SENATE SECRETARIAT
Subject: - MINUTES OF THE MEETING OF THE STANDING COMMITTEE ON DEFENCE AND DEFENCE PRODUCTION
A meeting of the Standing Committee on Defence and Defence Production was held on Wednesday 28th May, 2008 at 10.00 a.m. in Committee Room No. 1, Parliament House, Islamabad. Senator Nisar A. Memon was in the chair. The following attended the meeting.
(1) Senator Naeem Hussain Chattha Member
(2) Senator Asif Jatoi Member
(3) Senator Kamran Murtaza Member
(4) Senator Ms. Saadia Abbasi Member
The list of participants from Ministry of Defence and PIA is at Annex “A”.
2 The Agenda before the Committee was as under:-
i. Briefing on top management changes in PIA.
ii. PIA future plans for profitability.
iii. Removal of 80 flight Engineers.
iv. Rationale of recent Hajj/Umra fare increase.
v. Any other item with permission of the Chair.
3. The meeting started with recitation from the Holy Quran by Senator Kamran Murtaza.
4. In his introductory remarks Senator Nisar A. Memon welcomed the members of the Committee, the officers of Ministry of Defence and senior management of PIA to the meeting. He stated that this would be a quiet meeting as some members are traveling abroad. Minister for Defence is not present today and there is no communication to the Committee in this regard. The meeting was scheduled for last month but was postponed for today on the request of the Ministry. He referred to the statement of the Prime Minister where he said that Parliament would be made supreme but despite that the Minister is away from the meeting. In the last Government the Minister for Defence attended all the meetings of the Committee. The Minister should inform in writing why he could not attend. Senator Nisar A. Memon congratulated the new Managing Director of PIA and assured him full support of the Committee. After the introductions the Chairman invited the PIA management to brief the Committee on agenda item i.
Agenda item i
Recent top management changes in PIA
5. The oversized top Management and particularly executives hired on contracts on high salary and heavy emoluments were inducted in the airline despite the deteriorating financial position and accumulated losses, apart from high de motivation / disparity among all levels of employees. PIA had to face embarrassing situations, both at Public and Private, forums and hardly had any solid justification of hiring these individuals with no tangible and visible results and they did not have any airline industry exposure and expertise.
6. On 8th May, 2008, the positions of Directors have been reduced from 12 to 8 at present. The positions of General Managers PG-X Americas, Saudi Arabia and Yemen, UK + Ireland and UAE have been downgraded to Manager PIA in PG-IX and below. The positions of General Managers and equivalents have been reduced from 65 (as on 12 May, 2008) to 47 at present as a result of mergers / downgrading of Divisions to Sections. The departments of Customer Services, Quality Assurance and Special Projects have been abolished and Flight Safety and HSE department has been downgraded to the level of Division. The divisions of Passenger Services and Ramp Services of ex-Customer Services Department have been merged and directly reporting to Managing Director. The division of Flight Services has been placed under Flight Operations Department due to similarity in nature of duties / functions of Cockpit and Cabin Crew. The E-Solutions Division has been downgraded to a Section. The above steps have brought considerable savings to the airline and has resulted in streamlining the functions, de-layering of organizational hierarchy and enhanced the motivational level of employees. Currently, manpower rationalization / reduction at foreign stations are in the pipeline, which would also produce good results.
7. Senator Kamran Murtaza asked about the benefits attached to the position of Chairman PIA. Secretary Defence responded that part time chairman does not draw salary but has certain privileges like free travel during his incumbency. Senior members of PIA management avail 4 international tickets and 8 local business class tickets in a year but revenue passengers have priority. Senator Saadia Abbasi clarified that there is a difference between the Chairman of the Board and the Executive Chairman. Senator Kamran Murtaza inquired whether any pilot had risen to the post of Managing Director in PIA? Mr. Aijaz Haroon, MD PIA responded that pilots in PIA have risen to the level of Deputy Managing Directors but it is the first time that a pilot has been appointed as Managing Director. He said that there was nothing unusual about this as Chief Executive of British Airways and some other Charter Airlines are pilots. Senator Asif Jatoi inquired if Captain Aijaz Haroon was still flying. The MD responded that he would keep his license valid and do six takeoffs and landings in six months. Senator Kamran Murtaza stated that people senior to the MD were removed to appoint him as MD. The MD responded that there were seniors and juniors but till grade 9 seniority is a consideration and not after that. Moreover, some of the people that were removed were on contract.
8. The Committee desired that the following information may be provided in a week’s time.
i. What are the benefits provided to Chairman PIA? Both full time and Chairman, who is also a Minister.
ii. Names of employees hired on big salaries in the past.
iii. How much saving will accrue to PIA because of downgrading and purging of employees?
9. Senator Saadia Abbasi welcomed Captain Aijaz Haroon as MD PIA. She stated that the new MD is facing an uphill task and wished him good luck. She inquired about the criteria for selection of board members and the authority, which makes the appointment. She stated that in the past people from the Air Force were appointed to senior positions in PIA but today there are none. She asked whether some of the board members also hold shares of PIA. She suggested that Chairmen of the Senate and National Assembly Defence Committees should be made ex-officio Members of the PIA Board. She also inquired whether members of the board draw salary and allowances.
