FINAL PROJECT

WAQAS AHMED TAJ

Financial Analysis of PIA
 INTRODUCTION
Pakistan International Airlines is the national flag carrier and was
established in 1955. It not only provides transportation services, but
its operations extend to providing cargo services and courier
services also. Pakistan International Airlines serves two markets –
Domestic and International. In the domestic sector, it has out
performed itself by stretching its networks to areas where other
airlines do not fly to. In the international market it faces severe
competition, especially due to the fact that these international
organizations are providing fares much lower than Pakistan
International Airlines. Internationally also, Pakistan International
Airlines is encountered with a severe and strong challenge with
many renowned international names. Pakistan International Airlines
faces competition with not only international airlines but also with
local airlines on the various routes to the Middle East and the Gulf.
 INTRODUCTION CONT…
Due to fierce competition and rising oil prices,
international aviation industry regulations and
some internal factors such as human resource
issues of over recruitment, de-motivated
employees, mismanagement of resources both
in case of manpower and other resources, aged
fleet, corruption and lack of accountability PIA is
facing a deep financial crisis. It is losing its
market share both in international market and
domestic circuit. The present report is written
about the current situation of PIA and future
plan of action for PIA.
 BRIEF HISTORY OF PIA
Founded 1946 (as Orient Airways)
Hubs
Jinnah International Airport (Karachi)
Secondary hubs
Allama Iqbal International Airport (Lahore)
Benazir Bhutto International Airport (Islamabad)
Focus cities
Peshawar International Airport
Multan International Airport
Faisalabad International Airport
Quetta International Airport
Sialkot International Airport
Dubai International Airport
Frequent-flyer program
PIA Awards Plus+
 BRIEF HISTORY OF PIA CONT..
Subsidiaries
Roosevelt Hotel
Scribe Hotel
Skyrooms (Private) Limited
PIA Investments Limited
Fleet Size
40
Parent company
Ministry of Defence (Government of Pakistan)
Headquarters
Jinnah International AirportKarachi, Pakistan
Key people
Ahmad Mukhtar (Chairman)
Capt. Aijaz Haroon, (Managing Director)
Website: www.piac.com.pk
 HISTORIC ACHIEVEMENTS
OF PIA
First airline from an Asian country to fly the Super Constellation.
First Asian airline to operate a jet aircraft.
First Asian airline to be granted maintenance approval by the US
Federal Aviation Administration (FAA) and the Air Registration
Board, predecessor of the British Civil Aviation Authority (CAA).
First non-communist airline to fly to the People's Republic of China, and
operate a service between Asia and Europe via Moscow.
First airline in Asia to induct the new technology Boeing 737-300
aircraft.
First airline in the world to operate scheduled helicopter services.
First airline to show in-flight movies on international routes.
The first airline in South Asia to introduce auto-ticketing facility.
 HISTORIC ACHIEVEMENTS
OF PIA
The first airline in the world to fly to Tashkent, capital of the newly
independent state of Uzbekistan.
First airline in the world to start Air Safari with jet aircraft.
First Asian airline to start flights to Oslo, the capital city of Norway.
First airline in the world to induct the Boeing 777-200LR, the world's longest
range commercial airliner.
First airline in the world to take delivery of the Boeing 777-200LR Worldliner
(Longer Range Variant).
Pakistan International Airlines Flight Services Department was awarded the ISO
9001:2000 certification award during May 2006.
First airline in Pakistan to operate a flight with an all female crew at command
and in the cabin.
First airline in the world to operate the Boeing 777-200ER, 777-200LR and 777-
300ER altogether - all the three variants available on the market.
PIA Flight Kitchens in Karachi were awarded the HACCP Certificate.
 CORPORATE STATEMENTS OF
P.I.A
 VISION
 MISSION
 VALUES
 VISION
 PIA's vision is to be a world class airline
exceeding customer expectations through
dedicated employees, committed to
excellence.
 MISSION

