pia report full n final

8/13/2019 PIA Report Full n Final.

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INTRODUCTION

PIA (Pakistan International Airlines) started in 1946 when Muhammad Ali Jinnah

realized the need for an airline network for the forming country and Muhammad AliJinnah called upon the help of an experienced industrialist Mirza Ahmad Ispahani to

develop a flag carrier for the nation. Meanwhile, an airline called Orient Airways

registered in Kolkata was formed on October 23 1946. Orient Airways was a privately

owned company, with limited capital and resources. It could not be expected to grow and

expand independently. It was then that the Government of Pakistan decided to form a

state-owned airline and invited Orient Airways to merge with it. The outcome of the

merger was the birth of a new airline, through PIAC Ordinance 1955 on January 10,

1955. PIA is the first airline to get certified (initial certification) on Safety Management

System (SMS) by Civil Aviation Authority CAA - Pakistan. CAA Air Navigation Order

(ANO 91.0032 issued in September 2008) binds all airlines operating in Pakistan to have

SMS. Well before the issuance of this ANO, PIA initiated SMS awareness and

implementation in July 2008. PIA awarded initial certification on SMS in 27th February

2009 by CAA.

The Government of Pakistan, realizing the operation was failing economically, proposed

that Orient Airways merge into a new national airline. On March 11 1955, Orient

Airways merged with the government's proposed airline, becoming Pakistan International

Airlines Corporation. During the same year the airline opened its first internationalservice, from Karachi to London Heathrow Airport.

In March 1960, PIA became the first Asian airline to enter the jet age when Boeing 707

services were introduced.The aircraft were wet leased from Pan American and in 1961

services were begun to John F. Kennedy International Airport in New York. PIA is

owned by the Government of Pakistan (90%) and other 10% shares floated to KSE

(Karachi stock exchange). In 2007 PIA achieve the award of ISO 9002 certificate and

every department maintain the record for internal and external audit .PIA has 18000

employees as per estimated July 2012.

PIA has been certified by the IATA Operational Safety Audit (IOSA) for conforming to

the highest standards of safety. The IOSA Certificate is an all-encompassing safety audit


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which reviews facilities such as engineering, flight operations, medical and equipment

maintenance, operational efficiency, safety of planes, and emergency response

procedures. PIA is proud to have been cleared by the vigorous standards of IOSA, having

demonstrated adaptability to change, and the ability to refine and implement requirementsand procedures ensuring operational safety and efficiency.

Board of Directors

Ch. Ahmed Mukhtar (Minister for Defence and ChairmanPIA)

Mr. Husain Lawai

Mr. Abdul Wajid Rana (Federal Secretary Finance)

Mr. Makhdum Syed Ahmad Mahmud

Mr. Malik Nazir Ahmed

Mr. Javed Akhtar

Mr. Syed Omar Sharif Bokhari

Mr. Khawaja Jalaluddin Roomi

Mr. Yousaf Waqar

Mr. Muhammad Shuaib (Corporate Secretary)

Executive Management

Mr. M. Salim Sayani (Deputy Managing Director)

Mr. Nayyar Hayat (Chief Financial Officer)

Mr. Irshad Ghani (Director - Corporate Planning)

Mr. Maqsood Ahmed (DirectorEngineering& Maintenance)


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Mr. Naveed Ahmed Aziz (Director - Flight Operations)

Mr. Muzaffar Talpur (Director - Flight Services)

Mr. Sher Muhammad Jamali (DirectorInformation Technology)

Mr. Amanullah Qureshi (DirectorProcurement& Logistics)

VISION

PIAs vision is to be a world class profitable airline meeting customer expectations

through excellent services, on-time performance, innovative products and absolute safety

MISSION

Employee teams will contribute towards making PIA a global airline of choice through:

Offering quality customer services and innovative products Using state-of-the-art technologies Ensuring cost-effective measures in procurement and operations Developing Safety Culture

Corporate Values

Customer Expectations (Convenience, Care, Affordability) Service (Personalized, Courteous, Passionate) Innovation (New Ideas, Products, Value Added Services) Cohesiveness (Respect for Individuals, Teamwork and Effective

Communication)

Integrity (Business Ethics, Accountability, and Transparency) Reliability (Loyalty and Consistency) Safety (Passengers, Employees, Environment)


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VARIOUS OPERATIONS

Reservation and Ticketing

In reservation and ticketing Department tickets are issued or reserved for the customers,

ticket is a document for the traveling of the passengers. Reservation department deals

with different functions of marketing such as post analysis, post flight, award plus and

front desk. The reservation department also analyzed and discussed here market trends in

sales office on daily basis in a meeting and thus after negotiating with the different

department and knowing the market situation, the recommendations and suggestions are

forwarded to the head offices and then the action is taken accordingly. The reservation

and ticketing department is doing work under the supervision of reservation manager.

Front desk consists of three sections

International counter Domestic counter Award plus

Group Tour and Charter

Group tour and charter section is looking after the group moment of tourists, educational

institutes, sports federation and multi-national corporations. They also arrange complete

travel package for conference, tourism, sports events and other social events for the

clients and support tour operator for mutual benefits. Group tour and charter is providing

the services of two types.

Business to Business (B 2 B) Business to Consumer (B 2 C)

Corporate Sales & PAX Sales

Corporate sales section is operating under the sales department and contributing round

about 10% in total revenue of the sales department. It targets the direct multinational

corporations and guides them about the PIA services for travelling. Their major clients

include Lahore chamber, IPTMA travel agents, multinationals, hospitals,


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pharmaceuticals, and many other corporations. Their basic working includes; identifying

travelling needs of corporations, and travelling budgets. In this section four to five SPOs

are working under the senior SPO, all the SPOs has to report to the Passenger sales

Manager. Each SPO is handling the 50 to 60 clients. Sales targets are assigned to eachSPO by top management

Cargo Sales

Cargo means, transfer of baggage without passenger, under airway bill (AWB). This

department is doing a lot for the organization. This is also a part of marketing department,

which also constitute ticketing and cargo department. Cargo rules are also like other

IATA airlines. PIA is uplifting around 20000 tons cargo per year including dry and

perishables. PIA is specialize in uplift of special cargo like Relief goods, live animals

(sheep, cows, camels, horses) shipments for cargo aircraft only etc.

Airway Bill (AWB)

This is a non-negotiable document consisting of 9 to 14 parts. The conditions of contract

are shown in the AWB. It must be used for each domestic and international cargo and

interlink with two or more airlines. It must be issued at the time when shipper brings the

consignment. When AWB is completed the original is kept as a record in the issuing

office and a copy of it is issued.

Payment

All the charges of airfreight shipment are payable by shipper or by the consignee. The

charges can be prepaid or the payment can be made when the cargo is delivered.

Special Cargo

Special cargo describes those commodities which are special due to their nature or value

requires special attention. These may be perishable items, flammable items etc. For the

acceptance of these items one should confirm that whether facilities for such cargo are

available or not.


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List of special cargo is listed below:

Live animals Perishables Oversized cargo Valuables Company cargo

Handling

Information regarding carriage of dead body should be disclosed to passenger traveling

on the same flight. Documents of death certificate, packing certificate and otherdocuments required by government. Loading and storage is the important function.

Storage must be made on required temperature. Unloading shall be made after all

passengers leave. And it should be immediately transferred to warehouse. Arrangements

for the delivery should be made quickly.

Oversized Cargo

If the cargo is oversized then it will not be acceptable. The measurement of size is madeon the height and width of aircraft door. If such aircraft is operating on specific sector

whose size of the door is small than the cargo is not acceptable. The weights of goods are

calculated by the following formula:

(Length x width x height)/366 = weight

Dangerous Goods

This category includes that type of goods which may be harmful for the human beings,

such as:

Explosives Gases: Compressed, liquefied, deeply refrigerated Flammable liquids Flammable solids


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Radioactive materialImportant thing for the acceptance is its proper packing, documentation. The license for

these dangerous goods is necessary. According to IATA rules, care must be taken while

packing these items.

Speedex

PIA Speedex is a courier service which delivers with Speed, reliability, and affordability

courier service, Speedex is based on PIA's cutting-edge information technology

infrastructure, PIA Speedex pioneered the online tracking and tracing of shipments in

Pakistan, enabling customers to track the status of their parcels at each transit point, untildelivery. A range of delivery options also catapulted PIA Speedex to the position of a

credible and reliable industry leader, giving customers flexibility and choice at highly

affordable rates.

