case study

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This case has been prepared as a class project. All the characters in the
case are imaginary and any resemblance to a real person or organization
is purely co-incidental and unintended.
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INTRODUCTION
On 16th September 2014, Mr. Khalid Hussain made to the breaking news
on all television channels across Pakistan by standing up against the
prevalent VIP culture. PIA flight PK 370 got delayed by more than 2 hours
because the famous political leader Mr. Rehman Malik who had to board
the aircraft was late for his flight. As a result the entire passengers were
kept waiting. At first the PIA staff lied to the passengers citing "technical
reasons" but eventually they admitted that it was none other than former
minister Rehman Malik who made the life of 250 passengers miserable.
The passengers refused to let Rehman Malik on the plane and he was
eventually thrown out. The video made by the passenger Mr. Arjumand
went viral and made headlines on all television channels and triggered a
debate that the major national carrier was held hostage which resulted is
millions of rupee losses while giving a bad name to the organization. Also
this incident highlighted that the politicized state of affairs in running PIA
and triggered an investigation into the corporate affairs of PIA. The prime
minister of Pakistan took notice of this issue and formed an independent
investigation committee comprising of 4 people to investigate this issue
further and also asked the committee to give recommendations to ensure
such incidents did not take place in future. Mr. Ammar Rehman, a former
retired high court judge, was appointed as the chairman of the committee.
Also the committee was given 2 months to probe into the matter and
share their findings.

HISTORY
Pakistan International Airlines can trace its origins to the days when
Pakistan had not yet gained independence from the British Raj. In 1946,
the country's founder Muhammed Ali Jinnah realized the need for a flag
carrier for the prospective country and requested financial help from a
wealthy businessman Mirza Ahmad Ispahani and Adamjee Haji Dawood for
this purpose. Around that time, a new airline Orient Airways, was
registered in Calcutta on 23 October 1946. In February 1947, the airline
bought three DC-3 airplanes from a company in Texas and obtained a
license to fly in May of the same year. The airline started its operations in
June, offering services from Kolkata to Sittwe and Yangon. On 14 August
1947, Pakistan came into being and Orient Airways started relief
operations for the new country. It was the first and only Muslim owned
airline in India.
On 7 June 1954, Orient Airways started its operations by offering flight
services between East and West Pakistan, with service from
Karachi to Dhaka, due to sustained losses being suffered by the airline,
the Government of Pakistan proposed that Orient Airways merge with a
new national airline. On 11 March 1955, Orient Airways merged with the
government's proposed airline, becoming Pakistan International Airlines
Corporation. The newly formed airline not just offered services on its
domestic routes but also inaugurated its first international route, KarachiLondon Heathrow Airport via Cairo and Rome.
The appointment of Air Marshal Nur Khan as the Managing Director of PIA
in 1959 heralded an era of great successes for PIA. In March 1960, PIA
wet-leased a Boeing 707 from Pan American airlines, thereby becoming
the first Asian airline to induct a jet-aircraft in its fleet. With the newly
acquired aircraft, the airline introduced its first trans-Atlantic route
Karachi-New York JFK via London in 1961. In 1962, it expanded its fleet by
placing orders for Boeing 720s, Fokker F27s, and Sikorsky helicopters. In
the same year, one of Boeing 720s flown by Captain Abdullah Baig flying
from London to Karachi made a world record for the Speed over a
commercial airline service for powered landplanes of 938.78 km/h, a
record which still holds to this day.
Upon the establishment of ties between Pakistan Government and
People's Republic of China, PIA started flying to Beijing in 1964, becoming
the first airline of a non-communist country flying to the People's Republic
of China. At the outbreak of Indo-Pakistani War of 1965, the Pakistani
Armed Forces seek PIA's services for logistics and transport purposes.
The 70s decade was marked by resumption of transatlantic flights,
introduction of new destinations, appointment of Nur Khan as its executive
for the second term, and the beginning of financially successful period for
the airline. When the political situation in East Pakistan (present
day Bangladesh) started deteriorating in early 70s, the Pakistan
Army once again used PIA's services to airlift soldiers and ammunition
to East Pakistan. Most flights had to detour to Sri Lanka during trips

