DTN News: PIA Negotiating $2 Billion Deals Amid Declining Orders / PIA Fleet Expansion On The Cards

DTN News: PIA Negotiating $2 Billion Deals Amid Declining Orders / PIA Fleet Expansion On The Cards

*Source: DTN News / The Nation

(NSI News Source Info) LAHORE, Pakistan - July 8, 2009: In mid June, PIA entered into negotiations with Boeing and Airbus for procurement of 27 new aircrafts of worth more than $2 billion at list prices.

In July 2002, PIA purchased six Boeing 747-300 aircraft from Cathay Pacific, five of which were already on lease with PIA. The sixth arrived shortly after and PIA operated it mainly on its North American and European routes. In October 2002, after a period of ten years without any new order, the airline purchased eight Boeing 777 aircraft from The Boeing Company, including three 777-200ER (Extended Range), two 777-200LR (Longer Range) and three 777-300ER versions. PIA was the launch customer that revived the Boeing 777-200LR project that, until then, only had three orders by EVA Air. The first two Boeing 777-200LR produced were test aircraft used by Boeing, before they were delivered to PIA. One of these Boeing 777-200LR was displayed at the Paris Airshow during 2005. During 2004, PIA took delivery of its first Boeing 777-200ER aircraft in January. On delivery of the first three Boeing 777-200ERs the airline introduced a new aircraft livery, which was later applied to the majority of the fleet. PIA also acquired six half life Airbus A310-300/ET from the Airbus management on a ten year lease agreement. On 3 November 2005 PIA signed an agreement with the aircraft manufacturer, ATR to purchase seven ATR42-500. The aircraft were purchased to replace the aging F-27 aircraft. The seven ATR aircraft were delivered between 2006 and 2007. On 6 December 2005, PIA leased an additional new Boeing 777-200ER from the International Lease Finance Corporation (ILFC). The aircraft had the same specifications as the previous Boeing 777-200ER that PIA operated. The aircraft was delivered in January 2007 on ten year lease to the airline.

On 25 February 2006 Boeing delivered its first 777-200LR Worldliner to PIA, where it flew from Everett to Islamabad via Manchester, England. PIA started non-stop flights from Toronto to Karachi, Islamabad and Lahore from 3 March 2006 taking advantage of Boeing 777-200LR's long range capability. PIA planned non-stop flights to New York City and other US cities with sizable Pakistani population centres, but was not given permission due to security reasons. On 31 May 2006, PIA took delivery of its first ATR aircraft from Toulouse, France. On December 23, 2006, PIA took delivery of its first Boeing 777-300ER. After the arrival of a second ATR 42-500, PIA has ceased using military Lockheed C-130 Hercules for passenger services in the north of Pakistan. The military planes were being used after the Fokker F27 fleet was grounded due to a fatal crash in July 2006.

On 5 March 2007, the European Commission banned all but eight planes of PIA's 44-plane fleet from flying to Europe citing safety concerns. PIA was blacklisted by 27 European Union states. The remaining eight, namely the fleet of Boeing 777s, has been exempted from the ban. PIA claims that this is discriminatory and the bans are not justifiable. On 26 March 2007, Tariq Saeed Kirmani resigned after severe pressure from higher authorities because of the EU ban. Zafar Khan was appointed as the new chairman of Pakistan International Airlines. A team from the European Union visited Karachi in July 2007, to check the condition of the planes and review the ban. On July 5, 2007, the EU lifted the restriction on 11 aircraft that PIA could fly into Europe, of which five were Boeing 747-300s and six Airbus A310-300s. On November 29, 2007, The EU completely lifted the ban on PIA. In the same year, PIA signed a lease deal for seven new Airbus A320-200 from Kuwait based leasing company ALAFCO, the factory built aircraft were to be delivered between 2009 and 2010, however the deal however was cancelled in 2008 due to various factors. On March 19, 2008, PIA decided to retire its Boeing 747 fleet due to rising fuel costs. On May 7, 2008, Captain M. Aijaz Haroon was appointed the new Managing Director and decided to re-introduce the Boeing 747s. During April 2009, the management decided to launch a long-term ‘Business Plan of PIA’ including purchase of new aircraft with details of the plan being finalised. According to sources, proposals for the purchase of new aircraft are under consideration and will only be confirmed after approval by the competent authority.