HUMAN RESOURCE MANAGEMENT

HR department consists of the following sections;

Computer cell Legal Affairs Pension cell Legal section Recruitment & placement cell etc

These sections deal with their respective functions, such as;

Computer Cell

It deals with the maintenance of the computerized record of the employees such as record

of their attendance, leaves and passages etc.


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Pension Cell

This section deals with the retired employees such as issuance of their passages as well as

maintaining their family cards etc and all other matters related to the retired employees.

Legal Section

This section is dealing the legal affairs and giving legal advices to the employees.

Recruitment & Placement Cell

This section deals with the new hiring and all the documentation and further necessary

steps till the joining of the employees are dealt in this section. More over passage

issuance of the employees as well as maintenance of the attendance record of the

employees according to which pay roll is made of the employees as well as handling the

disciplinary issues are also controlled by the HR department.

Breakdown of Revenue by Business Segments

As per 2011 Most of the revenue of PIA is passenger revenue which is earned through the

sale of tickets to passengers. PIA earned 89% of its total revenue from passenger revenue.

5% revenue of PIA is from Cargo, 1% from engineering and 5% from other source.


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FINANCE DEPARTMENT SECTIONS

Finance Department of PIA has following sections:

1. Disbursement section2. Revenue section3. Agency Section4. Refund Section5. Payroll section6. Automation cell7. Credit Control section8. Bank reconciliation section

All these sections are discussed in detail as follows;

1. Disbursement Section

Disbursements are all about the act of spending or disbursing money. In other words we

can say that amounts paid for goods and services that may be currently tax deductible.

PIA has computerized payment system; disbursement department is responsible for the

printing of all outside vendors cheques, direct deposit statements and tax forms.

Disbursement section is also responsible for processing stop payments, void cheques,

sales tax and other expenses. When any expense is occurred the vendor raises a bill

against it and after approval by the competent authorities disbursement section receives

this bill. Then bills are thoroughly checked by the department. If the bills are found

correct in all respect then computerized payment vouchers are prepared. After printing of

these payment vouchers two signatories must sign the cheques which is attached with thecomputerized pay vouchers. Disbursement department is responsible to disburse all the

expenses incurred by the PIA in Multan.

The main functions of disbursement section are:

Maintenance and controlling of budget of all departments Calculation of Sales tax Calculation of Income tax Calculation of Withholding tax


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Other Functions of PIA Disbursement Section

Requisition of Consumable Items

When a department acquires an item, details and amount of that item is mentioned in

internal requisition form and disbursement department has to check whether that

department has budget for that item or not, after approval of disbursement department

internal requisition is authorized for further processing.

Capital Items

Approval of Head Office is required to purchase an item that cost more than

10,000.Station Finance Manager approves Capital Expenditure that cost less than 10,000

rupees.

General Type of Expenses in PIA

In PIA disbursement department payments has following types:

Employees Expenses

Make payment of medical bills, slip allowance and hotel accommodation bills.

Office Expenses

All the expenses incurred by office;

Computer stationary expenses

Stationary expenses Furniture expenses Transport expenses Cafeteria expense

Passenger Expenses

Passenger expenses include:


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Store expenses Catering expenses Craft Expenses

These expenses which are related with craft and other cargo are;

Craft compliant box Wastage expenses Expenses of the staff in the cabin Saps instruments Newspapers, blankets expenses Dry clean expenses First aid expenses

2. Revenue Section

As PIAs main business is toprovide travel facility so its main source of income is selling

of Air tickets. PIA has a very modern & fast working system of ticketing. The revenue

section records and controls all the sales at PIA counters. The entire cash sale is deposited

in the Bank on daily basis. Followings are different types of sales at PIA;

Cash sales Credit card sales Sales to defense Personal (Military) against travel vouchers Incentive tickets to different client & agents Staff rebated tickets

Cash Sales

Cash sales is deposited in bank on daily basis and bank slips along with sale report of the

same day is sent to the section where the staff working made an initial audit of the report

and then deposited into the bank. That amount is entered in the Direct Passenger Sale

Report i.e. called R-1. This report is generated on monthly basis.


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Credit Card Sales

All the credit card sales are sent to Revenue section on daily basis and there they are

sorted and list is made for billing to the concerned bank. When cheque of credit sale is

received it is deposited into the bank, and the bank credit it to PIA account.

Sales to Defense Personals

As per Government of Pakistan rule Army personals has to pay 50 % fare, remaining 50

% will be recovered from the army through a lengthy billing process. All the daily sales

to army personals are received in revenue section and handed over to another section

dealing all the credit sales named Credit Control section.

Incentive Tickets to Different Clients

When an agent makes satisfactory sales he can claim for a rebated air ticket.

Staff Rebated Tickets

Like all other organization PIA employees are awarded with Free/ rebated air tickets.

Note: All the mentioned above Sales are received in the revenue section along with their

support there they are sorted out and accounted for all their merits after all work is done

and all the supporting documents are found correct and properly attached. These reports

are sent to Head Office for another audit by the staff working in Head Office. All the

sales Accounts are reconciled on daily basis.

3. Agency Section

Most of the PIA sale is done through agents. PIA has different agreements with various

agents for different durations. This agency section deals with agent sales. Here sales are

of two types:

1. PAX Sales2. Cargo sales


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PAX Sales

Pax sales mean passenger sales which include four types of agents;

IATA Approved Agents (International Air Transport Association) PSA (Passenger Sales Agent) DSA (Domestic Sales Agent) GSA (General Sales Agent)

IATA Approved Agent

Agency International Panel (AIP-6) deals with IATA approved agencies. The Head

Office of IATA is in Singapore. Ministry of Tourism & Development issues licenses for

IATA Agencies that are operating in Pakistan. The domestic Bank Guarantee of IATA

Approved Agency can be equal and above 0.4 Million and international bank guarantee

varies according to sales. IATA Agencies submit Sales and Refund Report on Fortnight

basis (15 Days). International Commission of IATA is 9% on fare and domestic

commission is 5% on fare.

Passenger Sales Agents

The cash and bank guarantee for PSA should be 1 Million in cash and 1.5 Million of

Bank Guarantee. Agents submit Sales and Refund Report Summary Fortnightly (15

Days). The accumulated value of both guarantees should be equal to 2.5 Million. PSA has

international commission 9% on fare and domestic commission 7% on fare. As if PSA

sales exceed and reach to 2 Million in a month then they get extra 1.5% commission as a

bonus.

Domestic Sales Agents

There is only cash guarantee for DSA, which is 1 Million, and the Sales and Refund

Report Summary of DSA is submitted on daily basis. DSA has domestic commission that

is 7% of fare.


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General Sales Agents

The cash and bank guarantee for GSA should be 5 Million in Cash and 5 Million of Bank

Guarantee. Agents submit Sales and Refund Report Summary on weekly basis. GSA

deals only with PIA both in domestic and international tickets. Its international

commission is 10.5% of fare and domestic commission is 5% of fare.

Examples of GSAs are as follows:

Malik Brothers with Head Office in Sargodha Royal Express with Head Office in Sahiwal

Moonica Travels with Head Office in Khushab Moto Travels with Head Office in Kasur.

Routine Processes in Agency Section are as Follows

Issuance of Revenue Documents Collection of Agents Daily Sales Reports Recording of Cheques received from Agents Recording of Agent Sales Summary in COSSAP Agent Sales against Credit Card Recovery Realization of Debit Memos from Agents Credit Memos in case of Advances received Maintenance of Records

Above Processes are Described in Detail

Issuance of Revenue Documents

This process involves issuing of stock by Agency Unit to IATA & Non-IATA agents.

Agents send request for issuance of documents. Agency Unit verifies the stock level and

stock value and after getting approval issues tickets to agents.


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Collection of Agents Daily Sales Reports

In this process, agents submit their daily sale reports. Agency Unit-Accounts Officer

checks tickets and weekly sales are sent to Head Office-Karachi.

Recording of Cheques from Agents

In this process, Cheques & Pay-Orders are collected from agents. Remittance amount is

deposited into the bank and details of bank deposit slips are fed into the COSSAP System.

COSSAP is accounting software which is used by the PIA.