 Employee teams will contribute towards

making PIA a global airline of choice:
 Offering quality customer services and
innovative products
 Participating in global alliances
 Using state-of-the-art technologies
 Ensuring cost-effective measures in
procurement and operations
 VALUES
 Customer
Expectations
 Service
 Innovation
 Cohesiveness
 Integrity
 Reliability
 Safety
 NETWORK’S OF PIAC
DOMESTIC NETWORK OF PIAC
INTERNATIONAL NETWORK OF
PIAC
 DEPARTMENTS OF PIAC
PIAC Airline has been divided into the following function
units.
 Network & Route Planning
 Administration
 Finance
 Marketing
 Engineering
 Flight Operations
 Airport Services
 Cargo Sales & Services
 Precision Engineering Complex
 Flight Services
 Coordination
 INTRODUCTION OF RATIO
ANALYSIS
OBJECTIVE:
To understand the information contained
in financial statements with a view to
know the strength or weaknesses of the
firm and to make forecast about the future
prospects of the firm and thereby enabling
the financial analyst to take different
decisions regarding the operations of the
firm.
 RATIO ANALYSIS
Fundamental Analysis has a very broad scope. One
aspect looks at the general (qualitative) factors of a
company. The other side considers tangible and
measurable factors (quantitative). This means crunching
and analyzing numbers from the financial statements. If
used in conjunction with other methods, quantitative
analysis can produce excellent results.
Ratio analysis isn't just comparing different numbers
from the balance sheet, income statement, and cash
flow statement. It's comparing the number against
previous years, other companies, the industry, or even
the economy in general. Ratios look at the relationships
between individual values and relate them to how a
company has performed in the past, and might perform
in the future.
 IMPORTANCE OF RATIO
ANALYSIS
1] Liquidity position,
2] Long-term solvency,
3] Operating efficiency,
4] Overall profitability,
 CLASSIFICATION OF RATIO

1. Liquidity Ratio
2. Activity Ratio
3. Solvency Ratio
4. Profitability ratio
5. Coverage ratio
ADVANTAGES OF RATIO ANALYSIS

 Ratios facilitate conducting trend analysis, which

is important for decision making and forecasting.
 Ratio analysis helps in the assessment of the
liquidity, operating efficiency, profitability and
solvency of a firm.
 Ratio analysis provides a basis for both intra-firm
as well as inter-firm comparisons.
 The comparison of actual ratios with base year
ratios or standard ratios helps the management
analyze the financial performance of the firm.
 LIMITATIONS OF RATIO ANALYSIS

1] Information problems
2] Comparison of performance over
time
3] Inter-firm comparison
 PURPOSE OF RATIO ANLYSIS:
1] To identify aspects of a businesses performance to aid decision
making
2] Quantitative process – may need to be supplemented by qualitative
Factors to get a complete picture.
3] 5 main areas:-
 Liquidity – the ability of the firm to pay its way
 Investment/shareholders – information to enable decisions to
be made on the extent of the risk and the earning potential of a
business investment
 Gearing – information on the relationship between the exposure of
the business to loans as opposed to share capital
 Profitability – how effective the firm is at generating profits given
sales and or its capital assets
 Financial – the rate at which the company sells its stock and the
efficiency with which it uses its assets
 Financial Statements
 Balance sheet
 Income Statements
 Cash flow Statements

 For the years of

2007-2009
Note Amounts in ,000)
 Balance Sheet
  Balance Sheet for the Years 2007 2008 2009
 Particulars Amount Amount Amount
Assets      
Non Current Assets      
Fixed Asset      
Property and equipment, Plant 95,497,151 115,010,337 133,555,560
Intangibles 103,475 113,154 91,962
  95,600,626 115,123,491 133,647,522
Long Term Investment 4,540,229 4,497,642 4,446,950
Long Term Receivable 1,283,000 - -
Long Term Deposit and Prepayments 4,098,388 5,009,452 5,038,148
  105,522,243 124,630,585 143,132,620
Current Assets      
Stores and Spare Parts 3,251,940 3,726,940 3,987,423
Trade Debts 5,012,778 5,757,849 7,978,187
Advances 604,470 1,418,610 2,189,162
Trade deposit and prepayments 1,023,312 1,591,583 1,158,497
Accrued Interest 32,789 1,325 -
Other Receivable 1,043,971 1,441,564 799,193
Short Term Investment 32,093 42,505 25,151
Taxation Net 274,519 269,351 -
Cash And Bank Balance 1,975,459 789,555 742,945
  13,251,331 15,039,282 16,880,558
Total assets 118,773,574 139,669,867 160,013,178
 Balance Sheet Cont..
Liabilities and Stockholder's Equity 2007 2008 2009
Share Capital And Reserves Amount Amount Amount
share capital 20,878,074 21,423,014 23,280,356
Reserves (32,781,632) (68,945,437) (72,335,101)
Total equity (11,903,558) (47,522,423) (49,054,745)
Surplus on revaluation of Fixed Assets 972,040 14,192,700 28,281,903
Non-Current Liabilities      
Long term financing 17,037,075 19,471,411 24,553,113
Term finance Certificates 10,723,738 12,430,143 19,592,320
Liabilities against assets subject to finance leases 46,524,024 65,024,660 61,272,797
Long term deposit 321,547 301,770 365,847
Deferred liabilities 3,049,166 3,243,205 6,184,327
Current Liabilities:      
Trade and other Payables 20,055,163 27,947,496 28,684,514
Accrued Interest / Markup / Profits 978,317 1,475,456 1,845,592
Provision for Taxation   - 848,890
Short Term Borrowing 18,105,884 30,500,062 23,982,160
Current Maturities of:      
Long term Financing 5,662,451 5,352,528 5,328,458
Term Finance Certificate 2,523,232 - 5,120
Liabilities against assets subject to Finance Lease 4,724,495 7,252,859 8,122,882
Total current liabilities 52,049,542 72,528,401 68,817,616
CONTIGENGIES AND Commitments      
Total liabilities and stockholders' equity 118,773,574 139,669,867 160,013,178
 Income Statement
Profit & Loss Statement 2007 2008 2009
REVENUE- Net 70,480,734 88,863,258 94,563,765
COST OF SERVICES      
Aircraft Fuel (30,315,159) (45,854,357) (31,371,753)
Others (36,241,336) (39,421,454) (47,257,674)
  (66,556,495) (85,275,811) (78,629,427)
GROSS PROFIT 3,924,239 3,587,447 15,934,338
Distribution cost (4,448,674) (5,309,808) (5,911,946)
Administration costs (5,256,700) (5,818,218) (7,180,665)
Other Provisions and adjustment-net (433,223) (1,807,645) (689,849)
Exchange loss Net (720,151) (24,118,823) (6,711,336)
Other Operating Income 999,433 1,830,920 494,462
  (9,859,315) (35,223,574) (19,999,334)
LOSS FROM OPERATIONS (5,935,076) (31,636,127) (4,064,996)
Finance costs (7,135,845) (8,351,648) (9,243,768)
LOSS BEFORE TAXATION (13,070,921) (39,987,775) (13,308,764)
Taxation (327,785) 3,849,133 7,486,333
NET LOSS FOR THE YEAR (13,398,706) (36,138,642) (5,822,431)
       
