ACKNOWLEDGEMENTThis project has been completed as a partial requirement of the MBA degree programfrom N.W.F.P Agricultural University Peshawar. My deepest gratitude is due towards myproject advisor Mr. Saleem Rao and valuable suggestions by the course coordinator Mr.Muhammad Ashraf. I owe a lot to Mr. Abdul Rahim (Accounts Officer Rawalpindi) forguiding me during my visit to PIA Accounts Department Rawalpindi. I would also like tothank my friends especially Mr. Rahim, Mr. Umair, Mr. Waseem, Mr. Kashif and Mr.Amjad for providing me relevant information and material regarding this project. Saqib Rehman
EXECUTIVE SUMMARY The importance of Airline has been increased because of globalization whereinteraction of one country with other accomplished through Airlines. I have an honor towork for my Project work about Airlines, where I choose Pakistan Airlines, which is adynamic organization providing service for last so many years. This project work lookson the consistent progress of PIA with an efficient and effective management. PIAintroduced so many Jets, Boeings and many other Air transport tools by the passage oftime to maintain the quality of Air travel more aggressive. Probably never has air transport been more important to the development of a newnation than in the case of Pakistan. In the days when Pakistan was still in the offing (June1946) Mr. Mohammad Ali Jinnah, the Founder of the upcoming Nation, instructed Mr.M.A. Ispahani, a leading industrialist, to set up a national airline, on priority basis. Withhis singular vision and foresight, Mr. Jinnah had foreseen that with the formation of thetwo wings of Pakistan, separated by 1100 miles, a swift and efficient mode of transportwas imperative. By the passage of time PIA has improved the quality of their servicesaccording to the demand of domestic and overseas, it also provides facilities withrelaxation as the Air transport service needs. Due to its huge importance in this modernera, because the world has become a global village and each and every country of theworld has to access each other through Air transport, so PIA is performing the same withup to date changes in the technology and management.This project work looks at the function of different department of PIA, particularlyFinance Department that is recording the balance sheet, cash flows, income statementsand all the financial data representing the profit and loss of the company. Though. PIA isnot earning that much profit for last so many years but its consistent still with getting thetarget to maximize their profits.Finally PIA is also facing some problems and also there are some drawbacks, whichshould be solved for the better management of the organization. Political instability is a
huge problem in Pakistan that is affecting every organization directly and indirectly theeconomy. Other things that the management is not that much effective, so I must suggestthat they improve their management function by applying management techniques.Employees should be paid incentives and fringe benefits that they can be work with deepdevotion. At the end, PIA is the need of our nation so, it’s their responsibility to providebetter service and up to date. That people cannot face any difficulty while travelingdomestically and internationally.
MISSION STATEMENTAs a symbol of National pride, Pakistan International must strive to be an airline ofchoice operating profitably on modern commercial concepts, capable of competing withthe best in its entire International and Domestic markets consistently exceeding customerexpectations. It should be a choice employer deploying modern technology in all spheresof its activates.
CHAPTER 1 – INTRODUCTION1.1 BRIEF INTRODUCTIONWhen Pakistan came into being on 14th August 1947 there was only one Airline inoperation called “Orient Airways”. After some time two more airlines “Pakistan AirLimited” and “Crescent Airways” started commercial operation. None of these small AirService Companies could succeed to cover the requirements of the Air Traffic of country.Ultimately two of these failed to continue their operation. In 1952 “Orient Airways” wasthe only operational company operating on domestic routes.The government and the people of Pakistan were sincerely struggling hard fordevelopment of their country with the aim to reach to the similar level of advancement asof other free nations of the world. Communication system is the basic requirement ofcountry. So in 1955 the Government took an initiative and passed an ordinance to forman Air fleet under the name of Pakistan International Airlines (PIA) to meet the needs ofdomestic and international air traffic.PIA began operation on Karachi-Dhaka sector with three aircraft in 1955. Later PIA andOrient Airways, a private carrier, were merged to form PIAC (Pakistan InternationalAirlines Company). Over the years PIA gradually expanded its network and is nowserving 83 destinations in four continents.
1.2 HISTORICAL BACKGROUNDProbably never has air transport been more important to the development of a new nationthan in the case of Pakistan. In the days when Pakistan was still in the offing (June 1946)Mr. Mohammad Ali Jinnah, the Founder of the upcoming Nation, instructed Mr. M.A.Ispahani, a leading industrialist, to set up a national airline, on priority basis. With hissingular vision and foresight, Mr. Jinnah had foreseen that with the formation of the twowings of Pakistan, separated by 1100 miles, a swift and efficient mode of transport wasimperative. Super Constellation L-1049 was the first to wear the colors of PIA The new airline was initially a pilot project, registered in Calcutta as OrientAirways Ltd., on 23rd October 1946. With Mr. A.M. Ispahani as the Chairman and AirVice Marshal O.K. Carter as the General Manager of the new air carrier, an operatinglicense was obtained in May 1947 with Calcutta as the base. Four Douglas DC-3s hadbeen purchased from Tempo of Texas in February 1947 and operations first started on 4June 1947. The designated route was Calcutta-Akyab-Rangoon, which also happened tobe the first post-war international operation to be flown by an airline registered in India.Within two months of Orient Airways operational beginnings, Pakistan was born. Thebirth of a new nation generated one of the largest transfers of population in the history ofMankind.
Convair-240 switched to the national colors in 1955, it served tirelessly for another three years before making way for bigger and better performers.Orient Airways, along with the help of some BOAC aircraft which had been chartered bythe Government of Pakistan, started relief operations and transportation of the populationbetween Delhi and Karachi, the two capitals. Later, Orient Airways transferred its base toPakistan and established the vital, link between Karachi and Dacca, the two capitals ofthe two wings of Pakistan. With a skeleton fleet of just two DC-3s, three crew and twelvemechanics, Orient Airways launched its scheduled operations in a fairy-tale fashion. Theinitial routes were Karachi-Lahore-Peshawar, Karachi-Quetta-Lahore and Karachi-DelhiCalcutta-Dacca. By the end of 1949, Orient Airways had acquired 10 DC-3s and 3Convair 240s which it operated on these routes. In 1950, it had become increasinglyapparent that additional capacity would have to be inducted in order to cater to thegrowing needs of the sub-continent.
PIA - Convair – 240Orient Airways was a privately owned company, with limited capital and resources. Itcould not be expected to grow and expand on its own. It was then that the Government ofPakistan decided to form a state-owned airline and invited Orient Airways to merge withit. The outcome of the merger was the birth of a new airline, named PakistanInternational Airlines (PIA) on 11 March 1955. Viscount 815 inducted in 1958,it introduced the turbo props to the nationalApart from transport activities, Orient Airways had established the nucleus of overhauland maintenance facilities and acquired trained pilots, engineers and technicians thatproved a great asset for PIA during its teething phase.The year 1955 also marked the inauguration of the fledgling airlines first scheduledinternational service - to the glittering, glitzy capital ciôy of U.K, London, via Cairo andRome. At first, there was much criticism regarding this venture as the public could not
comprehend or agree with the need to operate an international route when priority, intheir opinion, should be given to other projects which were considered more vital, for thegrowth of a new and developing country. However, PIAs priority then as well as now,was to serve the Pakistani community at large. The need to provide transportation to theexpatriates has remained one of the foremost priorities of the national airline. PIA became the first jet operator in Asia, when Boeing 707 joined the fleet in 1960Moreover, with the provision of this service, PIA could and did earn substantial foreignexchange, which in turn it invested in the purchase of aircraft and spare parts. Fleetexpansion was one of the airline’s major requirements.In 1956, orders were placed for two Super constellations and five Viscounts which wereto be delivered by 1959.PIA, at this junction, possessed a small fleet which comprised of Convairs, Viscounts,Super Constellations and DC-3s.
Boeing 720 joined PIA fleet in 1962, and broke all the London-Karachi international records on its delivery flightWhile Mr. M.A. Ispahani was the first Chairman of the new dynamic airline; it was thefirst Managing Director of PIA, Mr. Zafar-ul-Ahsan, who in his 4-year tenure, got theball rolling and set the shape of things to come.The PIA Head Office building at Karachi airport, which houses all the major departmentsof the airline to date, was the brain-child of Mr. Zafar-ul- Ahsan. In fact, on his departurefrom the airline, the employees presented him with a silver replica of the building withthe caption: "The House you Built".
Helicopter Sikorsky S61N joinedIn 1959, the Government of Pakistan appointed an Air Force Officer, Air CommodoreNur Khan (who later rose to the rank of Air Vice Marshal) as the Managing Director ofPIA. With him at the helm of affairs, PIA took such a turn around in a short span of 6years, that the airline gained the stature and status of one of the frontline carriers of theworld. In aviation circles, this period has often been termed as the "golden years of PIA". Twin - Otter came to PIA in the year 1970 to help to improve the short distance.Expansion, growth, development were the key-words that the new management wascommitted to. In March 1960, PIA launched its first jet service (Boeing 707) on theLondon-Karachi-Dacca, route which later proved to be most successful. This serviceenabled PIA to become the first Asian Airline to operate a jet aircraft. A train-blazer, thissuccess set the trend for PIA. In 1961, the airline took on the awesome task of initiating across-Atlantic service from Karachi to New York. By this time, PIA had placed orders formore new aircraft, which included Fokker F-27s, Boeing 720Bs and Sikorsky helicopters.Helicopter service in East Pakistan had gained momentum by 1962 and expanded toinclude Sylhet, Chittagong, Dacca, Comilla and Ishurdi. PIAs helicopter operations on ascheduled basis carried over 70,000 passengers during their first year. It was, at that time,regarded as equal to any other similar operation in the world. Unfortunately, due to twomishaps, the service was discontinued in 1966.