Agent Sales against Credit Card

In this process, sales are made through agents against credit card. Payments are made by

bank through cheque from which cash receipt is prepared and it is recorded in COSSAP

System.

Recovery Realization of Debit Memos from Agents

In this process, ADMs are raised and agents submit cheque for the settlement of their

discrepancies. Also ADMs and cash receipt information is recorded in COSSAP System.

Maintenance of Records

In this process, Agency Unit maintains all types of records against sales reports, ADMs,

ACMs, CRs, Bank Deposit Slips and also Dishonored Cheques.

4. Refund Section

In case of international or domestic tickets the unused tickets can be refunded from PIA.

Ticket bears instructions and procedure of cancellation charges with specific rates. As

PIA business is sales of ticket, all unutilized tickets are returned to PIA & refund is

claimed. To deal with such ticket a refund section is working in PIA Finance section. The

unused ticket is presented in refund section. After proper security of the ticket a pay

voucher is prepared along with the cheque. This pay voucher and cheque duly approved

and signed by the authorized officer. All the payment process is computerized and whole


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accounting is automatically done by the computer. User has to only enter the specified

A/C code allocated by PIA for each type of payment. As payments are of different type

and nature, so many accounting codes are used for proper accounting.

5. Payroll Section

Payroll section works for making different type of payments to their employees e.g.

salary payment. There are dozens of other payments involved regarding PIA employees

which are paid through this section. For this purpose Regional Manager duly approves all

payments. For each payment separate pay voucher is prepared. As I mentioned before due

to computerized accounting system, cheque is printed with pay voucher. All payments are

made through crossed cheques. PIA salary system is also computerized. Salary of all

employees is prepared at Head Office Karachi and all sources for payments& adjustments

of allowances are prepared at Multan and then it dispatched to Karachi for final

settlement in payroll. Computerized salary slip is printed at Karachi where PIA main IBM

computer is installed. After Printing of these slips these are dispatched to Multan stations

again. In payroll section there are different types of sources e.g. Source-52 is Salary

Change Advice, Source-53 deals with employees short collection i.e. called Loans and

Miscellaneous Deductions. Source-54 deals with any change of name or department orany other change i.e. called Statistical Data change Advice, Source-55 is called

Amount Adjustment/ Change advice, Source-56 deals with Salary Structure,

Promotion, Demotion and Transfer etc and Source-59 deals is called Termination

Advice.

7. Automation Cell

As already discussed whole PIA system is computerized, therefore, to monitor all the

accounting transactions and to provide the management any information or any report as

when required by the local management or by the Head Office. This section efficiently

provides all such information or reports. When all the reports in all sections are

completed, their respective accounting is completed, balances are compiled, and bank

reconciliation is done, all the data for the whole month is transferred to head office

Karachi through E-mail. Then finance automation cell at head office receives this data


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from all stations & compile it. In this way each month all the data of Multan is transferred

to Head Office on every 7th of each month.

8. Credit Control Section

This section deals with all credit sales by PIA and recovery of such amounts. There are so

many parties which are dealing with PIA on credit basis. All MNA, MPAs are issued

traveler voucher by the Government for traveling then PIA present these Travelers

vouchers to respective Bank and then these banks recover the amount from State Bank.

These vouchers are of different values. In this kind of credit mode there are so many

problems in encashment. In case of Military travel if it is an official travel ticket then

APW Air Passage Warrant is issued against the ticket. As per Government rules all

Army personal are allowed 50 % rebate on air travel ticket and remaining 50% will be

recovered by PIA through billing. Invoices are raised to controller of military accounts.

These certificates are called TAC travelAuthority Certificate. TACs billing is done by

Head Office and APWs billing is done by credit control section of theMultan station.

9. Bank Reconciliation Section

PIA accounting system is based on monthly closing basis. Therefore 7th of every month

is closing date for the previous month closing is started when all the previously discussed

sections complete their monthly closing and balance all their accounts. Then the duty of

the Bank reconciliation starts when the bank statement is received and bank balance is

reconciled with cashbook. As already discussed the whole PIAs accounting system is

computerized and the accounting is matched by computer automatically. PIA bankers are

NBP, HBL, AKSARI commercial bank; bank statement is received on daily basis. PIA is

maintaining two bank accounts. All receipts are deposited in the collection account and

all payments are made through payment account. After the reconciliation of these two

accounts the monthly data of all the reports is sent to head office.

Coding System used by PIA for Accounting & Recording

PIA has its own coding system there are different types of Revenue Receipts & Payments.

There are 11 types of reports maintained by the Finance Department and monthly reports


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are checked and reconciled on daily basis and finalized and closed at the end of every

month.

R-1: Direct Passenger Sales Report on Counter. All cash sales at PIA counters are

reported in R-1. This includes both the domestic and international sales.

R-2: All the domestic cargo counter sales are recorded

R-3: All the international cargo counter sales are recorded

R-4: Miscellaneous Transactions Report, all miscellaneous collection or recoveries from

staff are reported in R-4 e.g. all airport taxes, all rent received & payment by PIA.

R-4-S: All the speedex sales are recorded in R-4-S.

R-5: Credit Collection Reports, all receipt/collection recovered against credit sale is

reported in R-5. Recovery from MNA/ MPA ticket issued against travel voucher and

recovery from Army personals.

R-6: Direct Refund to Passengers through Counters/PIA Office, which is linked with

disbursement department (D-15).It means all the payment made against unutilized PIA

tickets presented for refund are reported in R-6.

R-7: All Collections made by the station on the behalf of other stations is reported in R-7.

R-8: Reconciliation of Local Invoices, this shows the party-wise balances of all the credit

parties, and shows the recoverable amount balances.

R-9: All sorts of collections/passenger/cargo/others and reported here. R-9 is

consolidated statement of all receipts. While studying R-9 at a glance we can judge the

source-wise collection detail for a month. It shows the consolidated amounts collected &

reported against each source for clearer picture of finance system.

R-10: Passenger Sales reports through Agents, all sales by agents are reported in R-10.


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R-11: All Cargo Sales through agents are reported in R-11. Cargo sales are submitted by

agents fortnightly basis. Agents are allowed 5% commission on all international cargo

sales.

R-12: Stations reports through interlines are reported in R-12

R-13, R-14:R-13 & R-14 are Head Office based reports.

Note: In the month end closing of all the data is recorded in the computer from different

sources and compiled in R-9 and computer passes journal vouchers. Finally reports are

printed when all balances are matched and bank statement is reconciled.

D-15: All the disbursement and payments are recorded under D-15.

PESTEL ANALYSIS

The macro-environment includes all factors influencing a company that are not within its

control. These include political, economic, social, technological, environmental and legal

factors. These are known as PESTEL factors. The technique which is used for the

analysis of the macro environment is called PESTEL analysis.

Political Factors

Political factors and regulations are most crucial in case of PIA; the reason is that PIA is

being held by government in major share. Politically Pakistan is a destabilized country,

dictatorship and loose democracy are some of the main threats PIA is facing from

political factors. Some of the important factors that can have an effect on PIA are

discussed; Political distress in our neighboring country like Afghanistan has an adverseeffect on our international airline industry, Governments policy to continue support in

war against terror has increased insecurity level in Pakistan which means fewer visitors

come to our country and hence les revenue for PIAC, as its main reliance is on customer

revenue, Government has already announced it is going to privatize PIA if this happens in

near future things may look bright, As this is a political government hence higher officials

and management are basically supporters of this particular government, if there is a

midterm election which would mean a change in government this also mean change in


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higher management, Defense ministry has already announced its intent on allowing small

route planes to travel within cities, this can decrease the customer reach for PIA. As I

already mentioned in the introduction that PIA is owned by the Government of Pakistan.

90% shares are under the hands of government of Pakistan so thats why Government ofPakistan has much influence in the decision making of PIA. On the other hand if we look

at the influence of government on the overall airline industry then political factors always

has a great influence on the way businesses operate in the airline industry and the

spending power of customers. In recent years it has been observed that government

played an active role in increasing competition in the airline industry. A number of new

airlines such as AirBlue and BUJA air line, Indus airline have been awarded licenses to

enter the domestic market. Pakistan has achieved some political instability in recent years.

If the management of PIA believes that the present government will perform well

(consistently), then there will be more investment in the form of purchase of new

airplanes and latest technology. The overall industry will grow resulting in more

luxurious and comfortable flights. With the military takeover government policies have

become more liberal.