between West Pakistan and East Pakistan. With the establishment of
cordial ties between the Libyan and Pakistani governments in early 70s,
PIA added a new international route, Tripoli, to its map in 1972. It also
signed an agreement with Yugoslav airline JAT. PIA acquired McDonnell
Douglas DC-10s in 1973 and used those planes to replace Boeing 707300s. In 1974, PIA launched Pakistan International Cargo, offering air
freight and cargo services. In 1975, PIA introduced new uniforms for air
hostesses which were chosen through an open competition, with the
winning entry designed by Sir Hardy Amies, the designer of Her
Majesty Queen Elizabeth II.
The latter half of the decade witnessed further expansion of PIA's fleet
with the introduction of Boeing 747s through either leased or purchased
aircraft. During this decade, airline gained considerable popularity and
was regarded as Asia's best airline. For the first time since its
inauguration, PIA started providing technical and administrative
assistance or leased aircraft to foreign airlines including Somali
Airlines, Philippine Airlines, Air Malta and Yemenia. A subsidiary of PIA also
started providing hotel management services in United Arab
Emirates towards the end of the decade.
The 1980s decade began with the opening of a cargo handling centre at
Karachi airport, duty-free shops, the first C and D safety checks on its
entire fleet, as well as the introduction of airline's first Airbus A300B4203 aircraft. In 1984, the airline introduced Night-Coach service as a lowcost alternative to day-time domestic flights. In the following years, PIA
Planetarium was inaugurated in Karachi which was followed by
planetariums in Lahore and Peshawar. These planetariums featured retired
PIA aircraft on display for educational or observational purposes. Also in
1985, five new Boeing 737-300s airplanes were introduced in PIA's fleet,
making PIA the first Asian airline with such diverse aircraft fleet. In late
1987 and early 1988, services to Malé and Toronto were introduced. In
1989, Shukria Khanam became the first woman pilot to obtain a license to
fly a commercial passenger plane but never joined PIA as a pilot. A year
later, First Officer Maliha Sami became the first female pilot of PIA when
she took off on Karachi-Panjgur-Turbat-Gwadar route.
In mid-1980s, PIA also helped establish Emirates by leasing two of its
airplanes - Airbus A300 and Boeing 737 - as well as providing technical
and administrative assistance to the new carrier.
PIA has a long history of milestones in aviation, such as being the first
Asian airline to operate a jet aircraft and Boeing 737aircraft; It today
remains by far Pakistan's largest airline with a fleet of 31 airplanes and at
least 10 more on order. Furthermore, PIA was the launch customer to
operate the 777-200LR model
March 1993 AVM Farooq Umar became MD PIA and also open skies from
Karachi to Dubai were declared and 12 private air lines were allowed to
operate domestically in Pakistan. Both steps came simultaneously and put
great pressure on PIA's financial performance. Farooq Umar to meet the

challenge, fought the battle of open skies and opened up 6 new routes to
the Persian Gulf and CIS countries along with tourist’s attraction air safari
On 5 March 2007, the European Commission banned all but 9 planes of
PIA's 42-plane fleet from flying to Europe citing safety concerns of its
aging fleet. The ban was imposed following an on-site visit led by Federico
Grandini, European Commission’s Air Safety Administrator. On 29
November 2007, the EU completely removed the ban and PIA's entire fleet
was permitted to fly to Europe.
To sum up, there was a time when PIA was among the top 10 best airlines
of the world. It was even sometimes referred as best flag carrier because
of its fabulous services. 70’s and 80’s are known as the golden era of
PIA. PIA was considered to be one of the best airlines in the world
between 1962 and 1980. It constantly scored high for having best in-flight
entertainment, business class, most convenient connections, delicious
cuisine and a wide selection of beverages. PIA was enjoying rapid growth
within and outside Pakistan. It was also been noted for having the most
stylishly dressed air hostesses.
PIA CORPORATE MANAGEMENT STRUCTURE
Pakistan International Airlines Corporation (PIAC) is majority owned by
the Government of Pakistan (87% shares) while the remainder (13%
shares) by private shareholders. The airline is under the administration
of Ministry of Defence the chairman of which is Muhammad Mian Nawaz
Sharif. The airline is managed by managing director as well as the Board
of Directors. The Board consists of nine independent non-executive
members and has four sub-committees: an Audit Committee, Brand and
Advertising Committee, Finance Committee, and Human Resource
Committee each having its own charter and chairman. The MD leads the
executive management of staff who run the airline. The airline's main
headquarters are located at Karachi Airport while smaller sub head offices
are located in several cities within Pakistan.

COMPOSITION OF THE BOARD OF DIRECTORS – (NON EXECUTIVE)

Mr Nasser N.S. Jaffer
Chairman-PIA

Mr Nasser N. S.Jaffer is a nominated Director since
July, 2014, He holds an Associated Science Diploma in
Agriculture from University of California. He is the CEO
of Jaffer Group of Companies and Chairman on its
Board of Directors. He was Director of Jaffer Brothers
(Private) Ltd. from 1969 to 2003, responsible for the
chemical, insecticides and pesticides businesses, as
well as the fertilizer and machinery business from time
to time. In 2003 he took over as Chairman and CEO of
the company to manage the overall business to
ensure growth, profitability and business satisfactory
results to the stakeholders. He is on the Board of other
business, philanthropy, social and health associations
such as the Kidney Centre and Honorary Secretary
Modern Club and Modern Society. He also held office
as the Honorary Consul of the Philippines till 2010. Mr
Jaffer is on the board of Shell Pakistan Limited’s Since
June 13, 2011. He was on the Board of Pakistan
International Airlines Corporation from July 3, 2013 to
August 01, 2013. He is also the Chairman of PIA
Investment Limited.