10. Mr. Kamran Rasool, Secretary Defence responded that PIA ownership is streamlined in a way that 90% shares are held by the Government while 10% are held by public listed companies while GOP monitors the operation of the Airline. The Prime Minister of Pakistan approves all appointments to the Board of PIA. Two members namely Kamal Afsar, Chairman State Life Insurance Corporation (SLIC) and Ali Raza, President National Bank of Pakistan (NBP) were elected to the Board in the last annual general meeting as SLIC and NBP hold shares of PIA. Secretary Defence informed that Members of the Board are not paid any salary. However, they are paid Rs. 3500/- for a meeting and hotel accommodation if the meeting is held outside Karachi. The term of the Board Member is three years but open ended. As far as the present board is concerned the criteria for selection is to possess corporate experience. DG Civil Aviation Authority is ex-officio member while Maj. Gen. Mir Haider Khan Additional Secretary represents Ministry of Defence.
11. Senator Kamran Murtaza inquired whether the restructuring of the top management had been approved by the Board. The MD responded that approval was not taken in advance but the restructuring carried out will be placed before the Board on 31st May 2008. Senator Kamran Murtaza further inquired whether approval of the HR Committee had been taken to which the MD responded in the negative.
12. The Committee recommended that the policy of appointment to the Board should be reviewed to include public representatives and flying professionals.
13. Senator Kamran Murtaza asked the new MD about his views regarding privatization of PIA. The MD stated that the word privatization was used by the corporate world when they fail to run an organization and then they privatize. Secretary Defence stated that the MD can not take a decision on this issue. This task has not been assigned to him but all options are open. PIA is in deep trouble and is provided Rs. 1.5 billion per month, whenever we talk of privatization people cast aspersions. Senator Nisar A. Memon stated that the issue of privatization of Roosevelt Hotel is still alive and after its clearance from the Board of Directors it should be placed before the Standing Committee. Senator Saadia Abbasi stated that it is a policy matter and is not included in the agenda today. Once the Government makes a statement then the Committee can discuss it. She was optimistic that PIA will turn around and added that presently all airlines are suffering financially. Senator Nisar A. Memon stated that Minister for Defence should give a policy statement on the privatization of PIA in the next meeting. MD PIA stated that his main objective is to reach a break even point which he will mention in the report to be presented by 30th June 2008. Moreover, there was no plan for privatization.
Agenda item ii.
PIA future plans for profitability
14. The recent extraordinary surge in fuel prices has forced the entire aviation industry to review its operational structure. IATA had initially projected an industry profit of US$ 7.8 billion for the year 2008. Following an upsurge in fuel prices IATA has twice revised downwards its forecast and in March 2008 it projected a profit of US$ 4.5 billion with an average crude price of US $ 86 per barrel. With the recent increase in crude oil prices, touching the level of US $ 127 per barrel, it is expected that the forecast will be further revised downwards. Many major airlines including Delta and United Airlines have posted losses in their 1st Quarter 2008 results. Indian Airline Industry is also expected to report losses of US $ 1 billion. PIA has also been hit very hard by the soaring fuel prices along with Rupee devaluation against the US dollar and unhealthy competition. In order to contain the impact of rising fuel prices, PIA has reduced utilization of older fuel inefficient fleet. The entire Boeing 747 fleet has been taken out from the schedule operation and will only be utilized for Hajj and Umra extra sections. PIA has also withdrawn two Boeing 747-200 Combi and one 747-300 which are surplus to PIA requirement and are placed for sale.
15. The current volatility in exchange rates has also adversely impacted PIA’s payment schedule of fleet related foreign exchange loans. To increase Yield, strategies have been devised. PIA has already increased fuel surcharge on domestic and international routes. It further plans to increase the fuel surcharge / fares and it is expected that these measures will bring in additional Rs. 3.0 billion in revenue. As part of the route re-structuring plan, several non-viable flights have been dropped altogether or frequencies curtailed. The dynamics of route economics are such that they require constant review of all variables impacting each route. Based on such review PIA has re-launched its flights to Glasgow and Moscow. In addition extra flights to Abu Dhabi, Katmandu, Sharjah and Dubai from various domestic gateways have also been started. At the same time, PIA has decided to capitalize on the opportunity arising from opening-up of Sialkot airport. Moreover, landing loops are being avoided for which CAA is being taken into confidence. In addition to the above, emphasis is also given to increase Engineering sales and generating additional revenue from Catering and other non-transport sectors. The new PIA management has already initiated the organizational re-structuring process in order to increase productivity and employee morale with significant reduction in senior management positions. Staff at foreign stations is being rationalized to further cut down the expenses. Cumulatively, all these measures are expected to yield results in near future. Business Plan is being revised/reviewed keeping in view the volatility in exchange rates and its impact on PIA operations.