Economic Factors

Pakistan is a less developed country and its economic conditions are very worst.

Followings are some economic factors which are affecting the airline industry of Pakistan

and the PIA;

Fuel Prices

High prices of fuel in Pakistan have strong impact on the airline industry in Pakistan.

Most of the expenditure of PIA is fuel expenditure or the fuel which consumed by the

PIA during its operations and we know in our country fuel prices are going to raise

rapidly. In 2011 PIA bear 62,965,435,000 Rupees fuel expenditure.


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Interest Rates

In Pakistan interest rates are highly volatile and change rapidly, therefore it discourages

investors to invest. On the other hand there is high interest rate to be charged on debt

obtained by PIA. In 2011 PIA bear 10,487,413,000 Rupees interest charges on debt.

Inflation

The inflation rate stood at 14.1 percent, against 5.9 percent. The year 2010-11 is the most

eventful year for the inflation. The inflation poses serious threat to macroeconomic

stability in Pakistan. More worrying thing is that the recent spike in inflation is coming

more from food inflation which is detrimental for poverty situation.

Taxes

A major portion of the expenditures of the PIA goes to the government in the form of

taxes, in 2011 PIA paid 934,790,000 rupees in the form of taxes to the government.

Other Economic Factors

Currently, Airlines industry has three major players: Pakistan International Airlines, an

Airblue, Aero Asia and Shaheen Airlines. Their target market includes domestic travelers

as well as Pakistanis living abroad particularly in the UK and USA. These countries have

strong economies coupled with high purchasing power. Customers purchase behavior

depends very much on prices of the competing airlines as well as services offered. As

inflation rate is unstable in Pakistan, spending power of consumers has effected in the

long term. In fact growth in Pakistani economy has resulted in an increase in spending

power and has positively impacted the airline industry.

Economically, the new millennium has been highly volatile; the September 11 attacks

revolutionized the whole world. Consequently, there was a global depression in the North

America, South America, Australia and Europe. However, in Asia especially Pakistan the

effect in the short term was otherwise. The economy began to boom because of greater

remittances from abroad and whole sum immigration by expatriates. As a result, demand

for air travel in South Asia rose.


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Economic conditions of Pakistan are however improving. PIA has cost a advantage over

its competitors because of its newly acquired, improved, long distance aircrafts from

Boeing which give longer range and better fuel economy than any other jet currently

produced. This cost advantage is a barrier to entry for new firms.

Social Factors

The social arid cultural influences on business vary from country to country. The social

structure of Pakistan is closely tied. The trend is now changing as the general public is

educated and is pursuing professional goals. Customers are more aware of market

conditions and available options and want to get best value for their money. They spend

considerable time and money on entertainment hence increasing the need of in-flight

entertainment systems. Also, word of mouth has a significant impact in the use of airline

services. Hajj and Umrah is also an Islamic social factor which influence the purchasing

behavior of the community of Pakistan.

The social environment of Pakistan is turning liberal with the new regime. The initiative

to automate check-in and ticket booking process might not be very popular with the

general public (even educated population) is still technology averse. E-ticketing might

also face significant challenges as consumers are generally reluctant to provide their

credit cards information over the phone and the internet. The consumers, however, have a

warm reaction to the prospect of less costly but quality service flights.

Pakistani media play important role in creating the negative word of mouth about the PIA

services. Recently they highlight the Hajj corruption issue in 2011 and present the bad

image in the eyes of customer so the passengers suffer the difficulties in other countries.

Technological Factors

PIA has a well-organized computerized system for the management of the organization,

all the departments are interlinked with each other through computerized system of the

PIA, and they can share information and access to the important data related to the

business activities. Technology is vital for competitive advantage and is a major driver of

the airlines industry. Major technological changes are taking place in the airlines industry


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with innovations in the reservations and booking systems. In-flight entertainment systems

and auto check in counters are two examples of such innovations. Internet plays a key

role in e-ticketing as consumer can easily reserve tickets or check the status of the flight.

A key issue will be the extent, to which technological advancements (such as Internet)impact distribution and cost synergies from industry consolidation, can offset upward

pressures on costs. PIA has always led the path of technological innovations by

introducing new technologies ahead of its competitors such as its auto check-in counters

which has helped it to gain market share.

Environmental Factors

Environment plays an important role in shaping business some of the key factors that may

affect PIA are discussed below;

The eruption of volcano in Iceland has every one in surprise and has madePIAs flights to be delayed, some new advancement in engine is required

to make it able to go through that type of ash.

There has been an increasing distress over global warming and this isclearly shown by European Unions intent to restrict the air to emission

standards.

UK being the top market of PIA, the environment in UK is rapidlychanging for last few years, last winter they hit their lowest degree in 25

years, same was the case with Spain, which observed lest temperature

recorded in 32 years, this year is expected same and hence providing PIA

another delay in flights.

PIA has high reliability on Boeing which has proven to be costly not onlyto PIA but also to environment as more fuel and more heat is put into our

atmosphere.

Legal Factors

Pakistan is changing rapidly on legal grounds; some of the factors in this change having

an impact on strategy of PIA are discussed below;


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CAA is expected to legalize personal travelling in air by general publichence proving to be a problem.

IATA has already warned PIA on two occasions for its technical failuresduring flight and once during takeoff, one more failure and according tothe law PIA will be facing fines for its behavior.

Introduction and empowerment of Judiciary has given way to Musabqaticommission which is now closely watching PIAs moves.

PIA is charging 30% on rescheduling and refunding for tickets within 48 hours of flight

departure and 50% after departure for both discounted and full fare tickets this is in clear

violation of competition commission ordinance Section 3(1).

SWOT ANALYSIS

Strengths

Its strong market position is driven by consistently low fares as well asreliable service, frequent and convenient flights, use of new technologies

like e-ticketing and self-check-in terminals, comfortable cabins and

superior customer service.

PIA has high brand position, because it is national carrier, it is recognizedby travelers all over the country. PIA is a national airline, operating

passenger and cargo services covering eighty-three domestic and foreign.

PIA has earned the number one ranking in customer satisfaction. Thisstrong market position gives the company a scale advantage and helps it

strengthen its brand image.

PIA has maintained its position as the low cost carrier. It has been firstclass Pakistani airline who use the latest technology. Factors contributing

consists of different series of Boeing and Airbus and an efficient, high-

utilization and point- to-point route structure. Flying one type of aircraft

significantly simplifies scheduling, maintenance, flight operations, and

training activities. PIA has continually achieved high asset utilization and

employee efficiency. Superior operating structure serves as the primary

competitive advantage of PIA.


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PIA enjoys a strong network in key domestic and internationaldestinations. The companys network includes three the major airports in

Pakistan, as well as major international airport such as Dubai International

Airport. Having a strong network means that PIA can generate traffic feedfor both its domestic and international Flights.

PIA operates from its hub in Jinnah International Airport, Karachi. JinnahInternational is one of the worlds busiest airports in terms of number of

passengers carried. It is also one of the largest international gateways to

Asia. It is also the leading international air passenger (and cargo) gateway

to Pakistan. The companys strong presences in airports with heaviest

traffic levels in Pakistan give it a competitive advantage.

PIA has its own training center of international standard; it is working asseparate SBU. PIA earns high profit by providing the training to agents,

employee of other air lines.

PIA has successfully incorporated latest technology in all its systems,giving it an edge over competitors. PIA takes credit for introducing most

new technologies to the Pakistani market. It was the second carrier in

Pakistan to incorporate the e-ticketing system and the second in South

Asia to introduce self-check in systems at the Jinnah International Airport,

Karachi. PIA within department communication system is very strong, and

by using the fast communication the speed of process should be increased.

PIAs frequent flyer and loyalty programs can help it retain customers,Awards plus is one of the frequent flyer programs which was established

to develop passenger loyalty by offering awards and services to frequent

travelers. Such schemes encourage repeat travel on PIA, as passengers

seek to accrue the benefits given to regular travelers. This enables the

airline to retain customers and reduce costs, as it does not have to spend

money targeting new customers to replace those lost to other airlines.

Weaknesses

PIA has centralized management system. The key policies, strategies andset of laws are designed by the upper management. The centralized system


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is one of the biggest obstacles of long term success of PIA. PIA centralizes

structure lead to barrel between different level of management, decreased

motivation, and hard access to information.

