Govt to shell out Rs5 billion to 2,000 PIA employees taking Voluntary Separation Scheme

• VSS availed by 2,000 PIA employees to cost government Rs5 billion
• PIA says scheme will save Rs2.5 billion annually
• PIA spokesperson shares business plan of national carrier presented to the federal government

ISLAMABAD: The federal government will have to pay Rs5 billion to 2,000 employees of Pakistan International Airlines (PIA) who have opted to avail its Voluntary Separation Scheme.

The PIA says the scheme will save Rs2.5 billion annually through savings on salaries and other perks and privileges, resulting in the airline recouping the cost of the scheme within a span of two years. 

What is PIA's proposed business plan?

PIA’s Board had earlier sent a strategic business plan to the federal government recommending PIA reduce its workforce to 7,500 employees, Adviser to the Prime Minister on Institutional Reforms and Austerity Dr Ishrat Hussain was quoted as saying in a report in The News.

Read more: PIA launches Voluntary Separation Scheme for its employees

Dr Ishrat said the government's Economic Coordination Committee has already approved the VSS. The scheme was offered to PIA employees after the federal government’s approval.

"The PIA Board's plan stated the national carrier has to reduce its employees to up to 258 per aircraft. It also presented plans to exit from routes that are making losses,” Dr Ishrat said.

The aircraft-to-employees ratio of the national airline is far higher than any other airline, PIA spokesperson Abdullah Hafeez was quoted as saying by the publication.

Currently, PIA has around 500 employees per aircraft. The VSS will help PIA save a large amount of money annually because the airline is paying a hefty sum in salaries and other perks and privileges.

Outsourcing services is common among many top airlines in the world, including passenger or cargo reservations systems, gate operations, ground handling and catering, etc.

Read more: Only one on board as PIA flight departs from Manchester for Islamabad

PIA has been doing all this in-house.

The PIA spokesperson said the national carrier has accrued almost Rs480 billion in debt and liabilities and the amount is increasing daily.

Therefore, the board has proposed that the PIA management ensure operational profitability and the federal government should pay off PIA's legacy loan, or that the government help in restructuring the balance-sheet because all the debts and liabilities are under a sovereign guarantee.

"The volume of the national flag carrier’s debt is so high that PIA itself cannot pay off the loan even if it starts earning profit from its operations”, the spokesperson said.

“The average revenue of PIA is around Rs150 billion, out of which an amount of Rs6 billion is its operational profit.

Even if PIA starts paying its loan from its operational profits, it will take another 100 years to pay off its liabilities. This is why the board has proposed the federal government to play its role in paying off the national airlines debts,” said Hafeez.

Who made the business plan?

This business plan was made by the end of 2018. The PIA management had consulted Idris Jala – the man behind the transformation of Malaysian Airline – for guidance and recommendations.

Jala had recommended conducting route diagnostic labs and enhancing the ancillary revenues of the airline.

Read more: PIA to resume flights to Saudi Arabia today as kingdom resumes international travel

The PIA management subsequently enhanced ancillary revenues, whereas the routes in loss have also been identified.

Due to these steps, the PIA revenue was increased and operational cost decreased in 2019, the spokesperson said.

How does the VSS scheme work?

The national flag carrier has almost 14,000 employees. According to the business plan proposed by the PIA board, the number of employees is to be reduced to 7,500.

Currently 2,000 employees have applied for the VSS, out of which around 1,000 employees have already been sent letters.

Similarly, almost 960 employees were dismissed on disciplinary grounds last year while 600 employees retire every year after completing their tenure.

The PIA will now have around 7,500 to 8,000 regular employees and almost 2,200 daily wagers. The reduction in employment size will help reduce the operational cost of the national airlines, the spokesperson said.