16. Senator Asif Jatoi asked the following questions:
i. How many sets of 777 pilots are maintained by PIA?
ii. Are the pilots of grounded 747 aircraft performing any duty?
iii. Were the 747 pilots paid during the period that the said aircrafts were grounded?
iv. Is it true that last year $60 million were spent on refurbishing 747 aircrafts?
v. Why are the 747 not being used as Cargo Planes?
vi. What is the fuel consumption comparison on any given route between the 747 and 777?
vii. Why are 777 used on shorter routes?
viii. Why does PIA not pay fixed salary to all its pilots?
17. MD PIA responded that international practice is to maintain 9 sets of pilots per aircraft. No pilot is being denied rest or overtime payments and there is no plan for denying rest. The pilots of 747 were paid for the period that the said aircrafts were grounded but presently five 747 aircrafts are in operation. He agreed that $ 50 million were spent on the overhaul of the engines and refurbishing of the 747s. If the 747s is converted to a Cargo Plane the minimum cost would be $18 million per plane while for A310 it is $13 million. The 747s will however, be used for Hajj and Umra operation till 2011 and no planes will be leased for this purpose. The 777 consumes nearly half the fuel as 747 on a given route but the 747 carries more passengers. Fuel cost is based on cycle. For a shorter route the cost will be high but for a longer route cost will be less for each cycle. PIA is trying to undo the short routes for 777 but they have to touch Lahore and Islamabad although the maintenance base is in Karachi. In Islamabad between 5 and 11:00 a. m. PIA has no parking rights. Everything is reserved for Emirates and other airlines and at times PIA aircraft are asked to divert to other destinations. He requested the Committee to help the management in this regard. MD PIA informed that there is fixed salary for the pilots but every pilot is paid extra allowance for the number of hours that he flies an aircraft.
18. Senator Nisar A. Memon stated that PIA has positive plans. He wished the MD good luck and asked him to send his plan to the Committee for review. He also asked MD PIA to work out a solution with CAA regarding landing rights for PIA aircrafts at Islamabad airport between 5 and 11 am, which will be discussed in July in a meeting with CAA to which MD PIA would also be invited. The MD responded that the management will prepare a business plan by 30th June 2008.
Agenda item iii
Removal of 80 flight engineers
19. MD PIA informed that flight engineers were removed by the previous management but since 747s are in operation the flight engineer are backed on job and their termination letters have been withdrawn. Presently all of them are on duty except nine, who accepted retirement benefits. Senator Kamran Murtaza asked about the cost incurred by PIA on court cases instituted by some flight engineers. Secretary Defence responded that lay off flight engineers was a business decision. As 747s were not in operation therefore the flight engineers were grounded. Mr. Makhdoom Ali Khan was paid Rs. 30 lakh for the legal cases.
Agenda item iv.
Rationale of recent Hajj/Umra fare increase
20. Senator Kamran Murtaza inquired about the increase in the next Hajj ticket price. He informed that India’s Hajj fare is less than PIA fare. MD PIA responded that PIA management had a meeting with the Ministry of Religious Affairs, who asked to compare the air fares of India, Bangladesh and Sri Lanka. The exercise was carried out and it was observed that the difference was only Rs. 300. PIA is losing on Umra flights because the fare was calculated on the basis of $70 per barrel of oil while today it is $127. Every $ increase has an impact of Rs. 440 million. Senator Kamran Murtaza further asked as to why Umra fare is enhanced during the month of Ramzan. The MD responded that PIA has a multi fare system wherein the ticket price goes up as the seats get filled. Senator Saadia Abbasi stated that fuel price is a reality therefore PIA can not promise people lower ticket. We will be lucky if fuel price goes down to $100 per barrel.
21. Senator Saadia Abbasi asked if PIA could offer reduced fare for Pakistanis working in Saudi Arabia on Hajj flights coming back from Jeddah. MD PIA responded that the Saudi Government does not allow PIA to pick up passengers on return. Senator Kamran Murtaza stated that Multan Fokker crash report has not been discussed in the Committee. MD PIA responded that the inquiry is complete. The major factor was engine failure. There was fire in the engine and the crew got engaged in fighting the fire and could not pull the landing gear. He further inquired whether dependents of passengers who died in the crash have been compensated. The MD responded that nearly all have been paid except for those, who have gone to the court. He informed that Rs. 2 million were paid to the dependent of each passenger.
22. Senator Nisar A. Memon asked the management to send all the information required by the Committee at the earliest. He thanked the Members and the other participants for their participation.
23. The meeting concluded with a vote of thanks to the Chair.
IFTIKHAR ULLAH BABAR
Secretary Committee SENATOR NISAR AHMED MEMON
Chairman Committee
Annex “A”
List of Participants
1. Mr. Kamran Rasool Secretary Defence Division
2. Captain Mohammad Aijaz Haroon, Managing Director, PIA
3. Mr. Shahnawaz Rehman, Director Corporate Planning, PIA
4. Mr. M. Haneef Pathan Director HRA & Coordination, PIA
5. Mr. Iftikhar A. Janjua, Deputy Secretary, MOD
6. Maj. (R) Abdul Karim Gill Section Officer (Council),
Ministry of Defence
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