It's not hopeless, but this probably among the difficult airline turnarounds ever attempted.
As the new head of Pakistan International Airlines Corp., Bernd Hildenbrand faces the biggest challenge of his career: getting the state-owned carrier to think about the future instead of living in the past.
One of the first things the 61-year-old Deutsche Lufthansa AG veteran did after taking the helm in May was to remove hundreds of old photos from the entrance of PIA’s headquarters glorifying its past. That included one of U.S. former first lady Jacqueline Kennedy.
“Nice photos, really nice, Kennedy did fly with PIA, wonderful, but it doesn’t help us now,” Hildenbrand, the bespectacled carrier’s acting chief executive officer, said in an interview in his office in Karachi, Pakistan’s commercial capital. “We have to make a leapfrog and go into the future.”
Hildenbrand is attempting to turn around an airline which has been hobbled by frequent labor strife, hasn’t made an annual profit in the past decade and has a higher debt burden than Singapore Airlines Ltd. and Malaysia’s AirAsia X Bhd. combined, according to data compiled by Bloomberg. It has also lost market share to Gulf carriers such as Emirates Airline and Etihad Airways PJSC.
The modernization plan includes introducing flat beds in business class for the first time this month on flights to London. The national flag carrier will also lease aircraft and increase its fleet to 100 by 2025, from a current 38. Emirates has 251 planes, according to its annual report.
PIA “projects as a workers’ airline, flying workers from Pakistan to Qatar, Oman, Bahrain and Dubai, and doesn’t have a luxury product perception,” said Mark D. Martin, founder of Dubai-based Martin Consulting LLC. “It needs to figure out what it aspires to be and its place in the world.”
Emirates now flies more to coastal Karachi than PIA to Dubai. “We need to find strategies to change that,” said Hildenbrand. As “1.5 million Pakistanis live in Dubai, it’s a market. We have to think how to tap this.”
Even as the German national seeks government help to increase the fleet’s size, the company is also struggling under legacy loans that have resulted in servicing costs of about 4 billion rupees ($38 million) a month.
“Operational profitability is very important,” he said. “We have some legacy loans, of course they make our life difficult. This is something we have to think with the government.”
The airline has long been earmarked as part of Prime Minister Nawaz Sharif’s drive to privatize state-owned companies, reforms that are part of a $6.6 billion loan agreement in 2013 with International Monetary Fund to avert a balance-of-payments crisis. Yet with the IMF program due to end next month, the sale of a 26 percent stake in the national carrier was stalled by violent protests and strikes in February.
Sharif’s administration is still pushing ahead. Financial advisers were asked to start “soft marketing” for the company with a plan for the government to retain management control, Ahmad Nawaz Sukhera, secretary in the Privatisation Commission, said in an interview on Wednesday.
The government owns a 92 percent stake in PIA and the employees own 3.9 percent. Losses more than tripled to 27.8 billion rupees in 2015 from 2010, director Amir Ali told lawmakers in January. The carrier has about 17,000 employees, Hildenbrand said. It also has the second-lowest revenue-to-employee ratio of 118 listed airline peers, according to data compiled by Bloomberg.
“Unions here need to understand we can’t leave the company as it was,” Hildenbrand said. “They need to learn the modern way of management, this takes time.”
The carrier made a total operational loss of 7.5 billion rupees in the nine months ended September. The carrier’s stock price has declined 9 percent this year compared with a gain of 21 percent in Pakistan’s benchmark stock index, Asia’s best performer. The company’s shares fell 0.9 percent to 7.56 rupees in Karachi.
“First of all, the government has to help us,” said Hildenbrand. “We also have to earn money. We already had some months where we had operational profits.”’
Hildenbrand, who has worked for about four decades with Lufthansa and briefly with India’s defunct ModiLuft airline, is also set on improving PIA’s cosmetics by fixing broken seat-belt lights and improving cleanliness. His solution is using multiple platforms such as Facebook Inc.’s WhatsApp messaging service to get flight attendants and staff to communicate and act quickly.
“We need to understand PIA does not live in a secluded world or a silo,” said Hildenbrand. “We are living in an airline world which is fast. It is time to change.”
–With assistance from Anurag Kotoky and Kamran Haider To contact the reporter on this story: Faseeh Mangi in Karachi at email@example.com. To contact the editors responsible for this story: Arijit Ghosh at firstname.lastname@example.org, Chris Kay, Sam Nagarajan
©2016 Bloomberg L.P.
This article was written by Faseeh Mangi from Bloomberg and was legally licensed through the NewsCred publisher network.
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Photo Credit: A former Lufthansa executive is trying to turn around Pakistan International Airlines. Jez / Flickr
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