Twin - Otter In 1962, PIA attempted to set a new record and succeeded. On the London-Karachisector, finding the upper winds forecast favourable, PIA set out to break the record forthe fastest flight between London and Karachi. With representatives of FAI. (FederationAeronautique International) on board to monitor the official timings, PIA completed theflight in 6 hours 43 min 51 sec, the fastest record which to this day remains unbroken.In 1964, PIA achieved another historic first, which to date is regarded as one of themilestones in the chequered history of the airline.On 29th April 1964, with a Boeing 720B, PIA had the distinction of becoming the firstairline from a non-communist country to fly into the People’s Republic of China. Thefirst service to China was from Karachi to Shanghai via Canton. In 1964-65, PIAexpanded its fleet further with the addition of a fourth Boeing 720B and two Fokker
F-27s. Things were happening, PIA was developing. People were moving ahead withtheir plans, goals, ambitions for the national flag carrier.A collective pride, a joyous buoyancy seemed to pervade the PIA family. Riding high onthe crest of success, PIA became a household name in Pakistan in the mid sixties. Thewar between India and Pakistan during 1965 served as a catalyst for PIA as the nationalairline had an additional role to perform. It played a major role in logistical support. PIAsBoeings, Super Constellations, and Viscounts operated special flights on behalf of theArmed Forces.The foresight of the Father of the Nation, Mr. Jinnah, that the air force would one dayneed a civil airline as a back-up had been evidenced. Later, in 1966, a system of feederservices linking eight new points in West Pakistan was introduced. By this time, theairlines Viscounts were proving inadequate due to the sizeable traffic growth and assuch, had to be replaced by Tridents. The airline continued to grow, receiving twoadditional Fokker F-27s, two Boeing 707s and one Trident in the following year.This was also the time that the airline saw a change in the top slot. AVM Asghar Khantook over the reigns of PIA for a tenure of 3 years. A number of highpoints are relegatedto this period. The most colourful, if not the most significant, happening for PIA was theintroduction of a new air-hostesses uniform designed by none other than the renownedFrench designer, Pierre Cardin. This, more than any other singular factor imprinted PIAsname on the international market. It took the aviation world by storm. It was an instanthit, both, at home and abroad.PIAs run for recording historic firsts was not yet over. Pakistans first computer, anIBM1401, was installed by PIA in 1967.PIAs first Engine Overhaul Shop, located near the Head Office building, was alsocompleted and commissioned around this time. The Ground Training School (GTS) nowknown as PIA Training Centre (PTC) was first conceived and developed sometime in1961-62.
Training was initially imparted, interestingly-enough, in the T-shaped building which hasnow become the PIA Dispensary in the vicinity of the Head Office.Besides the visible development and growth in traffic and revenues in the sixties, PIAsaw the advent of new destinations, new equipment, new technology. A new Jet Hangarfor Boeings with a supporting airframe overhaul shop was completed and commissionedin 1968.In 1970, PIA set up its own Flight Kitchen at Karachi, which caters even today to othercarriers as well as to all PIA flights. Over the years, with the airlines expansion andincreased capacity, the need for a second Flight Kitchen became imperative.PIA heralded the 90s decade by donning a bright new corporate identity. Old-timers mayremember the flutter the earlier green and gold livery had created when it was firstintroduced in 1974. But, in keeping with the changing times, PIA came up with its smartsporty 90s look. The familiar PIA green was reinforced with moss green and pale bluestripes in the new corporate identity. The stripes, a universal symbol of sport,highlightedPIAs active participation and sponsorship of a diverse variety of national games. PIAplayers are in the forefront in Pakistan Cricket, Hockey, Squash, Football, Chess, Bridge,Polo and Table-Tennis teams.Nineties have also seen the expansion of PIAs massive Haj and Umrah operations toPakistans smaller cities besides the operations from the major cities of Islamabad,Peshawar, Lahore, Quetta and Karachi.At present, PIA operates to 70 destinations ( 38 international and 37 domestic )in countries spread over 4 continents of the globe.Impressive statistics for a comparatively young airline? One could say that since itsinception in 1955, PIA has indeed, come a long way.
1.3 OBJECTIVES OF PIACAccording to PIAC Act 1956, following are main objectives of the corporation. I. To provide and further develop safe, efficient, adequate, economical and properly coordinated domestic as well as international air transport system. II. To operate any air-transport service or any flight by aircraft for a commercial or other purpose, and to carry out all forms of aerial work. III. To acquire, own, run, manage or participate in the running of management of, any hotel or business connected therewith. IV. To provide for the instruction and training in matters connected with aircraft or flight by aircraft of persons employed or desirous of being employed either by the corporation or by any other person. V. With the previous approval of the Federal Government, to promote any organization outside Pakistan for the purpose of engaging in any activity of a kind which the corporation has power t carry out. VI. To acquire, hold or dispose of any property, whether movable or immovable, or any air-transport undertaking. VII. To repair, overhaul, reconstruct assemble or recondition aircraft, vehicles or other machines and parts, accessories and instruments thereof or therefore and also to manufacture such parts, accessories and instruments whether the aircraft, vehicles or other machines are owned by the corporation or by any other person.
1.4 AIR TRANSPORT IN PAKISTANThere are 42 airports in the country being managed by Civil Aviation Authority. Out ofthese, 5 airports viz Lahore, Karachi, Islamabad, Peshawar and Quetta are internationalairports. The construction of Allama Iqbal Terminal Complex, Lahore has recently beencompleted at the cost of Rs. 10.3 billion. This terminal can handle 6.5 million passengersper annum. Rahim Yar Khan and Bahawalpur airports have been upgraded for operationsof Boeing aircrafts. The purgation of Gwadar & Turbat airports is in progress.Construction of new Islamabad international airport on BOT basis is being finalized. Theconstruction of Sialkot International Airport in the private sector is also in progress.PAKISTAN INTERNATIONAL AIRLINESTypes of Boeing Boeing Airbus Airbus Boeing Fokker F-27s Twin OtterPlanes 747-300s 747– 200s A300B4s A310s 737-300sNos. 6 4 8 6 7 11 2Passenger 433 401 246 190 124 44 18CapacityPakistan is an Islamic republic located in the heart of Asia. It lies on the north-west of theIndian sub-continent, with Iran on the west of it and Afghanistan in the north.With a population of 140 million, Pakistan is divided into 4 provinces, Punjab (capital:Lahore) Sindh (capital: Karachi) Frontier (capital: Peshawar) and Balochistan (capital:
Quetta, Islamabad), the capital of Pakistan is a picturesque and well-planned city in theNorth.Pakistan is a land richly endowed with Natures bounty-mighty mountains, ancientdeserts, lush-green valleys and sparkling rivers.Pakistan International’s biggest asset is Pakistan, an attractive tourist wonderland. Wide-open spaces, lush green fields, the worlds largest collection of limitless mountain chainsand peaks, lakes and rivers on the same mammoth scale, Pakistans natural attractionshave few equals. For the worlds people, Pakistan presents a totally different face ofMother Nature. An off-beat, exciting place, coupled with the traditional warm hospitalityof its friendly people.As jaded tourists worldwide hunt for new settings and experiences, PIA has been playingthe role of linking places and bringing people closer, from the four continents of theworld. PIA has played a pivotal role in opening up the countys natural and historicalriches by air linking then with the national and international mainstream.When PIA wings to isolated scenic spots such as Gilgit, Skardu, Swat or any of the otherover two dozen colourful domestic destinations, the national airline is involved in thebusiness of meshing its international goals and targets along with its nationalresponsibilities.Thus, PIA assists in putting in motion a tourism nucleus, whereby a feast of sights andsounds, of action and entertainment is prepared for the tourist in search of an off-beatadventure.The national carrier has consistently, over the last 4 decades, played an active role in thedevelopment and promotion of tourism in Pakistan. It is all geared up to give the touristsnot just good value for their money but also make their trips to this charming countrytruly memorable.PIA CARGO NETWORK
Besides country wide domestic network, cargo is directly serving 40 internationaldestinations round the globe, while rest of the world is being served through interlinecarriage beyond PK points. PIA’s average cargo revenue is around US dollar 82 millionper year, with system uplift of approx. 75,000 tons, on an average system wide yield ofUS dollar 1.10 per kilogram. PIA,s network is spread over internationally definedfreedoms as mentioned in the chart below. Type of Plane No. of Pallets Weight in tons Boeing 747-300s 7 15-22 Boeing 747-200s 5 10-15 Airbus A 310s 3 10.5 Airbus A 310s 3 10.5 Boeing 737-300s - 2 Boeing Combi 13 50 A 300 Freighter 22 40FREEDOM WISE PERFORMANCE AVERAGE TONS UPLIFT PER YEAR
AUTOMATIONDuring the last decade PIA has systematically automated its cargo reservations,Warehouse and terminals at all major stations. The FAST-IV system through SITA wasinstalled and at the moment almost 80% of PIA cargo activities are automated. The use ofthis Electronic system has improved the service standards and brought the airline in withother developed carriers.SHAHEEN AIR INTERNATIONALShaheen Air international in the 2nd National carrier after PIA, Incorporated as a publiclimited company. It started commercial operation in December 1992. This airline is runand managed by the retired personnel of Pakistan Air Force.The fleet of Shaheen International Airlines consists of 4 planes as under:- Types of Planes Yak 42 TU154 Nos. 2 2 Passenger Capacity 114 154Shaheen Airlines undertakes domestic as well as international flights. Its internationaldestinations are Abu Dhabi, Dubai and Doha from major cities of Pakistan, i.e.Islamabad, Lahore and Peshawar. Cargo is handled through an independent agency,Shaheen Airport Cargo ServicesAERO ASIAAero Asia is being operated in the private sector by Tabani Corporations which comesinto operations in April 1993. The fleet consists of the following planes:
Types of Planes Boeing 737 DC 9 Mac Nos. 2 2 1 Passenger Capacity 120 120 117CHAPTER 2 – EVENTS2.1 FATAL EVENTS SINCE 1970The following events are those involving at least one passenger death where the aircraftflight had a direct or indirect role. Excluded would be events where the only passengerskilled were stowaways, hijackers, or saboteurs. 1. 5 August 1970; Pakistan International Airlines F27; Islamabad, Pakistan: The aircraft entered a steep dive and crashed about three minutes after a night takeoff in poor weather. All four crew members and 26 passengers were killed. 2. 31 December 1970; Pakistan International Airlines F27; East Pakistan: The aircraft lost altitude and impacted about 300 feet (90 meters) short of the runway. Seven of the 31 passengers were killed. 3. 8 December 1972; Pakistan International Airlines F27; near Jalot, Pakistan: The aircraft struck high ground during a flight under deteriorating weather conditions. All five crew members and 28 passengers were killed. 4. 26 November 1979; Pakistan International Airlines 707-300; near Jeddah, Saudi Arabia: A fire developed in the rear of the passenger cabin about 18 minutes after takeoff. During the emergency air turn back, the crew was incapacitated by smoke and fumes and the aircraft crashed about 87 miles (140 km) from the airport. The source of the fire was not determined, but the most probable source was the ignition of fuel from a portable stove carried by a passenger. All 11 crew members and 145 passengers were killed. 5. 23 October 1986; Pakistan International Airlines F27; near Peshawar, Pakistan: The aircraft struck the ground about 2.5 miles (4 km) short of the runway during a night approach. Six of the seven crew members and 7 of the 47 passengers were killed.
6. 25 August 1989; Pakistan International Airlines F27; near Jalot, Pakistan: The aircraft was reported missing after a flight through mountain valleys and poor weather. All five crew members and 49 passengers were presumed killed.7. 28 September 1992; Pakistan International Airlines A300B4; near Katmandu, Nepal: The crew was flying the aircraft was flying an approach about 1600 feet (1000 meters) lower than planned when the aircraft collided with high ground. The event happened in daylight and with cloud shrouding the mountains. All 12 crew and 155 passengers were killed.
2.2 YEAR WISE PROGRESSIVE EVENTS1954 1) Pakistan International Airlines established. 2) PIA’s first Super-Constellation (AP-AFQ) registered on April 24, 1954. 3) PIA started its regular service from May 10, 1954. 4) Direct service introduced between West and East Pakistan (now Bangladesh).1955 1) Pakistan international Airlines Corporation formed with merger of PIA and Orient Airways. 2) PIA entered the world of international aviation with service from Karachi to London via Cairo and Rome.1956 1) Engineering base takes shape. First Super-constellation engine over hauled at PIA’s own shop. Extensive training programmes launched. 2) Orders placed for two Lockheed Super-h Constellations and three- with option of five Vickers Viscount turbo-prop airliners.1957 1) PIA starts making a profit. Until about the middle of 1956, it had been running at a loss of about Rs.10 million annually.1958-59 1) First tow Viscounts began operating and traffic increased on all domestic and European routes. 2) PIA started modernizing its fleet by replacing the Convairs with turbo- prop Viscount aircraft.1959-60 1) Boeing 707-320 “International” introduced on the London route. 2) Became the first Asian airline to operate a jet (by leasing one from Pan American World Airways).1960-61 1) First three of five Fokker F-27s received and order placed for three
Boeing 720B jet aircraft. 2) Karachi-New York service inaugurated.1961-62 1) Operating revenues increased by 39% over previous year. 87.7% of all flights operated on time or within 15 minutes of schedule. 2) First Boeing 720B received in January. 3) 1379 students completed 2,28,268 student-hours in PIA’s integrated Ground Training School.1962-63 1) Integration of Boeing 720B fleet completed. Order for three Sikorsky S6 in helicopters placed. 2) Boeing 720B introduced between the two wings of the country.1963-64 1) Became the first non-communist airline to fly to the People’s Republic of China, and to operate a service between Asia and Europe via Moscow. 2) Commercial, unsubsidized helicopter service operated through East Pakistan (now Bangladesh).1964-65 1) Fourth Boeing 720B aircraft arrived. Two more Fokker F-27 aircraft were received just after the close of the year. 2) Record operating surplus of Rs.49.22 million 54.71% of paid up capital was made.1965-66 1) A system of feeder services linking eight new places was introduced in West Pakistan. 2) Pierre Carden uniform for air hostesses introduced.1966-67 1) An IBM 1401, the first computer in Pakistan, was installed in PIA. 2) Engine Overhaul Shop was commissioned and completed. 3) More aircraft, two Boeing 707-340Cs, one Trident 1E and two F-27,
were added to the fleet. 3) PIA Air Academy started functioning.1967-68 1) One more Fokker F-27 and one Boeing 707 received. 2) First batch of PIA trainee-pilots completed their training from PIA flying school and received Commercial Pilot’s License. 3) A new jet Hanger for Boeings and a supporting airframe overhaul shop/commissioned and completed.1968-69 1) Fourth Boeing 707 received. 2) Order placed for a Boeing 707 flight simulator. 3) Passengers carried on domestic services crossed the million mark.1969-1970 1) Agreement signed for maintenance of Air Ceylon’s Trident 1E aircraft at PIA workshop. Engineering services also extended to Royal Nepal Airlines Corporation for the overhaul of Fokker Aircraft. 2) Agreement signed for the sale of Tridents To China.1970-71 1) Order for one more F-27 placed. 2) Flight Kitchen at Karachi inaugurated.1971-72 1) Transatlantic service resumed. 2) Close circuit television system installed at Karachi Airport. 3) Agreement signed with LAA for domestic operation in Libya. 4) Agreement signed with the Yugoslav airline JAT for lease of three Boeing 707 aircraft.1972-73 1) Terminal facilities at Islamabad and Karachi expanded. 2) Management agreement signed with Air Malta under which PIA seconded a Management team to Malta.
3) PIA contacted to purchase three long range wide body Douglas DC-10 series 30 aircraft. 4) Became the first airline to introduce a second route to People’s Republic of China over the Karakoram ranges.1973-74 1) A full time Chairman of the Board of Directors appointed. 2) Two DC-10 30s were added to the fleet. 3) Two 720Bs were given to Air Malta on lease.1974-75 1) Three Boeing 720B aircraft were added to the fleet. 2) Third DC-10-30 was added to the fleet and a fourth ordered. 3) A weekly all-freighter-Boeing service to New York was introduced. 4) Facility established for testing CF6-50 engines and components of DC-10 aircraft. 5) Freighter service introduced. 6) A new uniform for PIA air hostesses was introduced.1975-76 1) DC-10 introduced on domestic routes. 2) Two Boeing 747 acquired on lease and successfully inducted on transatlantic route.1976-77 1) A new corporate identity programme implemented. 2) PIA earned a record operating surplus of Rs.152.08 million. 3) One DC-10-30, two B-707 and one 720B aircraft were added to the fleet.1977-78 1) Option to purchase two B747s was exercised. 2) Two PIA subsidiaries established and registered in the UAE to promote and manage hotel projects abroad. 3) Technical assistance provided to Somali Airlines, Air Malta and
Yemen Airways.1978-79 1) Induction of two additional Boeing 747s and four A300 aircraft. 2) Cut-over of domestic stations to in-house computerized reservations system. REPAK. 3) Opening of Air Cargo Centre at Karachi Airport. 4) Establishment of new downtown sales office.1979-1980 1) Wide body hangar and related workshop commissioned. 2) International stations cut-over to the in-house computerized reservations system.1980-81 1) International stations cut-over to the in-house computerized reservations system. 2) New flight control system opened at Karachi Airport.1981-82 1) Weekly service to Abu Dhabi and Dubai from Peshawar inaugurated. 2) PIA was rated as the leading and the most efficient airline for the year 1981 Haj operation. 3) Duty Free Shopping Complex inaugurated at Karachi Airport.1982-83 1) PIA earned an all-time high operating surplus of Rs.441.0 million 2) Another DC10, Airbus and 707 were added to the fleet. 3) First ever “C and D” Checks were carried out on Boeing 747 and DC-10 respectively. 4) PIA introduced “Direct Inward Dialing” telephone facility first time in the country. 5) Mini-Micro computers installed in PIA Head Office.1983-84 1) Automation of budget, finance, revenue and other important
areas introduced. 2) Islamabad-New York flight via Istanbul inaugurated. 3) Night Coach Services between Lahore Karachi and Islamabad and Lahore introduced. 4) Foundation of PIA Township laid at Karachi Airport for the employees. 5) Extension and modernization laid at Karachi Airport for the employees. 6) Extension and modernization of the PIA Flight Kitchen undertaken.1984-85 1) PIA set up first ever planetarium of Pakistan at Karachi. 2) PIA introduced Feeder service in the country. 3) Five Boeing 737-300 aircraft inducted into the PIA fleet. 4) PIA’s revenue, for the first time, exceeded the Rs.10,000 million mark.1985-86 1) Introduced of “Sohni” Executive Class on all PIA B747 aircraft on international flights. 2) New uniform for airhostesses introduced. 3) Fourth flight introduced to New York.1986-87 1) PIA started flights to Male. 2) Fifth weekly flight to New York introduced. 3) PIA introduced auto-ticketing facility.1987-88 1) Flight Kitchen at Islamabad inaugurated. 2) PIA hosted first international course on Civil Air Transport. 3) PIA inaugurated services to Toronto. 4) Sixth weekly flight to New York introduced. 5) Up gradation of China and Singapore operation to Boeing 747.
