| Pakistan International Airlines Corporation |
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| Annual
Report 1998 |
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In the name of Allah, the most gracious, |
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the most merciful. |
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| CONTENTS |
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| Notice
of 42nd Annual General Meeting |
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| Board
of Directors and Management |
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| Directors'
Report |
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| Highlights |
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| Chairman's
Review |
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| Auditors'
Report to the Members |
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| Balance
Sheet |
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| Profit
& Loss Account |
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| Statement
of Changes in Financial Position |
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| Notes
to the Accounts |
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| Pattern
of Shareholding |
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| Statement
Under Section 237 of the Companies Ordinance, 1984 |
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| Five-year
Summary |
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| NOTICE
OF 42nd ANNUAL GENERAL MEETING |
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| NOTICE
IS HEREBY GIVEN that the 42nd Annual General Meeting of the Shareholders |
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| of
Pakistan International Airlines Corporation will be held at 0830 hours on
Saturday 27th March, |
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| 1999,
behind Airport Hotel, Quaid-e-Azam International Airport Karachi, to transact
the following |
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| business: |
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| 1.
To confirm the minutes of the 41st Annual General Meeting held on 30th
December, 1997. |
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| 2.
To receive and adopt the audited Accounts for 18-month period ended 31st
December, |
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| 1998,
together with the Auditors' and Directors' Reports. |
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| 3.
To consider and pass with or without modification the following resolution as
a resolution |
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| under
Section 208 of the Companies Ordinance, 1984: |
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| "Resolved
that an advance of Rs 2,573.96 million (in US Dollars) to an Associated |
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| Company
- PIA Investments Limited is hereby approved." |
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| 4.
To transact any other business which may legally be transacted at any AGM. |
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By order of the Board |
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|
(Ghazanfar Mashkoor) |
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Secretary-PIAC |
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| Karachi:
5th March, 1999 |
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| Notes: |
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| a)
The Share Transfer Books of the Corporation will remain closed from 19th
March, 1999 to |
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| 2nd
April, 1999 both days inclusive. Transfer documents received in order up to
1730 |
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| hours
by 18th March, 1999 will be in time for registration of transfer of shares. |
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| b)
A Shareholder entitled to attend and vote at the General Meeting is entitled
to appoint |
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| another
Shareholder as Proxy. Proxies and Powers of Attorney in order to be
effective, |
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| must
be deposited at the Head Office of the Corporation not less than 48 hours
before the |
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| time
fixed for holding the Meeting i.e. up to 0830 hours 25th March, 1999, unless
the |
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| Power
of Attorney has already been registered in the Corporation books, and must be
duly |
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| stamped,
signed and witnessed. |
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| c)
Shareholders are requested to promptly notify the Corporation of any change
in their |
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| addresses. |
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| d)
Entry at the Meeting place will start at 0730 hours and close at 0830 hours.
Shareholders' |
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| cooperation
in this regard will be appreciated. |
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| BOARD
OF DIRECTORS |
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MANAGEMENT |
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| Shahid
Khaqan Abbasi |
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Shahid Khaqan Abbasi |
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| Chairman
- PIAC |
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Chairman - PIAC |
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| Lt.
Gen.(Retd) Iftikhar Ali Khan |
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Arif Ali Khan Abbasi |
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Managing Director |
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| Sirdar
Zuifiqar Ali Khan Khosa |
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|
Kamaluddin Hussain |
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| Sardar
Mansoor Hayat Tamman |
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Director Corporate
Planning |
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| Adnan
Aurangzeb |
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Haider Jalal |
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Director Marketing |
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| Air
Marshal (Retd) Dilawar Hussain |
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Capt. S Idrees Ahmed |
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| S.
A. Rahman |
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Director Flight
Operations |
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| Syed
Yawar Ali |
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Mushtaq A Qureshi |
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Director Engineering |
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| Wasay Jalil |
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|
L.J. Contractor |
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| Mohammedmian
Soomro |
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Director Finance & |
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Information Systems |
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| Shaukat
Tarin |
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|
Javed Yusuf |
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Director Procurement
& Logistic |
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Wasim Bari |
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Director Customer
Services |
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| Ghazanfar
Mashkoor |
|
Zahid Manto |
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| Secretary
- PIAC |
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Director Administration |
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| Registered
Office |
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| PIA
Building |
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| Quaid-e-Azam
International Airport |
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| Karachi-
Pakistan |
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| DIRECTORS'
REPORT |
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| The
Directors have pleasure in placing before you their report together with |
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| the
Audited Accounts for the period ended December 31, 1998. |
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| ACCOUNTS |
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|
(Rupees in million) |
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| Profit
for the period |
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2,421 |
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| Provision
for taxation |
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(262) |
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| Profit
after taxation |
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2,159 |
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| Loss
brought forward |
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(4,127) |
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| Loss
carried forward |
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(1,968) |
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| CHAIRMAN'S
REVIEW |
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| The
Directors endorse the Chairman's Review. |
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| DIRECTORS |
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| Since
the last Annual General Meeting held on 30th December, 1997, |
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| changes
have occurred in the Board of Directors of the Corporation. Mr. Rafiq |
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| M.
