PIA: Time Is Flying

Fire Sale!!!

These days, the leading news item in the Pakistani financial sector is the debate about whether Pakistan International Airlines (PIA) should be privatized or not - the crux of the argument is that the Pakistani Finance Ministry has been instructed by the International Monetary Fund (IMF)  to sell 26% of PIA to a private investment entity by June this year; the Finance Minister has chosen to implement this line of action by rationalizing that PIA should be labelled a loss-making firm, on account of the fact that smaller private airlines claim to be making bigger profit margins than the national carrier, which reportedly costs the Pakistani exchequer PKR600 billion (approximately US$6 billion) per annum to keep it afloat. The various trade unions whose members are employees of PIA oppose this plan because, firstly, they maintain that PIA is functioning well enough that involving the private sector is unnecessary & illegal, & secondly, they consider it extremely likely that the first step the prospective private investor will take is massive downsizing.

So far, the Finance Minister is reported to have tried to sweep the problem under the rug by dismissing it as a trick by people who harbor a personal contempt for him; that combined with the horrific murder of 2 (& by some accounts, 3) PIA personnel has only served to make the deadlock even more serious than it already was. As to the announcement of the implementation of the Essential Services Act, most non-lawyers are only wondering that if PIA is classified as an essential service, how can it be outsourced without jeopardising the essential service it renders to the public?

However, the point of this week's discussion is not an assessment of whose stance is more or less "moral". That debate is best left to philosophers. The purpose of this article is to accurately identify the concerned parties & analyse how financially viable it would be to lose employee loyalty by pushing the privatization process through, without making sure that the concerns of the workers are properly addressed.

Merit Goods & Services

"Goods or services provided free or relatively cheap for the benefit of the entire society by a government, because they would be under-provided if left solely to market forces or private enterprise."

The world has changed in many ways since the turn of the Century; for example, back in the 1990s, nobody considered an Internet connection anything more than a luxury for the computer-savvy; during the recent World Economic Forum 2016, however, Mexico managed to snag the spotlight by reminding participants from other countries that the Internet was so important to remaining informed in today's day, that Web access should be included in the list of human rights.

The majority of world governments unequivocally agree that housing is a merit good, because every human being has a right to a roof over his head. That is why, despite the setback to its credibility that the Defense Housing Authority (DHA) has suffered as a result of the Capt. [r] Kamran Kayani case, nobody doubts the importance of the role government institutions like the Army General Headquarters (GHQ) play in providing affordable housing to deserving parties.

Similarly, transport - including air transport - is actually a very important merit good. That is the reason why roads, railways & shipping lanes are routinely kept under government supervision. Pakistan has already done a laudable job of ensuring private sector participation in the air travel industry since many years; in addition, according to some experts, the Government only ensured the downfall of Pakistan Telecommunication Company Limited (PTCL) in 2005 by handing 26% of the company over to Etisalat. So, it makes one wonder whether the people of Pakistan would be better off saving PKR600 billion per annum in PIA subsidies or more prosperous with a counter-balance to the risk of  predatory pricing by private airlines?

The IMF

According to the media, the image of the International Monetary Fund (IMF) has taken something of a hit by its insistence that the privatization of PIA (among other Pakistani state-owned enterprises) go ahead as planned, while showing what seemed like callous disregard for the tragic deaths of PIA personnel who were protesting the privatization of their employer company.

In reality, that is a grossly unfair characterization of the motives of IMF officials. It is true that the IMF is an international organization devoted to fostering global monetary cooperation, financial stability, international trade, high employment, sustainable economic growth & poverty reduction around the world; but equally significant is the fact that day-to-day IMF decisions are taken in line with the voting power of member states. Given below, is a breakdown of the voting percentage of the 188 IMF member countries:

• United States = 17.69%
• Japan = 6.56%
• Germany = 6.12%
• France = 4.51%
• United Kingdom = 4.51%
• China = 4.00%
• Italy = 3.31%
• Saudi Arabia = 2.93%
• Canada = 2.67%
• Russia = 2.50%
• India = 2.44%
• Netherlands = 2.17%
• Belgium = 1.93%
• Brazil = 1.79%
• Spain = 1.69%
• Mexico = 1.52%
• Switzerland = 1.45%
• South Korea = 1.41%
• Australia = 1.36%
• Venezuela = 1.12%
• Sweden = 1.01%
• Argentina = 0.89%
• Austria = 0.89%
• Indonesia = 0.87%
• Denmark = 0.79%
• Norway = 0.79%
• South Africa = 0.78%
• Malaysia = 0.74%
• Nigeria = 0.74%
• Poland = 0.71%
• 158 remaining members = 20.11% (approximate average = 0.13%)

Satisfied Employees = Successful Enterprise

"The value of a company’s brand name, solid customer base, good customer relations, good employee relations & any patents or proprietary technology represent goodwill (which is considered an intangible asset because it is not a physical asset like buildings or equipment). The goodwill account can be found in the assets portion of a company's balance sheet."

One of the least valued assets in Pakistan is "goodwill"; & the least valued component of goodwill is employee relations. Personnel loyalty is a highly sought after commodity in the financial world because satisfied workers are essential to a successful enterprise, be it state-owned or privately-owned.  That is the reason for the firm commitment to job security & satisfaction in every prosperous institution from the US Securities & Exchange Commission (SEC) to multinationals like Google. So, while all concerned parties in the PIA undoubtedly have the best of intentions, no private investor would stand a candle's chance in a cyclone of making a profit from PIA if the personnel that staff it are - as the trade unions fear will be the case - not well taken care of.