PIA has 89% passenger revenue and only 5% cargo revenue of the PIAstotal revenue. Cargo services allow airlines to generate additional revenues

from existing passenger flights. In addition, cargo revenues are usually

counter cyclical to passenger revenues and have lower demand elasticity

than passenger business, which allows airlines to pass on fuel price hikes

to customers.

PIA has a significant amount of debts. Current and future debts could haveimportant consequences for stakeholders of the company. For example,

debt could impair PIA ability to make investments and obtain additional

financing for working capital, capital expenditures, acquisitions or general

corporate or other purposes. Debts could also put PIA at a competitive

disadvantage to competitors that have lesser debt and could also increase

the companys vulnerability to interest rate increases.

Opportunities

PIA is one of Pakistans leading air carriers, with more than 100 dailyflights. Around 150,000 passengers a month fly on PIA, making it one of

the major operators in the domestic market in terms of passenger

kilometers. PIA has 76% domestic market share and 39% international

market share.

PIA has maximum routes & fleet for domestic and internationaldestinations network in Pakistan as compared to its Competitors. Route

and fleet expansion has positively impact the companys operations by

increasing revenues.

The growing demand for air travel is driven by lower fares and consumerconfidence. A survey by International Aviation Authority showed that

ticket price is the number one criterion for passengers when selecting a

flight, well ahead of the availability of a non-stop service.


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The needs of air passengers are increasingly changing, as they arebecoming more and more price sensitive. If PIA succeeds in making its

prices more competitive, then the company will be able to gain significant

market share. Market analysts believe that the global airline industry will experience an

upturn in fortunes over the next few years. This represents an opportunity

for PIA, as it could generate increased revenues and command market

share if it capitalizes on increases in demand.

Threats

In the past few years SBP imposes high interest rates, which increase thecost of the borrowings for the PIA

There had been five accidents with PIA listed as below;Pakistan International Airlines Flight PK 705 was a Boeing 720 040 B that crashed

while descending to land on Runway 34 at Cairo International Airport on May 20, 1965

resulting in 119 fatalities.

Pakistan International Airlines Flight PK740 was a Boeing 707-340C that crashed after

takeoff from Jeddah International Airport on November 26, 1979. All 156 aboard were

killed.

Pakistan International Airlines Flight 268 was an Airbus A300B4-203, registration AP-

BCP, which crashed on approach to Kathmandu's Tribhuvan International Airport on

September 28, 1992. All 167 on board were killed.

PIA Flight 554 is the flight number of a Pakistan International Airlines (PIA) Fokker F27

that was hijacked on May 25, 1998. The flight started its journey at Gwadar in

Baluchistan after originating in Turbot, and was flying to Pakistan's southern port city of

Karachi. The aircraft was carrying 24 passengers and 5 crew members.

Pakistan International Airlines Flight 688 (PK688, PIA688) was scheduled to operate

from Multan to Lahore and Islamabad at 12:05 pm on July 10, 2006. It crashed into a


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field after bursting into flames a few minutes after takeoff from Multan International

Airport. All 41 passengers and four crewmembers on board were killed.

Fluctuating foreign currency exchange rates can have a significant impacton PIAs earnings. For example, as PIA is providing its services to the UK.

Negative or positive effects arise from exchange rate movements as

change in expenses. Strengthening of foreign currencies against the British

Pound will positively impact PIA and vice versa.

A number of factors have caused the current decline in the airline industry.For example, the threat of further terrorist attacks since September 11 and

a fall in the number of business travelers have both caused passenger

numbers to fall. These and other factors may continue to affect demand for

air travel in the future, which will affect revenues of PIA. The threat of

terrorism may discourage people from traveling by air and could especially

reduce the number of passengers traveling on international flights.

In PIA over employment existed at present time. Due to this factor PIAincur lose .according to IATA only 275 are required to run the air craft but

PIA has more than three times which are near about the 500 600

hundreds

PIAs sustainability, growth and revenues directly depend on oil prices. Asteep rise in oil prices can seriously damage the long term viability of any

airline. Recently many airlines around the world went bankrupt due to

rising oil prices. Airlines need to hedge against this risk by taking proper

measures.

COMPETITOR ANALYSIS

Competitor analysis is an assessment of the strengths and weaknesses of current and

potential competitors of a company. Competitor analysis focuses on four key aspects:

competitor's objectives, competitor's assumptions, competitor's strategy, and competitor's

resources and capabilities.
http://en.wikipedia.org/wiki/Competitorhttp://en.wikipedia.org/wiki/Competitor


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Competitive Advantage of PIA

Reliability and safety Best trained pilots and other staff Technology and highly equipped engineering

Competitive Position of PIA

The competitive position of PIA is Differentiation because PIA has created highly

differentiation products e.g. for the economy class and for the business plus class. PIA

has different and unique services characteristics and features which cater the needs of the

respective customers. PIA has 76% market share domestically so that PIA is the marketleader in Pakistan.

Market share of PIA

As per 2011 below figure reveals that PIA has 76% market share domestically and 39%

internationally, the market share of other competitors are 24% at domestic level and 61%

at international level.

Existing Competitors of PIA

Shaheen Airways and Air Blue are two Pakistani airlines that compete for much of PIAs

busiest domestic routes. PIA operates at both levels domestically and internationally. It

has competitors on both scales of operations. Air Blue, which is considered the main

domestic competitor of PIA, earned a profit of $1.28 million in 2011, whereas the

competitors on international routes; Emirates Airlines, earned profit of $941 million,


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Royal Jordanian Airline $28 million, Malaysian Air Lines $265 million, Egypt Air Lines

$1,143 million.

Domestic Competitors

Within the country PIA has Airblue, Shaheen as a competitor. Airblue is a private airline

based in Karachi,Pakistan.It is a scheduled domestic and international airline operating

30 daily services linking seven domestic destinations and international services toDubai

and Manchester. Its main base is Jinnah International Airport,Karachi.Airblue was the

first airline inPakistan to introducee-ticketing,wireless check-in and self-check-in kiosk

facilities.

Achievements and Recognitions of Airblue:

Pakistan's fastest growing airline. First airline in Pakistan and only the third carrier in the region behind

Emirates Airline and Royal Jordanian to introduce the latest self-service

check-in facilities atJinnah International Airport,Karachi

First private airline in Pakistan to fly long-haul international route(Islamabad-Manchester) with a refueling stop at Ankara, this has since

been moved to Trabzon.

International Competitors of PIA

PIA has market share of 39% in the international market and having tough competition

from its international competitors. Following are its international competitors;

Thai Airline Etihad Airways Qatar Airways Singapore Airline Royal Jordanian Airline Malaysian Air Lines Egypt Air Lines
http://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Dubaihttp://en.wikipedia.org/wiki/Manchesterhttp://en.wikipedia.org/wiki/Jinnah_International_Airporthttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Electronic_tickethttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Emirates_Airlinehttp://en.wikipedia.org/wiki/Royal_Jordanianhttp://en.wikipedia.org/wiki/Jinnah_International_Airporthttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Islamabadhttp://en.wikipedia.org/wiki/Manchesterhttp://en.wikipedia.org/wiki/Ankarahttp://en.wikipedia.org/wiki/Ankarahttp://en.wikipedia.org/wiki/Manchesterhttp://en.wikipedia.org/wiki/Islamabadhttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Jinnah_International_Airporthttp://en.wikipedia.org/wiki/Royal_Jordanianhttp://en.wikipedia.org/wiki/Emirates_Airlinehttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Electronic_tickethttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Jinnah_International_Airporthttp://en.wikipedia.org/wiki/Manchesterhttp://en.wikipedia.org/wiki/Dubaihttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Karachi


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VERTICAL ANALYSIS

Vertical Analysis of Balance Sheet

ASSETS Vertical Analysis (%)