1988-89 1) Introduction of Twin Otter operation to Muzaffarabad and Rawalakot.1989-90 1) Two women pilots were inducted in PIA, for the first time in Pakistan’s history to operate passenger flights. 2) PIA introduced the first ever direct Haj flights from Lahore to Jeddah.1990-91 1) PIA introduced a new international flight, Peshawar-Jeddah via Lahore. 2) A direct Lahore-Bangkok flight introduced. 3) Advanced Boarding facility introduced. 4) HI-Tech A310-300 aircraft inducted into PIA fleet. 5) PIA’s new corporate identity introduced.1991-92 1) PIA flight to Tashkent introduced. 2) Peshawar added as fourth point for Haj operations. 3) Agreements signed to link PIA reservations with Sabre, Galileo and Amdeus-Global Distribution System. 4) Achieved record revenue of Rs.20 billion and unprecedented operating surplus of Rs.1.58 billion.1992-93 1) PIA introduced flights to Zurich. 2) Flight to Sharjah resumed. 3) Direct flights between Islamabad and Singapore and Lahore and Kuwait introduced. A300 B4 Simulator installed.1993-94 1) Flights to Jakarta, Almaty, Ashkabad, Baku, Al-Ain, Fujairah and Parachinar introduced. 2) Air Safari flights introduced.
3) Agreement signed for acquisition of B747-200 simulator. 4) Ras-ul-Khaima introduced. 5) PIC turns profitable. 6) PIA’s organizational structure undergoing change.1994-95 1) Boeing 747-200 Simulator installed. 2) Purchase option on one used Airbus A300-B4 Aircraft on lease from Air France executed. 3) Haj operation from Sukker and Multan carried out for the first time. 4) Agreement signed for installation of SATCOM System in Boeing 747 and Airbus A-310 Aircraft. 5) Tours Promotion Activity upgraded to Divisional level. 6) Cargo system revamping started.1995-96 1) Helicopter service introduced form Islamabad, Abbottabad, Lahore and Sialkot to promote tourism.2004 1) PIA initiated a long term fleet modernization plan in the year 2002 for induction of eight Boeing B-777-200er wide body air craft with a view to replace and renew the aging fleet. It has successfully completed the first phase of the first phase of the fleet renewal plan by inducting three B-777-200ER air craft powered by G.E. Engines during January-March 2004 quarter.
2.3 IMPORTANT EVENTS – 2003 1. Hajj 2003 operations completed successfully. In all 110,000 Hajjis carried to and from the Holy land. 2. Twice weekly service to Chicago via Birmingham in the UK re-instated after a suspension of more than five years. 3. Weekly flights to Mashad started. 4. US$ 150 million financing arranged through consortium of CITI Islamic Investment Bank, Bank of Bahrain, Islamic Development Bank, Jeddah and United Bank Limited Dubai. The proceeds are utilized to finance advance payments to the Boeing USA against purchase of three B-777-200ER. 5. PIA and Standard Chartered bank entered into agreement for co-brand credit card for the benefit of PIA travelers. 6. Twice a week freighter service started with leased Cargo aircraft. 7. PIA engineering received contract for repair and overhaul of Sri Lankan Fokker Aircraft. 8. All employees of the Corporation given 20% raise in pay and allowances effective January 2003 and existing pensioners increase in their pension ranging from 20% to 400%. 9. PIA Contract Center inaugurated in October 2003 to provide quality service to PIA customers at Islamabad, Rawalpindi, Lahore, Karachi, Peshawar, Quetta, Multan and Faislabad.
CHAPTER 3 - ORGANIZATION3.1 ORGANIZATIONCorporation (PIAC) has been divided into thirteen departments as shown inorganizational chart. PIA is one of the biggest commercial organizations in our countryand has worldwide operation. The corporation has network of flights around the globe.To control worldwide operation, there is a department meant for overall management ofPIAC. Administration Department consists of seven divisions and units. Each departmentis headed by a Director, each Division in headed by GM, each section by Manager andsubsections and units are controlled by assistant managers.
3.3 NUMBER OF EMPLOYEESAs we know PIA is one of the biggest commercial organizations in our country and hasworldwide operations. To achieve the objectives PIA needs a trained staff. So totalnumber of regular employees as on DECEMBER 01, 2003 were 19,128, excluding PRE-ENGINEERING DEPARTMENT which were 652. PERSONNEL DEC 01, 2003 1. Captains / Co-Pilots / Cadet 536 Pilots 2. Aircraft Engineers 687 3. Flight Engineers 103 4. Female Cabin Crew 1015 5. Male Cabin Crew 802 Total Number of Regular Employees 19,128 (Excluding Pre-Engg deptt= 652)3.4 INITIATIVES UNDERTAKENSPEEDEXIn July 2003, the airline launched SPEEDEX PIA`s door-to-door Courier Service. Thisservice was initially introduced in Karachi, Islamabad and Lahore and in the second
phase has been expanded to 12 other cities of Pakistan. In addition, a Franchise programhas also been launched with an aim to proliferate this highly specialized market.CONTACT CENTERAs PIA strives to become the airline of choice exceeding customer expectations, it isdeveloping modern technology in all spheres of its activities. One such exemplary effortis the PIAC Contact center which is a single which is a single window to reach PIAC, foraccess to information related to support, products, and customer inquiries.FINANCIAL PERFORMANCEThe airline`s total revenue increased by 9.8 percent over last year to Rs. 47.952 billion(2002: Rs. 43.674 billion).EMPLOYEES WELFAREThe restructuring strategy of PIA has started to pay off with the measures initiated by themanagement since June 2001. In recognition of the contribution of its employees in theturnaround, a salary increase of 20 percent has been awarded. The airline has also takencognizance of the plight of its retired employees who did not receive increase in in theirpension since 1992 by raising their pension between 20% to 400%.TFCs OVER SUBSCRIBED BY 40 %The airline launched Term Finance Certificates (TFCs) for Rs. 15.14 billion in February2003.The issue was the largest in the history of Pakistan`s financial market. Despite thesize , the issue was over-subscribed to the extent of 40 percent showing confidence in thepolicies followed by the management. The Corporation has utilized the money raisedthrough TFCs to pay off bridge financing of Rs. 7.73 billion borrowed earlier, payment ofoverdue liabilities of emploee funds and financing part of the acquisition cost of Boeing777-200.RENEGOTIATION OF MARK-UP RATESTo benefit from the change in the interest rate environment, the airline negotiatedsubstantial reduction in the mark-up rate on the redeemable capital with the local banks.