Mr Ghiasuddin Ahmed
Member, PIA Board of Directors
Mr Ghiasuddin Ahmed is a nominated Director since
September, 2013. Mr Ahmed holds a Master’s Degree
in English Literature; Master’s in Public Administration
(Public Enterprises) from International Institute of
Public Administration Paris (IIAP); Bachelor’s Degree in
Law from the University of Punjab; and a Diploma on
Project Appraisal and Management from Harvard
Institute, United States of America. During his career
as a civil servant, he held senior positions in the
provincial and federal Government including Federal
Secretary Establishment Division as well as Planning &
Development Division. He has served as Member as
well as Vice Chairman/Acting Chairman of National
Electric Power Regulatory Authority (NEPRA). Mr
Ahmed has participated in a number of national and
international conferences and workshops. He has also
served as Member Board of KESC and National

Database and Registration Authority (NADRA). Mr
Ahmed is presently serving as Chairman Board of
Directors of Islamabad Electric Supply Company. He is
Member of PIA Board’s Audit Committee, Board’s
Human Resource & Remuneration Committee and
Board’s Customer Services Committee.

Malik Nazir Ahmed
Member, PIA Board of Directors
Malik Nazir Ahmed is an elected Director since March,
2008. He is re-elected twice as Director effective April
2011 and May 2014 respectively. He holds Bachelor’s
Degree in Laws from Punjab University. Malik Ahmed is
a renowned Businessman and is presently CEO of Nam
International (Pvt.) Ltd, Namco Associates (Pvt) Ltd,
and Executive Director of Wire Manufacturing
Industries Ltd. (WMIL). Malik Ahmed has attended
various courses in Business and Administration from
Lahore Chamber of Commerce and Industry of which
WMIL is a Corporate Member. He actively participates
in welfare activities. He has attended many business
forums and trade exhibitions within and outside
Pakistan. He is Chairman of Board’s Information
Technology Steering Committee and Member of PIA
Board’s Audit Committee, Board’s Human Resource
and Remuneration Committee, Board’s Customer
Services Committee, Board’s Information Technology
Steering Committee and Board’s Fleet Management
Committee.

Syed Yawar Ali
Member, PIA Board of Directors

Syed Yawar Ali is a nominated Director since
September, 2013. He holds Bachelor’s Degree in
Chemical Engineering and Master’s Degree in
Management Science from Stevens Institute of
Technology. He is a ‘Certified Director’ from Pakistan
Institute of Corporate Governance (PICG) in
collaboration with IFC (the World Bank Group). He had
participated in different conferences, seminars and
workshops on aviation held nationally and
internationally. Syed Yawar Ali joined the family
business, Packages Limited and then became
Managing Director of Milk Pak Ltd. He is presently
serving as Chairman of Nestlé Pakistan Limited; Wazir
Ali Industries Limited and remained Chairman of
Pakistan Dairy Association. He is serving as a Member
on the Board of State Bank of Pakistan, Agricultural
Development Bank of Pakistan and Lahore Electric
Supply Company. Currently he is Vice-President of the
India-Pakistan Chamber of Commerce and Industry
and is heading a committee to ‘Promote Trade with
India.’ He was on the Board of Pakistan International
Airlines Corporation twice from June, 1991 to March
05, 1993 and June 26, 1997 to January 20, 2000,
respectively. He is Chairman of PIA Board’s Customer
Services Committee, and Member of Board’s
FinanceCommittee, Board’s Information Technology
Steering Committee and Board’s Fleet Management
Committee.

Mr Atif Aslam Bajwa
Member, PIA Board of Directors
Mr Atif Aslam Bajwa is a nominated Director since
September, 2013. Mr Bajwa is a graduate from
Columbia University, New York, USA. He is a seasoned
banker and has 30 years of diverse national and
international banking experience. Presently, he is
working as President & Chief Executive Officer of Bank
Alfalah Limited. He started his career in 1982 with
Citibank, Karachi, and worked on various senior level
positions. Mr Bajwa has worked for ABN AMRO Bank in
Pakistan, Singapore and Amsterdam. He has served as

President and Chief Executive Officer of MCB Bank
Limited, Pakistan, the 4th largest Bank in Pakistan as
well as Soneri Bank Limited, Pakistan, as President &
Chief Executive Officer. He has also served as
President of Abu Dhabi Group. He is Chairman of PIA
Board’s Audit Committee and Member of Board’s
Finance Committee and Board’s Fleet Management
Committee.