NON CURRENT ASSETS 2008 2009 2010 2011 2012

Property , plant and equipment 85.0272 85.0037 80.2464 81.1998 79.8847

Intangibles 1.4791 1.4061 1.5681 1.6516 1.6834

Long-term Investments 0.0755 0.0450 0.0775 0.0478 0.0491

Receivables from Centre Hotel 0.3211 0.3080 0.3558 0.3774 0.3818

Long-term loans and advances 0.0041 0.0058 0.0077 0.0086 0.0062

Long-term deposits and prepayments 2.7875 2.5182 5.1657 5.1531 3.1296

CURRENT ASSETS

Stores and Spare parts 2.0282 1.9457 2.1266 2.1635 2.1296

Trade debts 3.3354 4.0364 4.7752 4.9630 5.2063

Short-term loans and advances 0.7431 1.0592 0.2507 0.1829 1.0679

Trade deposits and prepayments 0.9096 0.8100 0.8714 0.7249 0.6263

Accrued interest 0.0007 - - - -

Other receivables 0.8748 0.4860 0.7895 1.3459 2.2356

Shor-term investments 0.0528 0.0698 0.4652 0.3303 0.2692

Taxation-net 0.1734 0.0342 0.0456 0.0520 0.0531

Cash and bank balances 2.1874 2.2718 3.2544 1.7993 3.2772

Total Assets 100.0000 100.0000 100.0000 100.0000 100.0000


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Equity & Liabilities 2008 2009 2010 2011 2012

Share capital 11.5425 11.2738 14.1503 15.9827 14.9618

Reserves -36.7347 -34.1739 -45.2005 -59.6558 -71.8557

Non-controlling interest 0.4008 0.3684 0.6539 0.6006 0.7203

Surplus on revaluation of fixed assets-

net 15.3518 20.4418 11.5615 12.6922 13.6276

NON CURRENT LIABILITIES

Long-term financing 18.5486 19.5160 16.1612 24.7873 14.6190

Term finance and Sukuk certificates 6.6972 9.4879 9.5840 6.0675 2.2843

Liabilities against assets subject to

finance lease 35.0692 29.6960 29.5127 26.2966 19.9140

Long-term deposits 0.1627 0.1772 0.2110 0.2470 0.2780

Advance rent 0.0019 - - 0.0027 -

Deferred Liabilities 8.7660 8.8658 13.3303 13.5606 6.8655

CURRENT LIABILITIES

Trade and other Payables including

provisions 15.9916 14.7305 17.4895 25.7330 28.7559

Accrued interest/mark-up/profit 0.7950 0.8938 1.6998 2.6251 3.5270

Tax payable 0.0127 0.4237 0.9005 0.5959 0.3531

Short-term borrowings 16.4331 11.6137 12.4430 14.3285 31.8965

Current maturities of:-


Term finance & Sukuk Certificates - 0.0025 1.1721 4.8116 7.8998

Advance rent 0.0018 0.0017 - 0.0024 0.0025

Liabilities against assets subject to

finance lease 3.9161 3.9422 4.7303 5.0370 4.8219

Total Equity & Liabilities 100.0000 100.0000 100.0000 100.0000 100.0000


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Vertical Analysis of Profit & Loss Account

2008 2009 2010 2011 2012

Revenue-net 100.0000 100.0000 100.0000 100.0000 100.0000

Aircraft Fuel -46.3956 -30.3842 -38.1016 -49.3939 -49.0131

Others -47.6847 -52.6066 -45.9524 -46.0423 -47.3205

Gross Profit -12.7591 17.0092 15.9459 4.5639 3.6664

Distribution costs -5.3725 -5.9314 -5.3302 -5.3585 -6.1156

Administrative expenses -5.9318 -7.4838 -8.4830 -8.6364 -9.8561

Other provisions and adjustments-net -1.8290 -0.5948 -0.6161 -0.5122 -0.5596

Exchange loss-net -24.4035 -6.5001 -1.7827 -3.3106 -5.3727

Other operating income 0.7669 0.5427 1.9510 0.4123 2.6668

Profit/(Loss) from Operations -30.8502 -2.9581 1.6850 -12.8416 -15.5708

Finance costs -9.1336 -9.3022 -8.2008 -8.2270 -9.7533

Share of profit from joint venture - - 0.0438 - -

Share of loss from associated company -0.0004 -0.0004 -0.0004 -0.0006 -0.0005

Loss before taxation -39.9842 -12.2607 -6.4724 -21.0691 -25.3246

Taxation 3.3214 7.2047 -10.6142 0.7333 -0.6162

Loss for the year -36.6627 -5.0560 -17.0867 -20.3358 -25.9408

Explanation

Vertical analysis of five year balance sheets is an analysis of percentage financial

statements where all balance sheet items are divided by total assets and all profit & loss

account items are divided by total revenue. So the above Vertical analysis of five year

balance sheets and Profit & Loss account indicates the percentage of each item with

respect to total assets or total revenue. From above the year 2009, 2010, 2011 the

property, plant and equipment is 85%, 80%, 81% respectively of the total assets. This

analysis helps us to analyze trends in the financial statement percentages over time and

you can see the underlying improvement or deterioration in financial condition and

performance.


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HORIZONTAL ANALYSIS

Horizontal Analysis of Balance Sheet

Assets Horizontal Analysis (%)

NON CUFRRENT ASSETS 2008 2009 2010 2011 2012

Property , plant and equipment 100.0 111.2 92.6 92.7 97.4

Intangibles 100.0 105.8 104.0 108.3 118.0

Long-term Investments 100.0 66.4 100.7 61.4 67.3

Receivables from Centre Hotel 100.0 106.7 108.7 114.0 123.2

Long-term loans and advances 100.0 158.0 184.9 202.0 157.4

Long-term deposits and prepayments 100.0 100.5 181.9 179.4 116.4

CURRENT ASSETS

Stores and Spare parts 100.0 106.7 102.9 103.5 108.8

Trade debts 100.0 134.6 140.5 144.4 161.8

Short-term loans and advances 100.0 158.6 33.1 23.9 148.9

Trade deposits and prepayments 100.0 99.1 94.0 77.3 71.4

Accrued interest 100.0 - - - -

Other receivables 100.0 61.8 88.6 149.3 264.9

Short-term investments 100.0 147.0 865.0 607.0 528.5

Taxation-net 100.0 21.9 25.8 29.1 31.7

Cash and bank balances 100.0 115.6 146.0 79.8 155.3

Total Assets 100.0 111.3 98.1 97.0 103.6


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Equity & Liabilities 2008 2009 2010 2011 2012

Share capital 100.0 108.7 120.3 134.3 134.3

Reserves 100.0 103.5 120.8 157.6 202.7

Non-controlling interest 100.0 102.3 160.1 145.4 186.3

Surplus on revaluation of fixed assets-net 100.0 148.1 73.9 80.2 92.0

NON CURRENT LIABILITIES


Term finance and Sukuk certificates 100.0 157.6 140.4 87.9 35.3

Liabilities against assets subject to finance lease 100.0 94.2 82.6 72.7 58.9

Long-term deposits 100.0 121.2 127.3 147.3 177.1

Advance rent 100.0 - - 138.6 -

Deferred Liabilities 100.0 112.5 149.2 150.1 81.2

CURRENT LIABILITIES

Trade and other Payables including provisions 100.0 102.5 107.3 156.1 186.4

Accrued interest/mark-up/profit 100.0 125.1 209.8 320.4 459.8

Tax payable 100.0 3717.5 6969.7 4559.1 2885.8

Short-term borrowings 100.0 78.6 74.3 84.6 201.2

Current maturities of:-


Term finance & Sukuk Certificates 100.0 - - - -

Advance rent 100.0 105.6 - 133.1 146.4

Liabilities against assets subject to finance lease 100.0 112.0 118.5 124.8 127.6

Total Equity & Liabilities 100.0 111.3 98.1 97.0 103.6


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Horizontal Analysis of Profit & Loss Account

Descriptions 2008 2009 2010 2011 2012

Revenue-net 100.00 104.47 118.72 128.98 126.25

Aircraft Fuel 100.00 68.42 97.50 137.32 133.37

Others 100.00 115.25 114.41 124.54 125.29

Gross Profit 100.00 300.18 319.80 99.44 78.19

Distribution costs 100.00 115.34 117.79 128.65 143.71

Administrative expenses 100.00 131.80 169.78 187.79 209.77

Other provisions and adjustments-net 100.00 33.97 39.99 36.12 38.63

Exchange loss-net 100.00 27.83 8.67 17.50 27.80

Other operating income 100.00 73.92 302.02 69.34 439.02

Profit/(Loss) from Operations 100.00 10.02 -6.48 53.69 63.72

Finance costs 100.00 106.40 106.60 116.18 134.82

Share of loss from associated company 100.00 109.07 122.42 198.99 160.45

Loss before taxation 100.00 32.03 19.22 67.96 79.96

Taxation 100.00 226.61 -379.39 28.48 -23.42

Loss for the year 100.00 14.41 55.33 71.54 89.33


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Explanation

Horizontal analysis of five year balance sheets is an analysis of percentage financial

statements where all balance sheet or profit & loss account figures for a base year (2008)

equal 100 percent and subsequent financial statement items are expressed as percentages

of their values in the base year. So the above Horizontal analysis of five year balance

sheets and Profit & Loss account indicates the percentage increase or decrease in each

item with respect to base year items, see above table 1 for example there is 100% -

111%= 11% increase in the property, plant and equipment in 2009 and then there is 8%

decrease in 2010 and also in 2011. In Profit & Loss account there is 4%, 18%, 28%

increase in revenue in 2009, 2010 and 2011 respectively. You can see all the relative

percentage increase or decrease in the each of the financial statements items.

