Pakistan International Airlines Corporation History

Company Perspectives:

Pakistan International Airlines, as a symbol of national pride, should be a choice airline operating profitably on modern commercial concepts, capable of competing with the best in its entire international and domestic markets, consistently exceeding customer expectations. It should be a choice employer deploying modern technology in all spheres of its activities.

Key Dates:

1946:

Orient Airways is formed.

1955:

Pakistan International Airlines is formed and merges with Orient.

1959:

"Golden Years" of the company begin with appointment of Nur Khan as managing director.

1964:

PIA begins service to China.

1970:

Flight Kitchen is set up.

1973:

The company orders its first wide-body jets.

1981:

Pakistan approves a $60 million bailout package.

1991:

The company tallies a rare annual loss due to factors arising out of the Gulf War.

1994:

A restructuring program is introduced.

2000:

The government approves a Rs 20 billion bailout for PIA.

Company History:

Pakistan International Airlines Corporation (PIA) is the flag carrier of Pakistan, whose government owns 85 percent of its shares. PIA's route network stretches to Asia, the Middle East, Africa, Europe, and North America. It connects 35 cities within Pakistan. Six million people flew the airline in 2000, when passenger traffic accounted for 85 percent of revenues. Engineering and charter services accounted for nine percent. PIA also conducts some contract work for aerospace manufacturers.

Origins

Pakistan's first airline pre-dated the creation of the country itself on August 14, 1947. Merza Ahmad and Merza Abol Hassan Ispahani, two brothers from a wealthy textile family in Bengal, had formed Orient Airways on October 23, 1946. Using the same type of war surplus Douglas C-47s that had launched so many other airlines, Orient established a Calcutta-Akyab-Rangoon route on June 30, 1947. The company's headquarters was moved from Calcutta to Chittagong due to the war that accompanied the Partition of India that summer. In October 1947, Orient began connecting the eastern half of the country (now Bangladesh) with the west, 1100 miles across India.

Pakistan's Ministry of Defense created Pakistan International Airlines (PIA) as a government department in 1951. The government combined Orient with PIA on October 1, 1953, but continued flying under its own name. PIA took over one of Orient's routes, Karachi-Dacca, on June 7, 1954 using a new Lockheed Super Constellation. In February 1955, PIA began flying to London via Cairo using another of its three Constellations. Older planes such as the DC-3 and the Convair continued to form the basis for the domestic fleet, though turboprop powered Vickers-Armstrong Viscounts were being phased in by the end of the decade.

PIA became a state corporation on March 11, 1955. After this, Orient's planes were repainted in PIA's green livery; Orient's shareholders received a 40 percent interest in PIA. A route between Karachi and Delhi, the capital of India, was launched on March 15. Pakistan International Airlines Corporation was incorporated on April 18, 1956 under the Pakistan International Airlines Corporation Act; it listed on the Karachi Stock Exchange on November 5, 1957.

In spite of technical assistance from Pan American Airways, PIA suffered a couple of crashes in the late 1950s. Zafarul Ahsan, the civil servant who had guided the airline's early development, was blamed for these and replaced by Air Commodore (later Air Marshall) Malik Nur Khan in 1959.

Jet-Powered in 1960

In 1960, PIA became Asia's first jet operator, flying a weekly service to London using a Boeing 707 leased from Pan Am. This route was extended to New York the next year but was suspended in 1963 due to a lack of traffic. At the same time, PIA was offering low-priced "Airbus" service in its domestic markets. For a couple of years between 1963 and 1966, PIA operated a scheduled helicopter network.

A number of unique international air links were established in the mid-1960s. PIA began flying to Kabul, Afghanistan and in 1964 became the first non-communist airline to fly to the People's Republic of China. It also flew to Moscow and, briefly, Teheran. By the end of the decade, its international network included Paris, Istanbul, Dubai, Bangkok, Manila, and Tokyo.

PIA also suffered some atrocious setbacks. A Boeing 720 jet crashed at Cairo in 1965, killing 123 people. Nur Khan was replaced as managing director by Asghar Khan. In the same year, armed conflict erupted in the Punjab. In 1966, PIA lost one of its three Sikorsky S-61 helicopters in a fatal accident. Violent uprisings in East Pakistan led to the formation of the independent state of Bangladesh and scuttled the flights that had connected Pakistan's two widely separated wings. This effectively cut PIA's traffic in half, notes aviation historian R.E.G. Davies.

New Ventures in the 1970s

Routes were redrawn and the fleet was trimmed in response to PIA's loss of territory. However, the reduction in traffic was only temporary. Pakistani immigration to Great Britain and demand for labor in the Gulf States pushed loads past projections. PIA was also doing a brisk cargo business.

R.E.G. Davies notes a couple of interesting side ventures during this period. PIA had its own nursery for stocking its cabins with fresh flowers. It also operated its own poultry farm to meet its own catering needs as well as those of other airlines passing through Karachi.