Syed Muhammad Ali Gardezi
Federal Secretary Aviation & Member, PIA Board of
Directors
Syed Muhammad Ali Gardezi, Federal Secretary
Aviation Division is a nominated Director on PIA Board
since July 3, 2013 and he is a Civil Servant and has
held different positions including Commercial
Secretary in Hungary; Commissioner Sibi; Principal
Secretary to Governor Baluchistan; Director Finance of
Multan Development Authority; Managing Director of
PSIC, Federal Secretary Labor Division; Commissioner
Multan Division; Chairman National Highway Authority;
and, Secretary Ministry of Climate Change. He is also
serving as Chairman of Pakistan Civil Aviation
Authority, and was Acting Chairman from August 6,
2013 to October 16, 2014.

Dr Miftah Ismail
Special Assistant to Prime Minister of Pakistan &
Member, PIA Board of Directors

Dr Miftah Ismail is a nominated Director since
September, 2013. He holds Bachelor’s Degree in
Business Administration from Duquesne University,
Pittsburgh, USA; Master’s Degree in Public Policy and
Management; and, Doctorate in Public Finance and
Political Economy from The Wharton School, University
of Pittsburgh, USA. He is presently working as Special
Assistant to Prime Minister of Pakistan ; Chairman of
Board of Investment, Pakistan; Vice Chairman of
Punjab Board of Investment and Trade, Chairman of
Delmare Foods (Pvt) Ltd, Chief Executive Officer and
Director of Ismail Industries Ltd and Astroplastics (Pvt)
Limited, Director of Sui Southren Gas Company
Limited and Flexipack Films (Pvt) Ltd, President of
Board of Trustees, Karachi American School; and
Member, Advisory Committee, Institute of Business
Administration. He has served as President of Rotary
Club of Karachi Sunset Millennium, President of
Institute of Business Administration, Chairman of
Punjab Board of Investment and Trade and Economist
in International Monitory Fund, Washington DC. He is
Chairman of PIA Board’s Human Resource &
Remuneration Committee and Member of Board’s
Finance Committee and Board’s Information
Technology Steering Committee.

Mr Aslam Khaliq
Member, PIA Board of Directors
Mr Aslam Khaliq is a nominated Director since
February, 2014. Besides CHAL Foundation and The
Hunar Foundation (Not for Profit- NGO’s) Chairmanship
Mr. Aslam Khaliq is also presently serving as Chairman
Reckitt Benckiser Pakistan. He has been former
Chairman and Advisor of Pakistan Tobacco Company
where he worked for over 40 years. Furthermore, He
has also served on the Boards of OGDCL, National
Data Base & Registration Authority (NADRA),
Intellectual Property Rights Organization (IPOPakistan), Pakistan Atomic Energy Bio Sciences (Pvt.)
Limited & Islamabad Stock Exchange, JS Global Capital
Limited. Besides being Honorary Consulate General for

Bulgaria, he is on the Board of Governors of Lahore
University of Management Sciences (LUMS) since
2003.He was on the Board of Pakistan International
Airlines Corporation as Acting Chairman from July 3,
2013 to August 05, 2013. He is Chairman of PIA
Board’s Fleet Management Committee, Member of
Board’s Audit Committee,Board’s Human Resource &
Remuneration Committee, Board’s Finance Committee
and Board’s Customer Services Committee.

Dr Waqar Masood Khan
Member, PIA Board of Directors
Dr Waqar Masood Khan is Federal Secretary Finance
and nominated Director since July, 2013. He holds
Ph.D Degree in Economics and Masters in Arts in
Political Economy from Boston University
Massachusetts, USA and also Masters in Arts, in
Economics and L.L.B from University of Karachi. Dr.
Khan has held several prestigious positions in the
Federal Government including Special Secretary to the
Prime Minister, Secretary Finance Division, Secretary
Economic Affairs Division and Secretary, Textile
Industry. He also has the experience of teaching micro
as well as macro economics at Boston University
Massachusetts, USA as Assistant Professor. Apart from
having several institutional and personal publications
at his credit, he has served on the Boards of primes
national and international institutions including Islamic
Development Bank, National Bank of Pakistan, and
Pak-Oman Investment Company etc. Presently, he is
serving as Federal Secretary, Finance Division. He is
Chairman of PIA Board’s Finance Committee.