The airline also succeeded in obtaining a reduction in the rates on vehicles leased fromvarious banks and leasing companies.AUTOMATIONAfter thorough industry survey, a state-of-the-art Sabre Revenue Accounting System hasbeen selected for automation of the entire revenue accounting process of the Corporation.This shall enable the Corporation to have a most up-to-date Management InformationSystem for setting up and developing marketing strategies. The airline is considering anew inventory management system to streamline procurement and save on inventorycosts.FLEET RENEWALThe Corporation initiated a long term fleet modernization plan in the year 2002 forinduction of eight Boeing B-777-200ER wide body aircraft with a view to replace anrenew the aging fleet. It has successfully completed the first phase of the fleet renewalplan by inducting three B-777-200-ER aircraft powered by G.E. Engines during January-March 2004 quarter.Further during 2003, the Corporation entered into a contract with Airbus Industry forlease of six used A-310 aircraft with a purchase option.The first of the six aircraft wasdelivered in December 2003 and the remaining five aircraft will be delivered in the firsthalf of year 2004.The induction of Boeing-777-200ER and A-310 would enable theairline to offer increased capacity. Plans are also underway to replace Fokker fleet with anewer Turboprop aircraft in 2004.The above fleet changes will reduce the airlines fleet age from 23 years in December2003 to 12 years by end of 2004.TRAININGThe engineering department launched an intensive training program and 600 engineeringpersonnel were trained for B-777/A-310 aircraft.3.5 HIGHLIGHTS 2003 2002
Revenue (Rs. In million) 47,952 43,674Costs and Expenditure (Rs. In million) 44,252 41,563Profit before taxation (Rs. In million) 3,700 2,111Revenue Passenger kilometers (Million) 12,009,419 10,779,496Passenger seat factor (%) 69.6 68.3Revenue tonne kilometers (Million) 1,447,906 1,330,803Cargo load factor (%) 58.5 59.33.6 DIRECTORS REPORT TO THE SHARE HOLDERSThe Directors are pleased to report that the airline has earned a pre-tax profit of Rs. 1.5billion in the first quarter of 2003 as against a profit of 1.1 billion in the first quarter of2002.
Total revenue for the quarter amount 13.05 billion as against Rs. 1197 billion in thecorresponding quarter showing an over all increase of 9% over the same period last year.Expenses for the current quarter amounting to Rs. 11.07 billion indicate an increase of8% over Rs. 10.2 billion expenditure last year. This is mainly due to increase in fuelprices in the international markets and an ad hoc provision for increase in employeessalaries and allowances.MARKET DEVELOPMENTIn the first quarter the airline has increased passenger capacity by 10% over same periodlast year. In the international markets passenger capacity has been increased by 6% anddomestic markets by 8%. Capacity for Hajjis for Hajj 2003. This year airline wassuccessful in operating Hajj flights for 108,000 Hajjis as compared to 91,000 in 2002.The airline achieved passenger growth of 7% in the first quarter of 2003 over the sameperiod last year. Increase in the international as well domestic markets excluding Hajjwas up to the extent of 4%. The airline has also been able to float excess cargo capacityand increase its utilization. Cargo capacity was increased by 9 % whereas its utilizationwas 23% over last year the same quarter.ISSUE OF TERM FINANCE CERTIFICATES (TFCs)As reported in the Annual Report 2002 the airline launched Term Finance Certificates(TFCs) for Rs. 15.14 billion in February 2003. The issue was the largest in the history ofPakistan financial market. Despite the size, the issue was over subscribed up to the extentof 40% showing confidence in the policies followed by the airline Management.The airline has utilized the money wised through TFCs to pay off bridge financing of Rs.7.73 billion borrowed earlier. The airline has nlso liquidated its liabilities towardsemployees fund over due creditors amounting to Rs. 4.27 billion.BOEING AGREEMENT
The 777-induction program is proceeding as per schedule as the first aircraft is planned tobe delivered to the airline in the middle of January 2004. To meet pre-delivery paymentsto the Boeing, the airline has negotiated a bridge loan of US$ 150 million from Citibanksyndicate, which will be liquidated on receipt of Exlm Bank loan on delivery ofaircraft. The outstanding financing facility of US$ 85 million obtained last year will alsobe repaired out of this loan.CHAPTER 4 – FINANCE DEPARTMENT4.1 ORGANIZATIONAL CHART OF FINANACE DEPARTMENT
4.2 DIVISIONS OF FINANCE DEPARTMENTOut of the nine divisions in the department “Revenue Division” is the most importantdivision. Some of the important division/sections are described below in detail.
REVENUE DIVISION:Airline Sells space and services and these are measured in terms of money. The revenuein terms of money is controlled by revenue division. It is further subdivided into differentsections: a) Passenger (PAX) Revenue b) Cargo Revenue c) Interline Revenue d) PricingFor each type of the revenue stream there is an independent unit. So Revenue Division isdiscussed in units:a. Passenger (PAX) Revenue (1) Sales: Revenue function starts from printing of tickets. Tickets of airlinecontains few coupons with jacket (bearing instruction on it). Tickets are sold at stationand at agents’ offices. Sales of tickets may be: a) Direct sale or b) Indirect saleDirect sales mean sales at stations of PIAC, whereas indirect sales is by agents. (a) Direct Sales: There are 46 locations for direct sales all over the network of PIA. Two types of ticketing is practiced i.e. manual ticketing and auto ticketing. Manual ticketing involves procedures of pencil paper work on printed tickets. Whereas auto ticketing involves advance system of computerized ticketing and on the spot computerized ticket printing. Regarding direct sales following four documents are important: I. Passenger Revenue/Extra Baggage Carrier Ticket: The ticket has four/three coupons. First is audit coupon, second is issue office coupon, third flight/lift coupon and fourth the revenue coupon. Flight coupons are arranged for one/two or four sectors. Audit coupon and flight
coupon are the most important coupons. Because flight coupon is the only coupon to be used either for lift, or for refund/reissue/travel on non-PK carrier, etc. Whereas audit coupon is meant for PIA’s revenue record. Audit coupons are sent to head office with sales statements from each station. Accounting to entry is based on audit coupon. ii. Miscellaneous charges order (MCO): These documents contain, audit issue office and exchange coupons. These are meant for exchange if for the time being you don’t want to travel but want to block a seat. iii. Prepaid Ticket Advice (PTA): This is for sponsoring the tickets of the relatives, friends, etc. from any Other country/destination. The money paid by the person sponsoring the Ticket in advance and after the checking of the documents of the nominee Of the sponsorer. Sponsoree is issued this ticket.TAXIn the fare charged from passenger following taxes are included:(a) Domestic: 1) Rs.40 per sector to CAA. (Airport tax) 2) 10% of the fare central Excise Duty to Central Government of Pakistan.(b) International: 1) Economy Class Rs.200 2) Club/Executive Class Rs.300 3) 1st Class Rs.400(c) Foreign Tax: Rs.280 per ticket as foreign travel if ticket is issued in PakistanAGENCY SALESThere are three types of agents selling tickets of PIA. IATA approved agents, GeneralSales Agents (GSAs) and Non-IATA Agents. Agents are paid commission on domestic5% and on international 9% and sometimes paid 3% above the normal rates. Agents as
well as stations are required to submit the sales statements. These may bedaily/weekly/monthly as the case may be.Life Unit:This unit is further subdivided into “life control” and “life automation” sub units.Domestic ticket is directly treated as revenue but international tickets are treated as“Unearned Revenue” which is liability. Unearned revenue is treated as earned when thepassengers are actually lifted. Lift unit is concerned with checking of flight ticketsaccording to schedules of flights for the passengers actually lifted. Domestic tickets aretreated as revenue directly because experience tells that people on domestic routes rarelymiss travel. But to international due to non completion of document people miss theflights and refunds occur unusually. International flights are 20% to 30% over booked forcovering the seats of passengers not traveling.Domestic coupons are directly recorded in accounts by sales unit but international ticketscoupons are fed in computer for matching of list with lifted passengers record. No matterwhen the ticket was sold and where it was sold. This unit gets all required documentsfrom sales unit and that gets these from stations concerned.Refund Unit:Persons who do not report 72 hours before the flight the seat is automatically canceled. Incase of international tickets the unused tickets are fully refunded. Jacket covering thecoupons of the ticket bears instructions and procedure of cancellation charges withspecified rates.Accounting Units:Disks/information received from all stations, sometimes enables this unit to monitoraccounting and prepare floppies and transmit them to the main frame. In PIACaccounting is fully automated and computerized. Few stations have on line systems too
however manual work is not totally eliminated due to non-availability of the on linesystems at some stations.b. Cargo Revenue Section: This section has different sub units as under:Sales Unit:Sales may be of two types; sales on PIA’s own counters and sales by agents. When cargosales are made airway bills are prepared by stations/agencies. Stations are responsible forreports to head office about airway bills, both of agents and stations. Agent reports tostations and stations to H.O. cargo sales may be domestic or international. R-2 isstatement regarding domestic cargo sales and international cargo sales for PIA counterswhereas R-11 is a statement for agent’s cargo sales. R-3 is collection report. R’s arereturns prepared by the stations and sent to lift unit. Lift unit keeps the tracks of the cargosales revenue & monitors the preparation and collection made by stations.Lift Units:When cargo sales are made a liability is created until the cargo is actually lifted. From thestatements and airway bills from stations lift unit prepares original accounting entry.When sales are made entry passed in books of accounts looks like: Cash Rs.___________ Unearned cargo revenue Rs____________And when the cargo is actually lifted unearned revenue is converted from liabilityaccount to earned revenue A/c a revenue account and entry looks like: Unearned cargo revenue Rs____________ Revenue earned Rs____________ This accounting is function of the unit under discussion. Different sources are alsoprepared by this unit to feed the accounting data in main ledgers in main frame computersystem.Source 20 - Prepaid (PIA) airways billsSource 21 - PIA & other airlines airways billsSource 23 - Other airlines payments & receipts of airways bills.Source 24 - Prepaid other airway bills.