Habib, Mr. Adnan Aurangzeb and Sirdar Zulfiqar Ali Khan Khosa joined as |
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| Directors
on the Board. Mr. Asfandyar Wali, Mr. A.Razak Dawood and Mr. Rafiq |
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| M.
Habib, relinquished charge as Directors. During the period |
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| Mr.
Mohammedmian Soomro and Mr. Shaukat Tarin were re-elected as Directors. |
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| The
Board welcomes the new Directors and wishes to place on record its |
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| appreciation
of the valuable services rendered by the outgoing Directors. |
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| PATTERN
OF SHAREHOLDING |
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| The
pattern of shareholding is available at Page No.30 |
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For and on behalf of the Board |
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|
(Shahid Khaqan Abbasi) |
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|
Chairman |
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| HIGHLIGHTS |
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DEC-98 |
JUN-97 |
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| Revenue |
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(Rs. in million) |
52,308 |
32,732 |
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| Costs
and expenditure |
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(Rs. in million) |
48,454 |
32,809 |
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| Profit/(loss)
before taxation |
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(Rs. in million) |
2,421 |
(4,603) |
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| Net worth |
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(Rs. in million) |
6,047 |
3,888 |
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| Revenue
passenger kilometres |
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(000) |
16,470,037 |
11,660,447 |
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| Passenger
load factor |
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66.70% |
66.50% |
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| Revenue
tonne kilometres |
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(000) |
2,084,938 |
1,494,808 |
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| Revenue
load factor |
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56.40% |
56.40% |
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| Chairman's
Review |
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| Dear
Shareholders |
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| It
is both my privilege and pleasure to present the Corporation's Report and
Accounts for the 18-. |
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| month
period ended December 31, 1998. |
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| This
financial period can be characterized by one word: change. |
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| The
most visible being the change of the financial year from July 1 - June 30 to
January |
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| 1
- December 31 to bring PIA in line with industry practice and as preferred by
the financial insti- |
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| tutions.
This change will allow PIA to better assess and absorb the effects of the
annual Federal |
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| Government
Budget in June, and also enable the Year 2000 issues to be addressed more
effi- |
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| ciently. |
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| The
change in the financial, year has resulted in a long 18-month accounting
period from July 1, |
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| 1997
to December 31, 1998. The financial results are summarized below: |
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1997-98 |
1996-97 |
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|
(18 Months) |
(12 Months) |
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(Rupees in million) |
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| Revenue |
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|
52,308 |
32,732 |
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| Costs
and expenditure |
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|
49,887 |
37,335 |
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| Profit/(loss)
before taxation |
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|
2,421 |
(4,603) |
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| Provision
for taxation |
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|
(262) |
(192) |
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| Profit/(loss)
after taxation |
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|
2,159 |
(4,795) |
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| The
accounts show major improvements in PIA's financial health and the record
profit of Rs. 2,421 |
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| million
has reduced the accumulated losses by more than fifty percent to Rs. 1,968
million. This |
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| profit
includes the write-back of Rs. 1,800 million in compliance with the auditors'
qualification in |
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| their
Report to the members on the 1996-97 accounts, Note 26.3. However, it must be
noted that |
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| the
costs and expenditure include a charge of Rs. 2,425 million in respect of
amortization costs |
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| for
the Mandatory and Voluntary Retirement Schemes, additional interest on debt
servicing and |
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| advances,
wage-award arrears, additional depreciation, and charging of certain capital
spares to |
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| expenditure. |
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| PIA
has achieved this financial turnaround despite severe cash flow and
inflationary pressures, |
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| devaluation
of the Pakistan rupee and South Asian currencies, slow-down of the national
and |
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| regional
economies, effects of international sanctions, adverse and unusual weather
conditions in |
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| Pakistan
during the peak traffic months of November and December, and major changes in
the |
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| operating
environment with the implementation of the new Aviation policy and opening up
of the |
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| Northern
gateways to both international and domestic operators resulting in excess
capacity and |
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| increased
competition. Inspite of these factors and planned fleet replacement costs, a
profit of |
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| over
Rs. 2,000 million has been budgeted for the current financial year. |
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| The
ambitious three-year restructuring process at PIA was started by aggressively
addressing the |
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| excess
manpower issue. The number of Directors was reduced from 15 to 9 and General
Man- |
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| agers
from 102 to 57; and all Deputy Managing Director positions were abolished,
effectively elim- |
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| inating
one tier in the decision making process. A mandatory retirement scheme and a
voluntary |
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| golden
handshake scheme was implemented under which more than 3600 employees left
the |
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| company.