Mr Muhammad Azam Saigol
Member, PIA Board of Directors

Mr Muhammad Azam Saigol is a nominated Director
since September, 2013. He holds Bachelor’s (Hons)
Degree in Arts from Oxford University, UK. Mr Saigol is
an industrialist and has interests in textile,
electronics/electrical, international trading automobile,
energy and banking industries. Mr Saigol is presently
serving as Chief Executive of Kohinoor Industries
Limited and Kohinoor Power Company Limited. He is
also serving on the Boards of Pak Elecktron Limited
and Saritow Spinning Mills Limited.

Mr Yousaf Waqar
Member, PIA Board of Directors
Mr Yousaf Waqar is an elected Director since April,
2011. He has been re-elected as Director effective May
2014. He has done BBA from Lahore School of
Economics. He is a ‘Certified Director’ from Pakistan
Institute of Corporate Governance (PICG) in
collaboration with IFC (the World Bank Group). He is a
well-known business man and is presently looking
after his family business, namely Diamond Group of
Industries. Mr Waqar has extensively travelled to many
countries of the world. He is the CEO of Eagle
Industries (Pvt) Limited and is Director and partner of
six other companies. Mr Waqar is an active member of
Entrepreneurs Organization of Pakistan. He is very
active in supporting the social sector organizations
working for the development of education and health
care. His passion is to serve the nation by generating
new resources of employment through producing
environment friendly products. He is Member of
Board’s Human Resource & Remuneration Committee
and Board’s Information Technology Steering
Committee.

Mr Younus M. Khan
Secretary-PIA

Mr Younus M. Khan is the 18th Corporate Secretary of
PIA. Besides a Master of Business Administration, he
also hold Bachelor’s Degree in Engineering. He is a
‘Certified Director’ from Pakistan Institute of Corporate
Governance (PICG) in collaboration with IFC (the World
Bank Group). During his career at Pakistan
International Airlines he had the opportunity of
working at various technical and managerial positions
including the key positions like Special Assistant to
Managing Director and Principal PIA Training Center.
He had participated in different conferences, seminars
and workshops on aviation held in Pakistan and
around the World. Mr Khan is ex-officio Member of CSR
Committee, and ex-officio Secretary of Board’s Audit
Committee, Board’s Human Resource & Remuneration
Committee, Board’s Finance Committee, Board’s
Customer Services Committee, Board’s Information
Technology Steering Committee and Board’s Fleet
Management Committee of the Board. He is also
Chairman of Women's Protection Committee of PIA.

CHIEF INTERNAL AUDITOR : MR JAWED MANSHA

EXISTING MANAGEMENT OF PAKISTAN INTERNATIONAL AIRLINES
CORPORATION

The following is the existing management of PIA Corporation:

Managing Director
Mr. Shahnawaz Rehman
Chief Financial Officer
Mr. Nayyar Hayat
Director - Engineering & Maintenance
Mr. Maqsood Ahmed

Director - Corporate Planning & Accountability
Mr. Anjum Amin Mirza
Director - Information Technology
Mr. Syed Aijaz Mazhar
Director - Safety & Quality Assurance
Capt. S. Adnan Haris
Director - Flight Operations
Capt. Salman Azhar
Director - Human Resource, Administration & Coordination
Mr. Rashid Ahmed
Officiating Director - Marketing
Mr. Rashid Aziz
Director - Precision Engineering Complex
AVM Sohail Ahmed Malik
Director - MRO, Training & EASA-145
Mr. Amir Ali
Director - Food Services & Flight Services
Mr. Amanullah Qureshi
Executive Director- Skyrooms (Pvt) Ltd
Ms Ghazala Rashid
Director Flight Operations
Captain Qasim Hayat
Director Airport Services
W J Bornshin
Director (Without assignment)
Khurram Mushtaq
Director Engineering (Incumbent)
Saminuddin Naqvi
Chief Legal Officier

Mr. Waseem Bari Salimi
Director-Vigilance & Monitoring
Flt Lt (Retd) Waseem Ahmed Khan

External Auditors
Messrs A.F> Fergusan & Co.
Chartered Accountants
Member firm of PriceWaterhouse Coopers (PwC)
Messrs KPMG Taseer Hadi & Co.
Chartered Accountants
Member firm of KPMG International Corporative

