safeguard the interests of the employees, the passengers, and the nation at large.
As PIA stands on the cusp of a historic transformation, it is imperative that the process is not just rapid but also thorough, leaving no stone unturned to ensure the airline’s successful transition into a competitive, efficient, and sustainable future.
Copyright Business Recorder, 2024
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