I would like to express my gratitude' for the individual and collective
contribution of the |
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| employees,
all of whom played a crucial role in PIA's success and growth. |
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| The
process of inducting industry best practices into the airline and upgrading
the information |
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| technology
function' was pursued with the highest priority. Two agreements were signed
with The |
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| Sabre
Group, an affiliate of American Airlines, who in partnership with Speedwing,
a subsidiary of |
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| British
Airways, are providing Consultancy services for improving PIA's business
processes and |
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| have
taken over the responsibility for PIA's IT function through long-term hosting
and facilities |
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| management
agreements. PIA now has access to a state-of-the-art IT function, with the
same sys- |
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| tems
as used by most major international airlines, while achieving a substantial
savings on its cur- |
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| rent
IT spending and improving its human resource base without major capital costs
for hardware |
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| and
software. Substantial benefits shall also accrue to Pakistan's technological
base through |
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| these
agreements. |
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| A
major on-going cost reduction program resulting in a recurring savings of Rs.
1,500 million was |
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| initiated.
This was achieved by closing down off-line offices, reducing employees at
foreign sta- |
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| tions,
shifting from high-rent offices, out-sourcing functions to agents,
renegotiating contracts, |
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| increasing
employee productivity and reducing operational wastage. The reduction in
internation- |
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| al
fuel prices, implementation of a new efficient fuel policy, more competitive
fuel procurement pro- |
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| cedures,
and phasing outof the inefficient loss-making freighter operation have also
contributed |
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| to
the reduction in costs. |
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| PIA
has made substantial improvements in its product with the introduction of
Business+Plus, a |
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| competitive
new business class, to replace first class on international routes; launch of |
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| Awards+Plus,
PIA's first frequent flyer program; improvement of aircraft interiors,
in-flight menus, |
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| and
check-in facilities; rationalization of capacity and route structures;
improved schedules, and |
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| better
control of seat inventory and reservation systems. |
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| In
the current year, PIA will be implementing its fleet replacement plan with a
final decision to |
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| replace
the Boeing 747-200 passenger fleet expected during the first quarter. In
addition, new gen- |
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| eration
aircraft are expected to be inducted into service as an interim replacement
for the B-747- |
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| 200
aircraft in early May 1999. PIA is currently negotiating with several major
airlines to acquire |
|
| these
aircraft on a short-term operating dry-lease until the selected new
replacement aircraft are |
|
| phased
in. A decision is also expected on the replacement of the F-27 turboprop
fleet in the sec- |
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| ond
half of the financial year. |
|
|
| PIA
has embarked on a major revenue expansion plan by targeting areas of revenue
leakage, opti- |
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| mization
of fleet deployment, implementation of latest revenue management techniques,
better |
|
| fare
structures and marketing techniques, market-driven schedules, improved
operational reliabilty. |
|
|
| The
program of disinvestment from non-core activities could not meet the planned
schedule due |
|
| to
the changes in the overall business environment; however, the program will be
accelerated in |
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| the
current year and is expected to yield results in terms of control on
operating costs and |
|
| improved
profitability. PIA's equity in its associated company, PIA Investments
Limited, is expect- |
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| ed
to yield planned returns and PIA's financial exposure in the company is to be
substantially |
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| reduced. |
|
|
| I
am pleased to report that better cash management has allowed our cash
position to improve |
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| despite
higher financial charges, payment of employee wage arrears, and payment of
CAA |
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| arrears.