INVESTIGATION OF THE COMMITTEE
The committee under the supervision of Mr. Ammar Rehman started its
investigation from various angles. Several rounds of interviews were held
with existing employees and management to understand the prevailing
problems. It was ensured that the confidentiality of the employees would
be maintained to encourage employees to share their point of view.
However, to get candid opinion, former management and staff including
the former Managing Directors were also interviewed to understand the
issues and identify its root cause.
The following issues were identified during the investigation:
MISSING CHARACTERISTICS OF BOARD OF DIRECTORS
The investigation committee interviewed the Board of Directors of PIA. It
was observed that the existing board of directors did not fulfilled the
requirements of being on the board that is they had the occupational
education, knowledge, respectability and the experience to complete their
tasks properly as board members. Also, they did not have direct or
indirect commercial relations with the company, a related party of the
company or with shareholders. The board members had experience in
fields such as textile and healthcare which have no relevance to airline
industry since it requires technical knowhow to make important decisions
about running the airline efficiently.
It was observed that they did not protect the rights of the beneficiaries
within the company and did not remain impartial since the organization
was under the administration of Ministry of Defence headed by the Prime
Minister. As a consequence all final approvals were made by Ministry of
Defence which at times took decisions which were not in the best interest
of PIA to ensure that the decisions did not have any negative
repercussions from general public.
BOARD ROOM PRACTICES
Ideally, all the directors, particularly the non-executive directors, should
be able to contribute effectively to the decision making process. For this
they must be supplied with sufficient timely information, in advance of
board meeting, relating to all the matters the board will be discussing in
the next meeting. However, in case of PIA, no timely information was
available and agenda for the meeting was seldom not shared with all
members or changed during the meeting. Although there are written
procedures for conduct of board meetings but compliance to these
procedures is not monitored by an appropriate committee.

SHAREHOLDERS
One of the board member pointed out that since in PIA 87% of the total
shares were owned by the government while the remaining were owned
by private shareholders, the board had to make decisions that were in the
best interest of the government. The ultimate decision was with the

shareholders which was the government. Although he emphasized that as
impartial board member, it was obligatory for him to work for all
shareholders and not restrict himself to a group of shareholder, he could
not fulfil this duty due to the involvement of the government. This
prevented the board from becoming INED and made it ineffective.

CHARACTERISTICS OF BOARD
When detailed interviews were conducted with each board member, it was
observed by the committee that the board had missing characteristic of
suitability and sound judgement. Some of the board members did not
have understanding of marketing, finance and other disciplines relevant to
the success of a large corporation in today’s business environment and
had little understanding of the Company's business and technology and
educational and professional background required for the success of the
organization.

BALANCE IN THE BOARD
Because the board was non independent, the board lacked:
1. Knowledge and talents to participate meaningfully in board
proceedings
2. An understanding of individual interests of all stakeholders
3. Independence and courage to differ with government where it is
necessary
4. The power to overrule the government where collective interest of
all stakeholders demands

INABILITY TO PERFORM BOARD FUNCTIONS: OVERSIGHT,
DIRECTIONAL AND ADVISORY
It was observed that the board of directors were appointed based on their
contacts with the government officials and were not appointed based on
their knowledge, skills, abilities and experience. Hence they lacked the
competencies required to work effectively as board members and perform
their duties of oversight, directional and advisory functions in the best
interest of the company.

SHADOW DIRECTOR
The committee also observed after interviewing the board of directors the
existence of ‘shadow director’ in PIA which was namely the existing
government. The shadow director, that is the government, accordance
with whose directions or instructions the directors of PIA were accustomed
to act and could not go against the wishes of the government. Although
the government officials did not sit in the board meetings but exerted

influence through directors who sat in the meeting. Terms were being
dictated by government officials who acted as shadow directors. As a
consequence, all decision making was done by the government which had
complete control over PIA.

RUBBER STAMP BOARD OR YES MAN BOARD
Another issue observed by the committee was that the board of directors
were literally rubber stamp and yes man board members. Anything that
came top down from the Ministry of Defence was accepted without any
resistance from the board of directors. Although the board members
could take an action independently but in practice followed the advice or c
ounsel of the government officials and approved anything that was
presented to them even if it was not in the best interest of PIA. As a result,
this failed the very purpose of having a board in the first place whose
purpose was to oversight all matters and made decision impartially which
never happened due to the involvement of the government officials.

CONTROVERSY RELATED TO NUMBER OF DIRECTORS
At present there are eighteen directors in PIA against approved posts of
twelve hence PIA has 50 per cent more top executives than allowed by
law. The Spokesman of PIA, Mashood Tajwer while talking to the
committee agreed that there were 18 directors. According to details, the
PIA Board of Directors in its 255th meeting had declared that the number
of directors in PIA could not exceed twelve but the incumbent
management had promoted six extra directors which had resulted in
issuance of at least five notices of contempt of court against Director
Human Resource, Admin and Coordination, Mr Aijaz Mazhar.

OVERSTAFFING
During the investigation, it was revealed by a former Managing Director
that PIA has the singular distinction of employing the highest number of
staff per aircraft and over Rs200 Billion of accumulative losses. Despite
being overstaffed, PIA hired PAF officers on senior posts during his tenure
in the procurement department which led to a lot of controversy within
the organization. However, the former Managing Director proposed to the
board of directors to downside staff to reduce operating expenses, but his
proposal was never accepted due to government involvement in running
the state of affairs of PIA.