These sources are prepaid by lift section and sent to DPC. This unit has been divided intotwo more cells one in mail and other miscellaneous.Mail CellIt is concerned with revenues and accounting of the revenues from mail carried by PIAcarriers. Every year there was dealing and carrying of mail at national and internationallevels through Postmaster General Pakistan but now PIA is independently dealing withagencies. Mail may be of following types: 1) Domestic mail 2) International mail.PIA is earning about Rs.12 crore revenue yearly from all types of mails carried atnational and international levels. Instead of cargo airway bills this cell is concerned withmail way bills on the basis of which accounting is done.Miscellaneous RevenueThis cell deals with return R-4 which consists of handling charges (credit & cash)transactions and refunds etc. through cash clearance account and total advances account.Cash receipts and invoices and disks along with lists are attached R-4. data is arranged,checked and sent to DPC in a form to be fed in computer system. Stations send return’ssummary on monthly basis to Head Office.c. International Revenue Section: All airlines render services and these are measured in terms of money. Revenuedivision is responsible to keep the tracks of all the revenue. Interline revenue has twoaspects: (1) Receivable – When ticket is purchased by passenger from any other airline but lifted by PIA. (2) Payable – When ticket is purchased by passengers from PIA but are lifted by some other carrier.These transactions are settled through IATA clearance house. IATA clearance house hasits member airlines, these airlines have their accounts with IATA. But non-IATA member
airlines are dealt according to the standing agreements with them. As IATA regulates theairline industry in the world most of the settlements are through IATA.Sometimes revenue is divided according to sectors carried. These types of the settlementare made on the basis of mileage. This is called proration. For settlement there are threecurrencies in which payments are receipts are made. • European currency • US Dollar; and • Pound sterlingd. Pricing: This section of the revenue division was established in 1975. It acts as regulatingauthority of the airline.According to IATA rules approved fare written on the face of the tickets should becharged as that fare is approved. But the airlines undercut their fare specially in otherthan the base country. This section monitors these underground unethical violations ofthe IATA rules.When other airlines undercut fares and PIA feels that it must also undercut, the stationmanagers prepares proposals about fare expected to be charged and sends these proposalsto marketing department. Marketing department analysis the proposals and approve themafter comparing with last year’s figures. Final approval is made by “director sales”.Functions of this section are to: • Monitor the sales and undercutting. • Provide funds through secret accounts. • Check whether the undercutting is made according to approval or not. • Do accounting for this commission item. • Make reconciliation of secret accounts, with undercutting and special incentive commission. • Account with statement received from stations and GSAs.
IATA keeps regular check on undercut, collect evidences from people passengers,explore the records of suspected stations and agents but still undercut is rapidly growing.FINANCIAL SERVICES DIVISIONPAYROLL SECTION:Financial Services Division consists of three sections: • Payroll/taxes section • Disbursement section; and • Other departmental finance sectionsHere, we are concerned with payroll/taxes section which is headed by manager.Payroll/taxes section has further been divided into two units. a. Salary & taxes unit b. Reimbursement and foreign salaries unita. Salary/Taxes Unit: Domestic salary and taxes to be deducted at source are the responsibility of thisunit. Disbursement of the salaries is made through banks this function is watched by unitunder discussion. Attendance account of each employee is kept by computer system.Casual leaves, sick leaves, medical leaves, accident leave, and others are recorded in thisaccount and if employee exceeds the extended limits of leave, the deductions are madefrom the salary.Allowances/funds including House Rent allowance, Provident fund, medical allowance,qualification allowance and others are calculated on the basis of the previous monthsrecorded. Salary preparation system is computerized and payments are made by chequesthrough employees’ bank accounts.b. Reimbursement unit: All expensed and payments made by the employees on behalf of the corporation arereimbursed and paid back to them. Besides this travel, entertainment, taxi fare, care
allowance, etc. are also paid to employees. Following are the sources for recording allinformation regarding on employees’ salary.Source 50 sent by manager employment contains basic information about employees.Source 51 Prepared by this section to make deduction from the salary.Source 52 any single change in the salary. It is called “salary structure changeadjustment advice”.Source 53 For miscellaneous recoveries of loans and advances this source is notconcerned with salary but with loans and advances.Source 54 Master Taps Statistical Data Change Advice.Source 55 “Master Tape Amount Adjustment/change advice”. Regarding salary/loansrefund.Source 56 Salary structure change adjustment advice for multiple changes on multipledate in the salary and its structure.Source 57 Attendance Form.Source 58 No more in use.Source 59 Termination advice.TAXES:Taxes are under control of the assistant manager salary and taxes, who is responsible todeduct tax at source form taxable salaries of the employees according to current tax ratesextended by Federal Government.INSURANCE AND TERMINAL BENEFITSThis division is headed by a qualified GM. The division consists of: a. Insurance b. Terminal Benefits.a. INSURANCE SECTION: PIAC enters into contract with some insurance companies to insure its aircraft,passengers and baggage etc. insurance section purchases policies on behalf of the PIAC
and claims compensations on behalf of PIAC whenever loss occurs. Group insurancescheme is major scheme of the PIAC.Premium of insurance is certain percentage of sum assured, paid by this section.Nowadays PIAC has about 20 policies. Cases come from different departments andsections and are sent by this section to insurance companies. Negotiations are made fordetermination of amount of loss by this section. In case of heavy insurance policiescorporations insuring the sum get reinsurance from international market of insurance inthe world.b. TERMINAL BENEFITS SECTION: Employees of PIAC have some rights on PIAC afterretirement/termination/resignation as the case may be. This section is responsible todischarge those responsibilities of PIAC. Under the control of GM and a ManagerInsurance & Terminal Benefits, and Assistant Manger is responsible for these benefits.Provident Fund is the major amount to be kept and paid at the time of termination toemployees. An employee can be separated by following ways from his/her normalfunctions. • If he reaches his age of retirement. • If he resign, or • If he is terminated by PIAC administration on disciplinary grounds.Rules of gratuity and pension in all three cases are different. In case of pension, he willbe paid pension according to the salary section’s declaration and order. Provident fundboth employees’ and employers’ contribution is paid to him along with gratuity.Provident fund is kept with trust formed by PIAC employees which is responsible toinvest the money in profitable business PIAC is not allowed to use this amount. Returnon investment is also credited to employees’ accounts.In case of resignation, resignee gets only own contribution of provident fund and same isapplicable to the person who has been terminated on disciplinary grounds.Below the Balance Sheet and profit and loss A/C for the four years of the company underhas been presented followed by the Ration Horizontal and Vertical analysis with the briefinterpretation of the situation in light of results from aforesaid students. The company has
the authorized capital is 50,000,000 preference shares of Ts.10 each is Rs.5,000,000 (inthousand) and the company issued capital is Rs.3884618 (in thousand). The differentRations shows the company position Ratio Net Income to total Assets shows that assetsof company must be utilized in better way. Ration of Operation Exp shows that they areunder control & reducing gradually. This interest earned ratio shows that company shouldstrive to earn more revenue from its main business. Liquidity rates is not good. Cashratios are not satisfactory. Company receivable turnover is satisfactory horizontalanalysis shows there is increase in revenue from 8% to 26% as compare to revenueexpenditure increase is 8% to 24%. Gross profit is also increased each year and currentliabilities also increasing. Current assets are decreasing where as there is increase in fixedassets. Vertical analysis shows the expenses are the 95% of the revenue whereas Grossprofit is 4.59 which has increased gradually where as expenditure have fallen down &operating expense have increased. There is gradually decrease in profit.Current assets are the 27.57 of the total assets. Whereas short term liabilities are 44.60%of total liabilities. There is increase in fixed assets & decrease in current assets.4.3 FUNCTIONS OF FINANCE DEPARTMENTThe duties and functions of a typical finance department can be classified into twogeneric categories. The first category is Planning and the second function is Controlling.
These activities are inter-related and inseparable because if there is no planning these willnot be any control. Therefore, planning and controlling move together.Planning refers to the activities which bridge the gap from the starting point to theterminal point. Planning in the finance department under review refers to the activities ofcash flow and budget preparation. These are the major activities in any department.PLANNINGPlanning is fundamental to the management process, a process of sensitizing anorganization to external opportunities and threats, of determining desirable and possibleobjectives, and of deploying resources to match the objectives. Without planning there isno basis for controlling for planning provides the foundation upon which the controlfunction operates. The planner should be able to visualize the proposed pattern ofactivities individually and collectively, internally and externally.BUDGETSThe budget is not only the most important plan of an enterprise, but also the basic link ofaccounting with management. The use of budgets, particularly in connection with thecontrol phase of management, has been termed as “budgetary control”. A company’sorganization chart and its chart of accounts form the basic framework on which to build acoordinated and efficient system of managerial planning and budgetary control. Theorganization chart defines the functional responsibility for the budgets rests withexecutive management, all managers are responsible for the preparation and execution oftheir departmental budgets. If a budgetary control system is to be successful, thesemanagers must fully cooperate and must understand their role in making the budgetsystem successful.Budget preceded the cash flow or cash budget. Budgeting process is usually directed by abudget committee. The budget committee review, decide suggest and approve variouspolicy matters and then all the work is submitted to the Managing Director/Chairman forfinal consideration and approval. In performing these functions, the budget committee
becomes a management committee. It is a powerful force in coordinating the variousactivities of the business and in controlling operations.Budget-Development & implementation:The procedure used in developing a budget may be as important as its content and shouldinclude these fundamental principles: Provides adequate guidance so that all management levels are working on the same assumptions, targeted objectives, and agenda. All managers should understand the limitations and constraints of their participation and the bounds of their decision making. Participants should be told, prior to the time. Encourage participation the in budgeting process at each level within the organization. Structure the activity of developing the budget in involve the people who will be responsible for implementing the budget and who will be rewarded according to its accomplishments. Structure the climate of budget preparation to eliminate anxiety and defensiveness. Individuals should have the freedom and authority to influence and accept their own performance levels, and should assume the responsibility for accomplishment. Budget preparation should be oriented to the problems and opportunities of the participants. Structure the preparation of the budget so that there is a reasonably high probability of successful attainment of objectives. When challenging but attainable objectives are achieved, feelings of success, confidence, and satisfaction are produced and aspiration levels are raised. A careful distinction should be made between controllable factor for which individuals should be responsible and for uncontrollable factor for which they are not.Proper budget implementation requires adherence to the following principles: Establish rewards and reward contingencies that will lead to achieving the organizational objectives. Too often, the budgeting process does not provide sufficient rewards to induce employees to accomplish organizational objectives.