PIA, as per its historical performance, continues to meet all its financial
obligations; and |
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| all
debt servicing for long-term borrowing and rentals for the aircraft
hire-purchase agreements are |
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| being
met from the current cash flows. |
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| The
long pending Charter of Demands presented by the CBA has been finalized and
approved by |
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| the
Board of Directors. This comprehensive package of benefits will provide
substantial improve- |
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| ment
in employee motivation and is expected to yield productivity improvements. |
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| The
Board of Directors stands committed to provide PIA with the direction to
achieve its Mission |
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| Statement
of "PIA will be the airline of choice in all its international and
domestic markets, con- |
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| sistently
exceeding customer expectations by providing quality, reliable and safe air
transportation |
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| while
earning sustainable profits for its shareholders and continuing to be a
caring employer". |
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| I
would like to thank all our loyal customers and assure them a new and better
PIA. Finally, I |
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| record
my appreciation for the continued support of our shareholders who can look
forward to |
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| returns
on their investment, and expect the employees' contribution to make PIA an
institution that |
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| will
be a source of pride for Pakistan. |
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|
Yours sincerely, |
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|
(Shahid Khaqan Abbasi} |
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|
Chairman |
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| AUDITORS'
REPORT TO THE MEMBERS |
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| We
have audited the annexed balance sheet of PAKISTAN INTERNATIONAL AIRLINES |
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| CORPORATION
as at 31December 1998 and the related profit and loss account and statement |
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| of
changes in financial position, together with the notes forming part thereof,
for the period then |
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| ended
and we state that we have obtained all the information and explanations which
to the best |
|
| of
our knowledge and belief were necessary for the purposes of our audit and,
after due verifica- |
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| tion
thereof, we report that: |
|
|
| (a)
in our opinion, proper books of account have been kept by the Corporation as |
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| required
by the Pakistan International Airlines Corporation Act, 1956 and rules |
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| made
thereunder and the Companies Ordinance, 1984; |
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|
|
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| (b)
in our opinion, the balance sheet and profit and loss account together with
the |
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| notes
thereon have been drawn up: |
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|
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| i)
in conformity with the Pakistan International Airlines Corporation |
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| Act, 1956; |
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|
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| ii)
in conformity with the Companies Ordinance, 1984 and are in agreement |
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| with
the books of account and are further in accordance with accounting |
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| policies
consistently applied, except for the change as referred in note |
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| 13.5,
with which we concur; |
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|
|
| c)
in our opinion: |
|
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| i)
the expenditure incurred during the period was for the purpose of the |
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| Corporation's
business; and |
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|
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| ii)
the business conducted, investment' made and the expenditure incurred |
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| during
the period were in accordance with the objects of the Corporation; |
|
|
| (d)
in our opinion and to the best of our information and according to the
explanations |
|
| given
to us, the balance sheet, profit and loss account and the statement of |
|
| changes
in financial position, together with the notes forming part thereof, give the |
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| information
required by the Companies Ordinance, 1984 in the manner so |
|
| required
and respectively give a true and fair view of the state of the Corporation's |