GHOST EMPLOYEES
It was revealed to the committee by the employee union head that a lot of
ghost employees existed within PIA that were the major reason for the
operational inefficiencies. These ghost employees were appointed by the
government and received regular salaries but never came to work.
DEMOTIVATED STAFF
The overwhelming majority of the staff when interviewed by the
committee stated that the major source of concern and the root cause for
demotivation was constant rumours for years that the airline will be
privatized which would lead to massive layoffs. Also, due to centralized
decision making and low salaries the employees did not have any say in
the running of the company and wanted to move to foreign airlines
offering lucrative packages.
Moreover, government announced pay increment was never followed. Also
the contractual staff pointed out that there was a huge difference in the
salaries of the contractual and permanent staff which demotivated them.
The absence of time bound policies on holding promotion boards on
regular basis was a source of demotivation for them as well. This issue
was pointed out several times by the board of directors to the Ministry of
Defence but no action had been taken to rectify this issue.

POLITICAL APPOINTMENTS WITHIN ORGANIZATION
Another issue identified during the investigation was political
appointments. Many former employees pointed out that PIA being the
government organization is influenced heavily by government personal.
Selection and recruitment is not done on merit and is greatly influenced
by politicians and government officials. Political appointments were a
norm and new appointments took place with every government change.
“Being a rubber stamp board, no action could be taken against this
serious irregularity”, said a board member.
EMPLOYEE UNIONS
The existing directors when interviewed raised concern about the
presence of employee unions which resulted in political activities such as
strikes that adversely affect the origination. For instance there have been
frequent cases of pilots protesting by following ‘Go Slow’ which have
caused delays in flights due to non-availability of pilots which have
translated into millions of rupees loss to the airline.
OPERATIONAL ISSUES
The technical staff highlighted another critical issue of PIA aircrafts
grounded due to non-availability of spare parts. This was the major cause
of delay and cancelation of flights. Since the spare parts are very costly
and technical issue in spare parts cannot be repaired within Pakistan due
to restrictions by the manufacturer, the parts have to either be repaired

abroad or replayed completely. There is a delay in purchasing of spare
parts due to non-availability of funds.

INCREASE IN OIL PRICES
The director of finance shed light on the external factors namely oil price
increase which is a major expense in the income statement. He explained
to the committee that increase in oil prices have been witnessed in the
international markets over the last couple of decades. Global demand for
oil has been increasing, outpacing any gains in oil production and excess
capacity. A large reason is that developing nations, especially China and
India, have been growing rapidly. These economies have become
increasingly industrialized and urbanized, which has contributed to an
increase in the world demand for oil. In addition, in recent years fears of
supply disruptions have been spurred by turmoil in oil-producing countries
such as Nigeria, Venezuela, Iraq, and Iran. As a result, the profit margins
for PIAC have shrunk due to high operating cost mainly due to increased
oil price.
“That was the time airlines had parked their aircraft to save fuel costs. PIA
should have cut back on loss-making routes aggressively but that didn’t
happen,” said a former director of marketing.

DEPLETED FLEET
A senior pilot when interviewed said “Airlines must switch to newer
aircrafts after every 10 years or so. PIA’s fleet replacement had been
unduly delayed. Also airlines such as Emirates that were created by the
indirect help of PIA currently have the latest Airbus A380, with exceptional
in house entertainment, higher passenger carrying capacity and fuel
efficiency. It is high time PIA upgraded its fleet and shifted to new fuel
efficient aircrafts.”
Industry officials when interviewed blamed this myopic approach for many
of the problems faced by the national carrier. The said “Government
should have made a capital injection on yearly basis like it did in 2003.
That would have helped it buy desperately needed narrow body aircraft”.
The board of directors also presented upgrade of fleet to the Ministry of
Defence, however their proposal was not accepted since the airline was a
loss making proposition and the government was not in favour of making
investments through debt or equity financing. Exhibit 1 gives complete
details of the existing fleet.

MAINTENANCE ISSUES

PIA has had a history of problems of maintenance and repairs. It was
stated by a former procurement director during an interview by the
committee members that tender for the maintenance of the aircrafts has
been given to the company that does not have international reputation. It
is further stated that PIA tends to sublet dubious and substandard
companies with no international credibility and little experience for
maintaining its fleet. During the investigation, Saleem Irshad, retired
engineer, claims that high-ups of PIA have financial stake in these small
and substandard companies.
Lack of Investment and Depreciation of Rupees
The existing Finance director confirmed that PIA had purchased Boeing
777 aircrafts against debt in US Dollars which was a mistake. Depreciation
of dollar over the last decade had resulted in increase in overall debt in
Pakistani Rupees.