RATIO ANALYSIS

Liquidity Ratios

Current Ratio= Current Assets/Current Liabilities

2008 2009 2010 2011 2012

0.25639258 0.448351948 0.251394775 0.194582537 0.168804211

0

0.05

0.1

0.15

0.2

0.25

0.3

0.350.4

0.45

0.5

2008 2009 2010 2011 2012

Current Ratio

Current Ratio=CurrentAssets/CurrentLiabilities


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Explanation

The liquidity of the PIA is not good because its current liabilities exceed its current assets.

Current Ratio is an indication of a company's ability to meet short-term debt obligations;

the higher the ratio, the more liquid the company is. Current ratio is equal to current

assets divided by current liabilities. If the current assets of a company are more than twice

the current liabilities, then that company is generally considered to have good short-term

financial strength. If current liabilities exceed current assets, then the company may have

problems meeting its short-term obligations.

Quick Ratio=Current Assets-Inventories/Current Liabilities

2008 2009 2010 2011 2012

0.20593339 0.366923022 0.208892395 0.158170682 0.144621032

Explanation

Quick ratio is a measure of a company's liquidity and ability to meet its obligations.

Quick ratio, often referred to as acid test ratio, is obtained by subtracting inventories from

current assets and then dividing by current liabilities. Quick ratio is viewed as a sign of

company's financial strength or weakness (higher number means stronger, lower number

means weaker).

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2008 2009 2010 2011 2012

Quick Ratio

Quick Ratio=Current Assets-Inventories/Current Liabilities


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Debt Ratios

Debt to Equity Ratio= Total debt/Equity

2008 2009 2010 2011 2012

-4.414324469 -4.067051392 -3.90952377 -3.026994066 -2.392957215

Explanation

It indicates what proportion of equity and debt the company is using to finance its assets.

A high debt/equity ratio generally means that a company has been aggressive in financing

its growth with debt. This can result in volatile earnings as a result of the additional

interest expense.

Debt to Total Assets Ratio= total debt/total assets

2008 2009 2010 2011 2012

1.094395285 0.916374665 1.188346689 1.303802909 1.320223266

-5

-4.5

-4

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

2008 2009 2010 2011 2012

Debt to equity ratio

Debt to equityratio= Totaldebt/Equity


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Explanation

It indicates what proportion of debt a company has relative to its assets. This measure

gives an idea to the leverage of the company along with the potential risks the company

faces in terms of its debt-load. A debt ratio of greater than 1 indicates that a company has

more debt than assets

Long-term Debt to Total Capitalization Ratio= long-term debt/total capitalization

2008 2009 2010 2011 2012

5.943549648 2.389358537 3.906664089 -5.508470424 -0.945433772

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2008 2009 2010 2011 2012

Debt to total assets ratio

Debt to total assetsratio= totaldebt/total assets

-8

-6

-4

-2

0

2

4

6

8

2008 2009 2010 2011 2012

Long-term debt to total capitalization ratio

Long-term debt tototal capitalizationratio= long-termdebt/totalcapitalization


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Explanation

This measure tells us the relative importance of long-term debt to the total capital

structure (long-term financing of the company). Total capitalization can be calculated by

subtracting short-term liabilities from the total liabilities or we can say that total

capitalization represents all the long-term debt and equity.

Coverage Ratios

Interest Coverage Ratio= Earnings before Interest and Taxes/interest expense

2008 2009 2010 2011 2012

3.377675403 0.318000947 -0.205462813 1.560913259 1.59646593

Explanation

This indicates the companys ability to cover interest charges. The PIA has less ability to

repay its interest charges because it has low interest coverage ratio.

Activity Ratios

Receivable Turnover Ratio= annual net credit sales/receivables

2008 2009 2010 2011 2012

44.52613788 62.96890048 56.24604877 41.08212545 24.78271893

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

2008 2009 2010 2011 2012

Interest coverage ratio

Interest coverageratio= Earnings

beforeInterest andTaxes/interestexpense


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Explanation

Accounts Receivable Turnover ratio shows the number of times accounts receivable are

paid and reestablished during the accounting period. The higher the turnover, the faster

the business is collecting its receivables and the more cash the client generally has on

hand.

Average Collection Period= 365/receivable turnover

2008 2009 2010 2011 2012

8.19743228 5.796512202 6.489344727 8.884642553 14.72800467

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012

Receivable turnover ratio

Receivable turnoverratio= annual netcreditsales/receivables


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Explanation

It Measures the average number of days customers take to pay their bills,

indicating the effectiveness of credit and collection policies of the business. This ratio

also determines if the credit terms are realistic. The Days in the Period is the number of

days in the measurement period, normally 365. Average Accounts Receivable is the

average of the opening and closing balances of Accounts Receivable for the measurement

period.

Inventory Turnover= CGS/inventory

2008 2009 2010 2011 2012

-24.7013694 -21.3268176 -25.46054146 -31.22782707 -29.34346962

0

2

4

6

8

1012

14

16

2008 2009 2010 2011 2012

Average collection period

Averagecollection period=365/receivableturnover

-35

-30

-25

-20

-15

-10

-5

02008 2009 2010 2011 2012

Inventory turnover

Inventory turnover=CGS/inventory


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Explanation

The inventory turnover ratio measures the number of times a company sells its inventory

during the year. A high inventory turnover ratio indicated that the product is selling well.

The inventory turnover ratio should be done by inventory categories or by individual

product.

Inventory Turnover in Days= 365/Inventory turnover

2008 2009 2010 2011 2012

-14.77650871 -17.11460223 -14.33590879 -11.68829324 -12.4388835

Explanation

This tells us how many days, on average, before inventory turned into accounts receivable

through sales

Total Assets Turnover=Net sales/total assets

2008 2009 2010 2011 2012

0.532504679 0.500004709 0.644170448 0.707935827 0.648684062

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2008 2009 2010 2011 2012

Inventory turnover in days

Inventoryturnover in days=

365/Inventoryturnover


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Explanation

This is a measure of how wellassets are being used to produce revenue. PIA is not using

well its assets.

Profitability Ratios

Gross Profit Margin= (Net sales-CGS)/Net sales100

2008 2009 2010 2011 2012

5.919665175 17.00922335 15.94594663 4.563851421 3.666419306

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2008 2009 2010 2011 2012

Total assets turnover

Total assetsturnover= Netsales/total assets

0

2

4

6

8

10

12

14

1618

2008 2009 2010 2011 2012

Gross profit margin

Gross profitmargin= (Netsales-CGS)/Netsales100
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Explanation

This ratio indicates that what remains left from sales after a company pays out the cost of

goods sold. To obtain gross profit margin, we divide gross profit by sales. Gross profit

margin is expressed as a percentage.

Net Profit Margin=Net profit after tax/Net sales100

2008 2009 2010 2011 2012

-36.66271163 -5.056018305 -17.08665109 -20.33584044 -25.94078366

Explanation

Low profit margin ratios indicate that low amount of earnings the company have. A low

profit margin ratio indicates that the business is unable to control its production costs. The

profit margin ratio provides clues to the company's pricing, cost structure and production

efficiency.

Return on Investment=Net profit after tax/total assets100

2008 2009 2010 2011 2012

-19.52306549 -2.528032963 -11.00671569 -14.39647001 -16.82737293

-40

-35

-30

-25

-20

-15

-10

-5

0

2008 2009 2010 2011 2012

Net profit margin

Net profit margin=Net profit aftertax/Net sales100


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Explanation

A measure of how effectively a company uses itsassets.PIA is not using well to its assets

because PIA is suffering with high losses as the negative ROI indicate.