The organization should focus on rewarding achievement rather than punishing failure. Feelings of success or failure largely determine attitudes towards the budget and the level of performance to which employees will aspire. Provide rapid feedback on the performance of each work teamor individual. This principle necessitates the use of reports and reporting procedures that are understandable to workers and supervisors at the department level, so that they can analyze their results and initiate corrective action.CASH FLOW OR CASH BUDGETCash flow statement measures the actual inflow/outflow of cash during a period generallyone year. In accounting practice there are some transactions which do not involve cashlike depreciation, are not taken into consideration while preparing cash flow.A cash budget or cash flow involves detailed estimates of anticipated cash receipts anddisbursements for the budget period or some other specific period. It has generally beenrecognized as an extremely useful essential management tool. Planning and controllingcash is basic to good management. Even if a company does not prepare extensive budgetsfor sales and production, it should setup a budget or estimate of cash receipts anddisbursements as an aid to cash management.Nature & Purpose of Cash BudgetA cash budget or cash flow: Indicate the effect on the cash position of seasonal requirements large inventories, unusual receipts and slowness in collecting receivable. Indicate the cash requirements needed for a plant or equipment expansion program. Show the need for additional funds from sources such as bank loans/overdraft or sale of securities and the time factors involved. In this connection, it might exert a cautionary influence on plans for plan expansion, leading to a modification of capital expenditure decisions.
Indicates the availability of cash for taking advantages of discounts. Assists in planning the financial requirements of bond retirements, income tax and payments to pension and retirement funds. Shows the availability of excess funds for short-term or long term investments. Serves as a basic for evaluating the actual cash management performance or responsible individuals, using measurement criteria such as the target average daily balance as compared with the actual average daily balance in each cash account.Cash flow is followed by the “Projected Profit & Loss Account” which is also a part ofthe Profit Planning and estimated or projected profit/(loss) can be examined. It containssummaries of sales, manufacturing and operating expenses. It project net income, thegoal toward which all efforts are directed, and it offers management the opportunity tojudge the accuracy of the budget work and investigate causes for variances. No newestimates are actually made; figures taken from various budgets are merely arranged inthe form of an income statement.The sales budget gives expected sales revenue; the manufacturing budget furnishesmanufacturing costs and cost of goods sold which is deducted from sales, give theestimated gross profit. Estimates from the marketing and administrative expense budgetsare subtracted from estimated gross profit to arrive at income from operations. Finally,the provision for income tax is deducted to determine net income.Purpose of Cash Flow: • Total cash availability - Inflow • Total cash availability - Outflow • Cash required for FMR • Cash required for capital investment • Cash required for repairs. • Cash required for short/long term investment. • Source for cash - Short term & Long term.CONTROLLING
This function of the finance department is carried out in the light of standards set in theplanning stage. The actual performance is compared with the preplanned objectives andstandards, which lead to the rectification of any deviation and improvement suggestionswhich will assist in the future planning.Management control is the systematic effort by the business management to compareperformance to plans. The control function is of prime importance in the accomplishmentof objectives. The need for control increases with the size and complexity of theorganization. Continuous supervision of an activity, task, or job is required to keep itwithin previously defined boundaries. These boundaries termed and “budgets” in theplanning phase, are set up for manufacturing, marketing, finance and all other activities.Actual results are measure against plans; and if significant differences are noted, remedialactions are taken.Generally, in this phase the actual performance is derived from the preparation ofmonthly Profit & loss account and is compared with the Project Profit & Loss account inorder to observe the actual variance. When the variance has been detected then it isanalyzed to know the reasons/causes resulting in variance. If these causes/reasons arecontrollable then corrective measures are taken to rectify it. The difference in projectedand actual performance (surplus or deficit) is taken to the next period and adjustedaccordingly.- Monthly Profit & Loss - Tool of control. Comparison of actual Vs projected or judicial figures leads to vacance.4.4 ORGANIZATIONAL CHART FINANCE DEPARTMENT RAWALPINDI
4.5 FUNCTIONS OF FINANCE DEPARTMENT RAWALPINIDIFollowing are the main functions of finance department. • Arrange funds when required.
• As PIA is a commercial organization, it is very important to control the different types of sales and purchase. • Different accounting reports help in decision making. • Periodical accounting reports are helpful indicating the profitable routes.As PIAC is a commercial organization. Its main function is to carry passenger from oneplace to another, one country to another, and one continent to another. Taking Cargo issecond major function of PIAC. As the PIA business is different from other businesses,this is why accounting system and accounting reports are somewhat different from otherbusiness reports.As PIA is a very large organization and its business operates all over the world and itsoffices as well as Finance offices are located all over the world that`s why it is difficult tocover or to collaborate the whole PIA financial structure, so I limit my self to Financedepartment Rawalpindi.Now I am going to give detail of Finance department Rawalpindi and how it functions.RECEIPT SIDEA) REVENUE DEPARTMENTAs PIA’s main business is selling of Air Tickets. PIA has a very modern and fast workingsystem of ticketing. All the Reservations and ticket system is computerized. All the salesat PIA counter are control by Revenue Section. All the cash sale is deposited in the bankon daily basis. There are different types of sales • Cash sales. • Credit card sales. • Sales to Defence Personnel against vouchers. • Incentive tickets to different client and Agents. • Staff rebated ticketsCASH SALES
Cash sales are banked on daily basis and bank slips alongwith sale reports of the sameday are sent to the revenue section where the staff working made a initial audit of thereport and deposited into bank. That amount is accounted for in a source named R-1. Thisaccounting circle revolve till the monthly closing course.CREDIT CARD SALEAll the credit card sales are sent to Revenue section on daily basis and there they aresorted and listing are made for billing to the concerned bank. When cheque of credit saleis received it is deposited into the bank and credit it to the PIA account.SALE TO DEFENCE PERSONNELAs per Government of Pakistan Rules Army men has to pay 50% Fare. Remaining 50%will be recovered from the army through a lengthy billing procedure. All the daily salesto army personnel are received in revenue section and are handed over to an other sectiondealing all the credit sales names “Credit Control Section”.Army men traveling on official duty travel against an A.P.W. (Air Passenger Warrant).These APW are also deal by credit control section.INCENTIVE TICKETS TO DIFFERENT CLIENTSWhen an agents makes a satisfactory sales. He also claims it for rebate air ticket. Somepassenger are VIPs are regular traveler or from commercial points of view PIAmanagements feels they are valuable such persons are awarded with incentive tickets.Such tickets are accounted for the by the H.O. (Head Office)STAFF REBATED TICKETSLike all other organizations PIA employees are awarded with Free/Rebated Air Tickets.All the above sales are received in the revenue section along with their support there theyare sorted out and accounted for at their merit after all job is completed all the supportingpaper are found correct and properly attached. These reports are sent to H.O. for an otheraudit by the staff working in H.O. All the sales A/C (Accounts) are re-conciled on dailybasis.B) DOCUMENTS CONTROL SECTION
As PIAs main function is to sell Air Ticket and carry Cargo from one place to another. Soit main documents or important paper is Ticket and Air way bills. As there are so manytickets are used on daily basis by PIA itself and by the agent. So it is very important tocontrol all the tickets. So a separate section named “ Document Control Section” isworking for this purpose. All PIA tickets are printed in U.S.A and Singapore from therethey are received by the H.O. Then H.O. sends these tickets to station according to theirrequirement. Where they are kept in strong room and issued to after proper recording andinventory is maintained.C) SERIAL CONTROL SECTIONThe duty of this section is control the Serial of all Revenue Documents/Tickets. Alltickets are used in sequence. The main function of this section is to check and control andto avoid any misuse or any break in sequence.D) AGENCY SALES UNITAgents sell most of the PIA tickets. The main function of this section is to check theagents and coordinate with the solving different type of problem. Tickets sold by agentsare reported in a sales report and submitted to this section fortnightly along with a chequeof same amount reported in sales report after deducting 9% commission allowed to agent.The object of the section is to check the sales report of each agent, whether all tickets arereported which are sold, whether correct amount is reported in the sales report. Faircalculation is a very technical job. Checking of fair calculation is main object of thissection. After checking all the sales received from agents are feeded in computer andwhole the data is transferred to Head Office. Whole the sale amount received against thecargo sale are reported in R-10 and whole the sales amount received against the cargosale are reported in R-11. sales proceeds are received from agents on fortnightly basis.PAYMENT SIDEA) DISBURSEMENT SECTION