In May 2009, PIA tendered for short term, wet lease, of three Boeing 737-300 aircraft, to be added to the fleet from July. During June 2009, PIA entered final discussions with Airbus and Boeing at the Paris Air Show for a new order of 27 narrow body A320 or 737 family aircraft, for the airline.

The deals could be one of the major narrow-body sales campaigns of 2009, and was revealed to Flight Daily News at the Paris Air Show by PIA Managing Director Capt Mohammed Aijaz Haroon.

It is worth mentioning here that the deal is being struck when there is recession worldwide, due to which, Boeing and Airbus have secured a grand total of just four new aircraft orders between them in the first three months of 2009.

The world’s airlines have ordered a total of just 50 aircrafts in the first quarter (28 for Boeing, 22 for Airbus), but they have cancelled 46 (32 for Boeing, 14 for Airbus), for a net order gain of just four aircraft. This is a massive turnaround from the 709 aircraft ordered in the first three months of 2008 (289 for Boeing and 420 for Airbus).

Speaking after signing a deal at the show with Thales for a RealitySeven Boeing 777-300ER full-flight simulator, Aijaz said the airline has completed the evaluation for the expansion of its fleet. “We’re looking at the Airbus A320 and Boeing 737. We’ve had meetings with Airbus and Boeing and are waiting for their final numbers. We expect to finalise a deal within the next few weeks.”

This PIA deal, if it goes through, will be the biggest purchase order by an airline in 2009, while the world’s aviation industry is facing its worst crisis since the great recession.

Losses for 2009 are estimated to be in the range of $9 billion and this estimate is based on Brent Fuel prices of $56 per barrel. The Asia Pacific airlines are expected to account for one third of industry losses in 2009.

The crisis has been further aggravated by the worldwide threat of terrorism, which coupled with economic recession, has dealt a severe blow to aviation industry. In such times, airlines have embarked on tightening belts, freeze on recruitments and aircraft induction, and adopted new marketing strategies, utilizing their best talents to retain their share of revenue, both passenger and cargo.

The frequency of flights to USA which once were over 9 flights a week, five to Newyork, two each to Chicago and Houston, have been slashed down to two flights a week. Similar drastic reductions in frequency of flights to UK, Europe, Far East, Gulf and regional sectors have seen a sharp decline in fleet utilization.

Investigations conducted by this scribe reveal that PIA has seen a sharp decline in the utilization of its Boeing 777 fleet from the industry average of 16 hours/day to under 10.4 hours/day in Feb 2009.

The PIA business plan submitted to EXIM Bank at the time of induction of B777s was based on average fleet utilization of 16 hours/day and an annual increase in revenue generation of over Rs2 billion per annum from 2003 onwards.

The A310 fleet utilization has dropped from 8.9 hours/day in 2008 to under 8.4 hours/day in Feb and March 2009. The utilization of ageing fleet of Boeing 747 was 3.1 hours in 2008 and has drastically reduced to 1-2 hours/day in March 2009. Ageing fleet of Boeing 747 and B737 are due for grounding along with at least 5 A310s whose block hours are above 59,000 HRs with landing cycles in the range of 17,000 to 20,000.

PIA has in spite of huge losses increased its surplus employees by another approximately 8,500 in the last 12 months. It has hired another 80 pilots, when there are almost 66 pilots hired in 2006 awaiting their turn for being operational.

It has 520 fully trained pilots flying Boeing 777s, A310s, B737, ATRs and the Boeing 747s. While the requirement of pilots is based on retirement age of 60 years, the fact is that the age of utilization of pilots has been raised by CAA to 65 years.