Return on Equity=Net profit after tax/total equity100

2008 2009 2010 2011 2012

78.74773121 11.2199086 36.21082723 33.42378592 30.50028316

-25

-20

-15

-10

-5

0

2008 2009 2010 2011 2012

Return on Investment

Return onInvestment=Net

profit aftertax/totalassets100

0

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012

Return on equity

Return onequity=Net profitafter tax/totalequity100
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Explanation

It determines the rate of return on the invested capital. It is used to compare investment in

the company against other investment opportunities, such as stocks, real estate, savings,

etc. PIA is suffering losses so that it has negative return on equity. In three years its

Losses rises rapidly from 11% to 33% in 2011.

WORK I HAVE DONE DURING INTERNSHIP

During internship with Pakistan International Airlines I was given the following

individual & group projects and assignments.

Group Project

Analysis and Comparison of Station Department-wise Allocated BudgetVs. actual Expenses.

Study and analysis of reasons given by User Department for Exceedingallocated budget.

Preparation of projected Budget for the Year 2012 and its Online Feeding.Individual Assignments

I prepared journal vouchers I prepared sales reports Work on computer, use the Smarterm [COSSAP], it is a software used by

the Finance department of PIA

Checking Sale Reports and pointing out Discrepancies Verification of the Air Passage Warrant with related documents required Preparation of the credit note Preparation of the Sales Agent Report (SAR), record it in R-1 head which

includes cash sales at counter.

Verification of Travel Authorization certificate its final documentation, itis a certificate issued by the Military to its lower level army employees for

getting rebates in travelling through PIA


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Preparation of Miscellaneous Charge Order (MCO). MCO is a revenuedocument issued by the PIA for Miscellaneous receipts

Preparation of Refund Tickets Preparation and verification of Excess Baggage Tickets (EBT), if any

passenger wants to carry excess weight than allowed weight then EBT is

prepared for the passenger to charge him extra money,

Preparation of D-15 Checking of Bills including Uniform Bills, Water Bills, Hospital Bills,

Rental services Bills, and Hotel accommodation Bills.

Preparation of cheques with pay voucher on COSSAP Preparation of Cash Receipts for different Agents Feeding of Refund Tickets on COSSAP Feeding of Cargo Sale Reports on COSSAP Maintenance of Sales Report Manually Bank reconciliation; National bank sent documents to the PIA, NBP

applied zero balance method for PIA bank Account. According to zero

balance method if cash is more than zero than all the above amount is

transferred to Karachi Head Office and if there is negative cash balance in

account than the remaining amount is collected through Head Office

Karachi

Balance and final closing of counter sales; I tally the sales with thedeposited amount in the bank, when Sales = Bank deposit then I send the

final sales reports to Karachi Head Office through E-mail


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MY OWN EXPERIENCE AT PIA FINANCE DEPARTMENT

PIA Finance Department

All organizations, either big or small, need financial resources to operate efficiently.

Finance department is responsible to provide these resources and to get the maximum

benefit from them through proper utilization. PIA being a huge organization has an

efficient finance department. Financial statements are prepared and presented for the

external and internal users by PIA.

Major Functions of Finance Department

Major functions of the finance department is monitoring, controlling, maintaining

financial discipline and reporting of all the financial events of all departments. All

departments in the organization give their reports to finance department and finance

department makes and presents final reports by recording each and every transaction for

further analysis and decision-making. There are several sections in the finance department

that deals with various assignments, and reports. Some manual records are also

maintained by all sections in which various kind of information is recorded.

Budget Control Function

To control the expenses and setting targets budgeting is very important. In accounting

system of PIA annual budget is allocated to all the heads of expense accounts. For this

purpose proposals from each department are sought and after discussion and management

approvals budgets are allocated and entered in the data base of the accounting system at

each station and head office. At the time of preparing a payment voucher when account

number is entered, the system automatically displays the current position of the budget

and when the voucher is completed the balance is automatically adjusted. At the end of

each month budget register is printed which shows budget balance and the payments in

the each head of account.


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Receipts and Payments

Like any other organizations finance department PIA finance department also performs

the functions of disbursement and collection funds.

APPLICATION OF CLASS ROOM LEARNING

I asked different questions from my supervisors and from other employees of various

departments related to the applications of my class room learning. I found so many

similarities and differences of what I have studied in books and what I have witnessed

practically. I have found following similarities and differences;

Similarities

Four Ps of marketing also existed in PIA which I have studiedtheoretically in the class room.

Four functions of management which are Planning, organizing, leadingand controlling are also adopted by the management of PIA.

I have observed that PIA is highly centralized organization. Both the upward and downward Communication existed in the PIA. Tall Management Hierarchy existed in the PIA organizational structure. Departmentalization is also existed in PIA. There is high formalization in the PIA and there are detailed rules &

regulations are given to the employees and low employees empowerment.

In HRM department I ask various questions from the HR Manager and Iobserve that Maslow Hierarchy of needs is also applicable for the PIA

employees. The methods for the Analysis of the financial statements are the same

which I have studies in class room.

PIA has a strong organizational culture, all the employees know the cultureof the organization and they follow it.

Corporate social responsibility also practically applied by the PIAmanagement which I have studied in the class room.


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Suggestions & Recommendations

During eight weeks of my internship I have observed certain things which need to be

improved in my point of view, followings are my recommendations;

Management should hire the services of specialized IT personnel for theirsystem development and up gradation on time

There should be regular meetings with the agents so that the detailedmatters and problems can be discussed with the staff

There should be equal and fair distribution of work among the employees Fleet renewal by replacing cost prohibitive, aging aircraft with fuel

efficient new aircraft

Maximum utilization of available aircraft capacity There is a need of Proactive marketing strategy to capture market share There should be Enhanced service levels to attract passengers

specially high yield segment

Top management should be appointed from within the organization so thatthey may know the basic problems and May able to work for its

improvement. They must be very professional having experience ofdealing with commercial airlines to compete in the world

While recruiting internal staff should be given priority if he meets therequired standard otherwise this creates unrest to the employees

Engineering Base should be established in Multan PIA should decentralize its organizational structure that would lead to the

easy management, increased motivation, easy access to information and

resolution of the conflicts.

One of the reasons of PIA loss could be over employment in theorganization. Normally the work assigned to the employees is not as much

as it seems. Hence reducing the number of employees and getting more

work out of the existing employees can also make this situation better

Proper check and balance of employee timing because I have seen manyirregularities in the PIA office during office timing, during working hours

employees should not allowed to go for their personal tasks


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PIA should make efforts towards empowering the employees that is goingto lead to more employee participation in the decision making process and

also result in more employee satisfaction and enhanced motivation. Apart

from this, employees would freely to discuss the issues explicitly withouthesitation. This would also enhance team work and cooperation.

Employees are empowered to make decisions so that decisions are made

quickly & efficiently because employees are more closely related to the

problems and they know better the solution of that problem.


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REFERENCES

Internet:

http://www.piac.com.pk/

http://en.wikipedia.org/wiki/Pakistan_International_Airlines

http://news.bbc.co.uk/1/hi/business/1561315.stm

PIA annual reports for the year 2008, 2009, 2010 and 2011

PIA Employees:

Mr. Imran Haider (Senior Personnel officer)

Mr. BaqirRazaNaqvi (District Manager)

Mr. Nadeem Sheikh (Sales promotion officer) 03017506776

Mr. Firasat Ali Qureshi (Assistant Manager Finance)

Mr. Irfan Ali (Marketing Department)

Mr. Abdul Hameed (Senior Accounts officer)

Mr. Rizwan (Finance Department)

Ms. Shehneela (Finance Department)

Telephone:

061-9200396 & 9200024/31 Ext.233

Fax:

061-9200071

E-mail:

[email protected]

Address:
http://www.piac.com.pk/http://en.wikipedia.org/wiki/Pakistan_International_Airlineshttp://news.bbc.co.uk/1/hi/business/1561315.stmhttp://news.bbc.co.uk/1/hi/business/1561315.stmhttp://en.wikipedia.org/wiki/Pakistan_International_Airlineshttp://www.piac.com.pk/