COMPETITORS DUE TO OPEN SKIES POLICY
The existing Managing Director claimed that the real fault for the mess
lied with the open skies policy. PIA is carrying 43.1% of the international
traffic from Pakistan, followed by the second highest market shareholder
Emirates at 14% due to Open Skies Policy. PIA’s market share is constantly
decreasing with every passing year due to this policy.
Open skies policy was enforced in Pakistan, after a number of incidents
caused by some non-professional decisions taken by the PIA management
of the time, coupled with gross mishandling of passengers and their
baggage.
Because of the haste with which this policy was implemented without
doing any homework, ignoring some sane suggestions from within the PIA
and CAA, it backfired, as was expected.
Exhibit 2 and 3 give details of the existing domestic and international
routes of PIA.
COMMITTEE MEETING
After doing extensive research and interviewing all stakeholders, the
committee members were astonished about the sorry state of affairs of
PIA. With only a week left before the conclusion of the 2 months deadline
for submission of final report, Mr. Ammar Rehman had a challenging task
of ahead of him of highlighting all exiting issues and come up with
recommendations that would solve all problems of the national airlines
and help it gain its past glory.

QUESTIONS
1. List and briefly discuss the main problems faced by PIA.
2. Where would you place the responsibility of ineffectiveness of the
board?
3. If PIA was not under the Ministry of Defence, would the issues be the
same?
4. If board room practices are followed in true spirit, what would be its
impact on the performance of PIA?
5. What are the consequences of having a rubber stamp board in this
case?
6. Should PIA proceed with the privatization or not?
7. What should Mr. Ammar Rehman recommend to the government?
8.

EXHIBIT 1: FLEET STRUCTURE
PIA's fleet of modern aircraft are spacious, comfortable, and designed to
get you to your destination safely. PIA operates a range of advanced
aircraft, ranging from the world's preferred Boeing 777 airplane to the
super-quiet Airbus A-310.
A brief introduction of PIA fleet is given below:
BOEING 777
The Boeing 777 family comprises of long-range, wide-body twin-engine
airplanes. PIA was the first airline in the world to operate all the three
variants of the 777 family: 777-200LR, 777-200ER and 777-300ER, all of
them are well loved by PIA's seasoned travellers for their spaciousness
and comfort. PIA also holds the privilege of being the launch customer for
777-200LR, one of PIA’s aircraft holds the record for the longest
commercial jet flight in aviation history. At present PIA is serving
destinations in USA, Canada, UK and Europe through its 777 fleet.
Boeing 747
The Boeing 747, often referred to as “Jumbo Jet”, is amongst the world's
most iconic and recognizable jet airplanes. This 4 engine long haul widebody airplane has a two-deck configuration. PIA operates two variants of
747 family which includes 747-300 and 747-200 Combi. 747 Combi is so
called as it has mixed pax and cargo configuration on the main deck. At
present due to its capacity, 747-300 fleet is mostly deployed to cater high
density requirements like carrying intending pilgrims to and from Saudi
Arabia.
Airbus A310
The Airbus A310 is a medium to long range wide-body airplane providing a
spacious interior to its travellers. PIA has deployed the A310-300 fleet on
Far East, Regional as well as Domestic routes.
Boeing 737
The Boeing 737 is one of the world's favourite narrow-body short/medium
haul jet airplane. Amongst its many credits, it has the distinction of being
the most ordered and produced commercial airplane of all time and
Boeing continues to manufacture its variants, to date. PIA’s 737-300
aircraft mostly serve its domestic and regional routes.

ATR42
This modern technology turbo prop is the latest type inducted in PIA’s
fleet. PIA’s fleet of seven ATR42-500 aircraft is configured in comfortable
two class seating arrangement. This aircraft has enabled the airline to
provide its valued customers the most convenient way to fly to far flung
destinations of the country.

EXHIBIT 2: DOMESTIC ROUTE

EXHIBIT 3: INTERNATIONAL ROUTE

REFERENCES
http://tribune.com.pk/story/769084/man-who-stood-up-against-vip-cultureon-pk-370-fired-from-job/
http://www.piac.com.pk/pia_about/pia-about_bodirectors.asp
http://www.piac.com.pk/pia_about/pia-about_fleet.asp
http://www.utrade.co/Magazine/Utrade-Magazine.aspx?Key=408
http://www.pakistantoday.com.pk/2012/03/22/comment/editors-mail/piaunder-crisis/
http://www.dawn.com/news/864516/open-skies-policy
http://www.hmrc.gov.uk/manuals/insmanual/ins44133.htm
http://www.dawn.com/news/1114474
http://www.thenews.com.pk/Todays-News-2-239924-PIA-explains-status-of18-directors-on-its-board
http://www.thenews.com.pk/Todays-News-2-239924-PIA-explains-status-of18-directors-on-its-board