|
| affairs
as at 31 December 1998 and of the profit and the changes in financial |
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| position
for the period then ended; |
|
|
| (e)
in our opinion, no zakat was deductible at source under the Zakat and Ushr |
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| Ordinance,
1980; and |
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|
| (f)
without qualifying our opinion, we draw attention to note 18.1 of the
accounts |
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| which
explains the reason for amortizing the Mandatory and Voluntary Golden |
|
| Handshake
Scheme costs. |
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|
|
|
FORD, RHODES, ROBSON, MORROW |
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|
SIDAT HYDER QAMAR MAQBOOL & CO. |
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|
Chartered Accountants |
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|
Chartered Accountants |
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|
| Karachi:
February 24, 1999 |
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|
|
| BALANCE
SHEET AS AT DECEMBER 31, 1998 |
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|
|
DEC-98 |
JUN-97 |
DEC-98 |
|
|
|
Note |
(Rupees
in thousand) |
(US$
in thousand) |
|
|
|
|
|
(note 33.3) |
|
| SHAREHOLDERS'
FUNDS |
|
|
|
| Share
capital |
|
3 |
3,884,618 |
3,884,618 |
84,238 |
|
| Reserves |
|
4 |
2,162,681 |
3,487 |
46,897 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
6,047,299 |
3,888,105 |
131,135 |
|
|
|
|
|
| SURPLUS
ON REVALUATION OF FIXED ASSETS |
5 |
5,709,640 |
5,709,640 |
123,813 |
|
| REDEEMABLE
CAPITAL AND FINANCIAL ARRANGEMENTS |
6 |
1,456,176 |
2,742,770 |
31,577 |
|
| LONG-TERM
LOANS |
|
7 |
627,774 |
786,410 |
13,613 |
|
| OBLIGATIONS
UNDER HIRE PURCHASE |
|
8 |
7,394,466 |
9,694,109 |
160,349 |
|
| LONG-TERM
DEPOSITS AND OTHER LIABILITIES |
9 |
1,675,787 |
1,653,655 |
36,339 |
|
|
|
|
|
|
|
| CURRENT
LIABILITIES |
|
|
|
|
|
|
| Current
maturity of long-term debts |
6-7-8 |
3,399,521 |
1,827,073 |
73,718 |
|
| Short-term
loans |
|
10 |
62,372,461 |
2,870,674 |
135,254 |
|
| Creditors,
accrued expenses |
|
|
|
|
|
| and
other liabilities |
|
11 |
8,717,192 |
7,467,658 |
189,032 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
18,353,959 |
2,165,405 |
398,004 |
|
|
|
|
|
| CONTINGENT
LIABILITIES |
|
|
|
|
| AND
COMMITMENTS |
|
|
12 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
41,265,101 |
36,640,094 |
894,830 |
|
|
|
|
========== |
========== |
========== |
|
| FIXED
ASSETS |
|
|
|
|
| Operating
assets |
|
13 |
25,109,750 |
26,641,858 |
544,503 |
|
| Capital
work-in-progress |
|
14 |
49,053 |
68,426 |
1,064 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
25,158,803 |
26,710,284 |
545,567 |
|
| LONG-TERM
INVESTMENTS |
|
15 |
281,085 |
290,969 |
6,095 |
|
| LONG-TERM
ADVANCES |
|
16 |
2,038,423 |
2,413,874 |
44,203 |
|
| LONG-TERM
DEPOSITS AND OTHER RECEIVABLES |
17 |
253,212 |
222,389 |
5,491 |
|
| DEFERRED
COSTS |
|
18 |
1,942,878 |
- |
42,131 |
|
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
|
| Stores
and spares |
|
|
19 |
3,710,248 |
33,202,361 |
80,456 |
|
| Trade debts |
|
|
|
20 |
2,578,948 |
2,487,988 |
55,924 |
|
| Advances,
deposits and prepayments |
|
21 |
3,416,000 |
601,615 |
74,076 |
|
| Other
receivables |
|
|
22 |
1,126,182 |
4,521,691 |
24,421 |
|
| Cash
and bank balances |
|
|
23 |
759,322 |
140,570 |
16,466 |
|
|
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
11,590,700 |
7,002,578 |
251,343 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
41,265,101 |
36,640,094 |
894,830 |
|
|
|
|
========== |
========== |
========== |
|
|
|
|
| Auditors'
report is annexed herewith. |
|
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Shahid Khaqan Abbasi |
|
Shaukat Tarin |
|
|
Chairman |
|
Director |
|
|
|
| PROFIT
AND LOSS ACCOUNT FOR THE PERIOD FROM JULY 01, 1997 UPTO DECEMBER 31, 1998 |
|
|
|
|
Jul-97 |
Jul-96 |
Jul-97 |
|
|
|
Dec-98 |
Jun-97 |
Dec-98 |
|
|
Note |
(Rupees in thousand) |
(US$
in thousand) |
|
|
(note 33.3) |
|
|
| Revenue |
|
24 |
52,308,142 |
32,732,160 |
1,134,298 |
|
| Costs
and expenditure |
|
25 |
48,453,695 |
32,809,054 |
1,050,715 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
3,854,447 |
(76,894) |
83,583 |
|
|
|
|
---------- |
---------- |
---------- |
|
| Other
charges |
|
|
|
|
|
|
|
| Financial
charges-net |
|
26 |
2,696,249 |
764,186 |
58,468 |
|
| Deferred
costs |
|
18 |
465,837 |
- |
10,102 |
|
| Provision
for doubtful debts |
|
|
3,702 |
211,262 |
80 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
3,165,788 |
975,448 |
68,650 |
|
|
|
|
---------- |
---------- |
---------- |
|
| Other
income |
|
|
|
| Interest
and other income |
|
27 |
87,847 |
73,075 |
1,905 |
|
| Gain
on disposal of fixed assets |
|
28 |
35,586 |
24,231 |
772 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
123,433 |
97,306 |
2,677 |
|
|
|
|
---------- |
---------- |
---------- |
|
|
|
|
812,092 |
(955,036) |
17,610 |
|
| Other
provisions and adjustments - net |
29 |
1,608,643 |
(3,647,801) |
34,883 |
|
|
|
|
---------- |
---------- |
---------- |
|
| Profit/(loss)
for the period/(year) |
|
2,420,735 |
(4,602,837) |
52,493 |
|
| Provision
for taxation |
|
30 |
(261,541) |
(192,125) |
(5,671) |
|
|
|
|
---------- |
---------- |
---------- |
|
| Profit/(loss)
after taxation |
|
|
2,159,194 |
(4,794,962) |
46,822 |
|
| Accumulated
(loss)/profit brought forward |
|
(4,127,225) |
667,737 |
(89,499) |
|
|
|
|
---------- |
---------- |
---------- |
|