PIA ordered its first wide-body jets in April 1973. However, this order for three Douglas DC-10s was marred by a bribery scandal. Air Marshal Nur Khan returned as PIA chairman in 1974 and was joined by Enver Jamall, a veteran of the Tata airline in India, as managing director.

After losing money in 1971-72, PIA showed a profit of $3 million in 1974. Its ancillary services to other airlines brought in $4 million a year, while its annual budget was about $200 million. Operating profits reached $5.5 million in 1975-76 on revenues of $206.6 million.

In 1976, PIA began operating Boeing 747 jumbo jets, leased from TAP of Portugal, for the first time. The increase in capacity allowed PIA to carry 20,000 pilgrims to Jeddah every year. In 1977, service resumed to Bangladesh, formerly East Pakistan.

In a pattern more typical of western airlines' involvement with those of developing countries, PIA acquired a 20 percent interest in Air Malta in April 1977 and supplied it with technical staff. PIA also helped Air China set up its flight kitchens.

Jamall was named PIA chairman in 1978; M.M. Salim, one of the company's earliest managers, returned as managing director two years later. Expansion of the fleet continued.

Difficult Times in the 1980s and 1990s

Jamall and Salim were replaced by Major General Rahim Khan and Air Marshall Wigar Azim as chairman and managing director, respectively, in 1981. The company had suffered a couple of serious aircraft mishaps. With the prospect of financial losses looming near, the new management cut four thousand jobs, reducing the total to 20,000, while unions were banned by martial law. A $60 million bailout package gave the government an equity shareholding. Revenues rose 17 percent to PkR7,702 million ($570 million) in 1982-83, with after-tax profits doubling to Rs411 million.

The PIA fleet now included 23 jets and nine Fokker turboprops. PIA ordered several new short-range Boeing 737 jets in the mid-1980s to carry its feeder traffic. Other propeller-driven planes rounded out its domestic fleet. However, in contrast to PIA's earlier growth periods, much of the fleet seemed outdated by 1995, noted Air Transport World.

PIA initiated a unique Islamabad-London flight via Moscow in the mid-1980s. By 1990, three Pakistan cities were linked to England, and Manchester was added as an English destination.

The prospect of a partial privatization of 15 percent of the airline was being raised by 1990. PIA was making profits, but was hampered by certain government mandates, such as artificially low domestic fares, high jet fuel taxes, and a ban on serving or selling alcoholic drinks. A couple of years later, the government would increase duty on aircraft and parts as well as airport fees.

The collapse of the Soviet Union in late 1991 created new opportunities for PIA with several newly independent Muslim states. PIA's western fleet and technical expertise made it unique in the region. In 1993, the domestic air market in Pakistan was opened to competition from private airlines for the first time in 40 years. A dozen tiny carriers soon sprang up.

PIA posted its first loss during fiscal 1991 due to the spike in insurance premiums and fuel prices caused by the Gulf War. It lost an estimated $40 million on domestic service alone. However, the next year saw record profits of $41 million on revenues of $880 million. Air Marshall Farooq Umar, managing director, introduced a restructuring program after net profits slipped to $4.5 million in 1993-94. Umar had been the first CEO of Shaheen Air, a former cargo airline that was now competing with PIA for passengers, even international ones, after being allowed to fly to the Persian Gulf in the mid-1990s.

By this time, ancillary projects provided an important part of PIA's revenues, though the chicken farm had been sold. The company conducted maintenance and training for other airlines. One unit even manufactured parts for aerospace companies such as Boeing, GE, and SNECMA. The company invested heavily in automation and computer systems, selling some software to third parties. PIA also had interests in hotels in Karachi and abroad.

Challenges Continue in 2000

In the late 1990s, former prime minister Benazir Bhutto was accused of illegally giving out jobs at PIA during her second term in office, between 1993 and 1996. Sher Afghan Malik, managing director in 2001, had to deal with a ticket sales scandal that he estimated may have been costing the airline up to PkR2.8 billion ($45 million) a year. There were also complaints of inefficiency and poor customer service, reported the Financial Times. PIA had lost international stature and was considered by some to be primarily an "ethnic carrier" devoted to ferrying expatriates home, rather than a competitive choice for tourists or business travelers.

Hamid Nawaz, a retired lieutenant general who was PIA's chairman, urged management to help turn the airline around. By July 2001, PIA had a PkR20 billion financial package from the government and the trade unions were once again effectively suspended. Malik had earlier expressed hope that making changes to the computer reservations system would help restore profits.

PIA lost PkR11 billion in 2000. Management expected the company to break even by the end of 2001. Although national pride was an important part of PIA's mission, there was a limit on the price the government was willing to pay for the prestige of having an international air carrier. As in the past, there was the implicit threat that unless the airline could operate on its own, it would simply cease to exist.