PIA has the honor to introduce computerized payment system in the country. Cheques areautomatically printed with the voucher. This section makes all outside party payments.When spare part is purchased the seller raises a bill. After proper approval by theauthority, bills are received by the section. In this section bills are thoroughly checked. Ifbills are found correct in all respect. Then a pay voucher is prepared. All payvoucherprepared on computer cheques are also printed on computer along with payvoucher. Afterprinting these payvoucher. All payvoucher are approved by the authorized officer. Afterapproval of payvoucher cheques are also signed by authorized officer.B) REFUND SECTIONAs PIA business is sales of tickets. All unutilized tickets are returned to PIA and refundclaimed. To deal with such ticket a refund section is working in PIA Finance Deptt. Theunused ticket is presented in refund section. After proper scrutiny of the ticket a payvoucher is prepared after along with a cheque. This payvoucher and cheque dulyapproved and signed by the authorized officer. All the payment process is computerizedand whole accounting is automatically done by computer user has to only enter thespecified A/C code allocated by PIA for each type of payment. Because payment are ofdifferent type and nature. So many accounting code are used to proper accounting as perPIA set rules.C) PAYROLL SECTIONAs we are discussing about the PIA set up at Rawalpindi. To make different type ofpayment to there employees for example salary payment transfer expenses settlingallowance. There are dozens of other payments involved regarding PIA employee. Allsuch payment are made through this section. All payments are duly approved by theregional manager. For each payment a separate payvoucher is prepared. Due to totallycomputerized accounting and payment system, a cheque is automatically printed with thepayvoucher. This payvoucher is duly approved by the concerned officer. All paymentsare made through cheque. All payments are made through Habib Bank Ltd. PIA salarysystem is also computerized. Salary of all employees is prepared at Karachi Head Office.All sources for payment and adjustment of allowances are prepared at Rawalpindi and
dispatched to Karachi for final settlement in payroll. Computerized salaryslip are printedat Karachi where main IBM computer is installed. After printing the payslips these slipsare dispatched to Rawalpindi station. All employees salaries are paid through banks.D) CASH SECTIONTo make the small payments regarding refund of amounting less than Rs.3000/- a cashofficer is deputed for such payments and to payment for petty expenses and all employeespayment less than Rs.3000/-. All payment cheques are delivered through this cash officer.The duty of this cash officer is to balance the imprest A/C on daily basis and makearrangements of necessary funds to meet out the daily petty expenses and operationalpayments.E) CREDIT CONTROL SECTIONThe function of this section is to deal with all credit sales made by PIA and recovery ofsuch amounts. All MNA/MPAs are issued traveler voucher by the Government. Alltickets issued to MNA/MPA are against these travel voucher. These voucher are ofdifferent value. When a ticket is issued to MNA/MPA or Senator they give travel voucherinstead of cash. There are always so many problems in encashment of such voucher. Allthese voucher are cleared by State Bank of Pakistan.All military travel tickets are issued against travel voucher. If it is a official travel ticketthen it is issued against A.P.W. Air Passenger Warrant. Such APW are billed to controllerof Military. As per Govt. rules all Army men are allowed 50% rebate on by Air travel.The concerned traveler will pay 50% and remaining 50% will be recovered by PIAthrough billing. Invoices are raised to controller of Military Accounts. All theserecoveries are made by this section. There are so many other parties which deal with PIAon credit basis. All sales and services performed by PIA on credit basis. Credit controldeals with all credit sales and recovery of such amount is responsibility of credit section.BANK RECONCILIATION SECTION
PIA Accounting System is based on monthly closing basis. 7th of every month is theclosing date for the previous month closing when all the previously discussed Sectioncomplete their monthly closing and balance all their accounts. Now the duty of BankReconciliation starts when the Bank statement are received and bank balance isreconciled with cash book. As already discussed whole the PIA Accounting system iscomputerized and whole accounting is matched by computer automatically BankReconciliation is also computerized.FINANCE AUTOMATION CELLAs already discussed whole PIA system is computerized. So to monitor the allAccounting transaction and provide the management any information or report as andwhen required by local management or by the H.O. All such information or report areprovided by this section. Now when all the report in all section are completed and theirrespective Accounting is completed and all balance are compiled and Bank reconciliationis OK. All the data for the whole month is transferred to Head Office Karachi through e-mail. Where Finance Automation Cell Head Office receive this data. Finance AutomationCell Head Office receive and compile it. By this way each month all data of Rawalpindibase is transferred to Head Office on 7th of each month.PIA has its own coding system there are different types of sales earning Revenue receiptand payment. So PIA has defined in such way.R-1 All cash sales at PIA counters are reported in R-1.R-2 All cargo sales are reported in R-2R-3 All receipt against cargo which was booked by another station on credit basis or “Topay basis” means collection made at destination all such are reported in R-3.R-4 All miscellaneous collection or recoveries from staff are reported in R-4 example allairport taxes, rent received, payment by PIA staff.
R-5 All receipt/collection recovered against credit sale are reported in R-5 Recovery ofMNA/MPA Ticket issued against travel voucher. Recovery from Army persons.R-6 All the payment made against unutilized PIA tickets presented for refund arereported in R-6.R-7 All collection made on behalf of other stations is reported in R-7.R-8 This is maintained by the Credit Control Section. This shows the party-wise balancesof all the credit parties, and shows the recoverable balances.R-9 R-9 is consolidated statement of all receipt. While studying R-9 we can judge at aglance the source-wise collection detail for a month. It shows the consolidated amountscollected and reported against each source for more clear picture of finance system.R-10 R-10 is a report in which all sale of agents are reported. There are three types ofagents, which deal in passenger ticket these are known as Pax agents. These agentsdiscussed below.R-11 All cargo sales by agents are reported in R-11. Cargo sales are submitted by agentare on fortnightly basis agent are 9% commission on all international cargo sales. Allthese sales are reported in R-11.As already discussed all reports are completed and compiled in computer. At the monthend closing all the data feeded in computer from different sources is compiled in R-9 andcomputer passes journal voucher. Final reports are printed when all balances are matchedand Bank reconciliation statement is reconciled.CHAPTER 5 – FINANCIAL STATEMENTS5.1 BALANCE SHEET MAR - 2003 DEC - 2002 MAR - 2003 Note (Rupees in thousand) - (US$ in thousand)
SHAREHOLDERS EQUITYShare Capital 6,820,631 6,820,631 117,841Reserves 4,130,712 4,130,712 71,367Un-realized loss on re-measurement of investments (82,438) (113,538) (1,425)Accumulated loss (9,155,058) (10,267,818) (158,173) --------------- ---------------- ---------------- 1,713,847 569,987 29,610ADVANCE AGAINST EQUITY 248,638 - 4,296Redeemable capital 4 20,003,330 4,863,330 345,600Long-Term Loans 5 3,036,306 3,333,053 52,459Obligations under finance leases 6 80,375 28,826 1,389Obligations under hire purchase 7 476,540 695,924 8,233DEFERRED LIABILITIES 2,401,227 2,075,925 41,486Long-term deposits and other liability 261,110 253,616 4,511CURRENT LIABILITIESCurrent maturities 3,016,201 2,954,247 52,111Short-term loans 8 3,694,262 12,345,333 63,827Creditors, accrued expenses and other liabilities 9 11,313,286 15,605,504 195,461CONTINGENCIES AND COMMITMENTS 10 18,023,749 30,905,084 311,399 --------------- ---------------- ---------------- 46,245,122 42,725,745 798,983 ======== ========= =========FIXED ASSETSOperating fixed assets 11 16,535,837 17,168,114 285,692Capital work-in-progress 7,646,123 6,614,548 132,103 --------------- ---------------- ---------------- 24,181,960 23,782,662 417,795Long-Term Investments 340,077 340,373 5,876Long-Term Advances 12 3,569,528 3,557,628 61,671Long-Term Deposits 13 314,677 317,004 5,437Deferred Costs - 31,770 -CURRENT ASSETSStores and spares 14 3,540,530 3,518,066 61,170Short-term investments 15 269,033 237,933 4,648Trade debts 16 4,063,983 3,367,708 70,214Advances, deposits and prepayments 17 464,827 989,159 8,031Advance tax – net 51,004 40,330 881Other receivables 1,636,947 2,005,793 28,282Cash and bank balances 7,812,556 4,537,319 134,978 17,838,880 14,696,308 308,204 --------------- ---------------- ---------------- 46,245,122 42,725,745 798,983 ======== ========= =========5.2 PROFIT AND LOSS ACCOUNT MAR 2003 MAR 2002 MAR 2003 Note (Rupees in thousand) (US$ in thousand)REVENUE 18 13,054,892 11,967,221 225,551COST AND EXPENDITURE 19 11,072,221 10,201,576 191,296 -------------- ------------- -------------