The U.S.-led campaign against the Taliban in neighboring Afghanistan resulted in most foreign airlines canceling their scheduled flights to Pakistan. Twenty-nine of them closed their offices in Pakistan in September 2001. The air campaign against Taliban forces also affected PIA negatively, due to the closing of seven of Pakistan's airports and declaration of its airspace as a war zone. PIA lost PkR2.09 billion on sales of PkR47.11 billion in the year ended December 2001.

Pakistan's intensifying dispute with India again curtailed PIA's extensive connections with that country in 2001. After India banned PIA from its airspace in January 2002, Cathay Pacific stepped in to carry PIA traffic to Bangkok, Hong Kong, and Singapore. PIA had earlier lent Cathay Pacific assistance during a pilots' strike. The political and military volatility in the Middle East and Central Asia continued to affect the operations of PIA and would perhaps do so for some time to come.

Principal Subsidiaries: Midway House (Pvt) Ltd.; PIA Hotels Ltd.; PIA Shaver Poultry Breeding Farms (Pvt) Ltd.; Skyrooms (Pvt) Ltd.

Principal Divisions: Automation; Cargo Sales & Services; Flight Kitchen; Flight Operations; Ground Handling; Precision Engineering Complex; Telephone Sales; The Training Centre.

Principal Competitors: Emirates Group; Gulf Air; Saudi Arabian Airlines; Shaheen Air International.

Further Reading:

• Aftab, Mohammed, "PIA Braced for Harsher Climate," Financial Times (London), January 14, 1986.
• ------, "Taking a New Flight Path," Financial Times (London), January 10, 1984.
• Bokhari, Farhan, "Ailing Pakistani Airline Looks for Uplift," Financial Times (London), Companies & Finance Sec., April 12, 2001, p. 31.
• "Cathay Pacific to Help Pakistan International Airlines Beat Indian Ban," Business Recorder, January 9, 2002.
• Coleman, Herbert J., "Capacity Boost Spurs Pakistani Carrier," Aviation Week & Space Technology, July 21, 1975, p. 32.
• ------, "Pakistan Hopes to Double Airline Services Revenue," Aviation Week & Space Technology, August 25, 1975, p. 71.
• Davies, R.E.G., "Airlines of Pakistan," Airlines of Asia Since 1920, London: Putnam Aeronautical Books; McLean, Virginia: Paladwr Press, 1997, pp. 63-83.
• Hill, Leonard, "Jump Starting PIA," Air Transport World, July 1997, pp. 169ff.
• Khomne, Ranjit, "PIA Chief Heads Back Home," The Times of India, December 31, 2001.
• Mirza, Iqbal, "PIA Chief Unfolds 10-Year Plan to Make Airline Financially Stable," Business Recorder, September 23, 2001.
• ------, "PIA's 10 Aircraft Grounded for Want of Spares," Business Recorder, July 14, 2001.
• ------, "With Foreign Carriers Shying Away from Pakistan, Heavy Responsibility Falls on Pakistan International Airlines," Business Recorder, October 9, 2001.
• "Over Meddling Led to Pakistan International Airline's Decline: Enver Jamall," Business Recorder, October 31, 2001.
• "Pakistan Drops Restrictions, Pursues International Flights," Aviation Week & Space Technology, April 12, 1993, p. 28.
• "Pakistan International Airlines: Eager to Establish Direct Air Links with Korea," Business Korea, August 1992, p. 47.
• "Pakistan International Airlines Suffered Losses Worth Rs11 Billion in 2000," Business Recorder, August 15, 2000.
• "Pakistan New Entrants Line Up Against Barriers," Airfinance Journal, May 1994, p. 16.
• "PIA Invests in Automation, Sells Software to Other Airlines," Aviation Week & Space Technology, August 10, 1992, p. 38.
• "PIA Management Urged to Help Rescue Airline," Business Recorder, July 19, 2001.
• Proctor, Paul, and Irtaza Malik, "Liberalization Spurs New Pakistan Airlines," Aviation Week & Space Technology, April 12, 1993, p. 38.
• Proctor, Paul, "PIA Moves to Capture Growth in Central Asian Business," Aviation Week & Space Technology, August 10, 1992, p. 38.
• Rao, N. Vasuki, "India, Pakistan Ban Overflights," Journal of Commerce--JoC Online, January 2, 2002.
• "Rs51.8bn Budget Approved for PIA," DAWN Internet Edition, December 13, 2001.
• Vandyk, Anthony, "Growing Pains," Air Transport World, March 1995, p. 83.
• Westlake, Michael, "Local Turbulence: PIA Aims for Partial Privatisation," Far Eastern Economic Review, January 18, 1990, p. 39.

  Source: International Directory of Company Histories, Vol. 46. St. James Press, 2002.

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