LOSS PER SHARE      
A Class ordinary shares of Rs. 10 Each (7) (18) (3)
B Class ordinary Shares of Rs.5 each (3) (9) (1)
 Cash Flow Statements
Particulars of Cash Flow Statement for the years 2007 2008 2009
Cash flows from operating activities      
Cash generated from / (used in) in operations
after working capital Changes 4,587,257 (19,719,505) 7,191,582
Profit on Bank deposits received 225,685 195,004 34,103
Finance costs paid (6,969,806) (7,854,509) (8,873,632)
Deferred custom duties paid - - 123,205
Taxes paid (393,185) - (248,103)
Staff retirement benefits paid (874,493) 97,864 (288,735)
Long-term deposits and prepayments - net (774,853) (930,841) (28,696)
Net Cash used in operating activities (4,199,395) (28,211,987) (2,090,276)
       
Cash flow form investing activities      
Purchases of property pant and equipment (10,863,154) (9,531,163) (2,729,994)
Proceeds from sale of property, Plant and equipment 110,049 211,746 3,208
Purchases of intangibles 100,781 - (1,344)
Proceeds from short terms investments 568,548 (8,104) -
Proceeds from held to maturity investments 427,491 - 25,190
Dividend Income received 401,000 1,077,900 -
Net Cash used in investing Activities (9,255,285) (8,249,621) (2,702,940)
 Cash Flow Statements cont..
 Particulars 2007 2008 2009
Cash Flows from financing activities  
Proceeds from issue of share capital 1,404,443 544,940 1,857,342
Repayment of long term loans   - (5,534,320)
Proceeds from long term financing 13,199,132 2,124,413 10,591,952
Proceeds from term finance and sukuk certificates   - 440,000
Redemption of term finance certificates (756,970) (816,827) (2,703)
Restructuring of sukuk certificates (781,165) - 6,730,000
Proceeds form long term deposites   - 64,077
(Repayment) of / Proceeds form obligations under
Finance lease -net (5,659,663) 21,029,000 (2,881,840)
Net Cash Generated from Financing Activities 7,405,777 22,881,526 11,264,508
Increase / Decrease in cash and cash equivalents (6,048,903) (13,580,082) 6,471,292
       
Cash and Cash equivalents as the bigning of the year (10,083,522) (16,130,425) (29,710,507)
Cash and cash equivalents as the end of the year (16,132,425) (29,710,507) (23,239,215)
Cash and cash equivalents      
Cash and bank balances 1,975,459 789,555 742,945
Short term borrowings (18,105,884) (30,500,062) (23,982,160)
  (16,130,425) (29,710,507) (23,239,215)
 LIQUIDITY RATIOS
a. Working Capital Ratio
Formula:
Working Capital Ratio = Current Assets – Current Liabilities

Working Capital Ratio 2007 2008 2009

Current Assets 13,251,331 15,039,282 16,880,558
Current Liabilities 52,049,542 72,528,401 68,817,616

= Current Assists - Current Liabilities (38,798,211) (57,489,119) (51,937,058)

 LIQUIDITY RATIOS cont..
b. Current ratio

Current Ratio 2007 2008 2009

Current Assets 13,251,331 15,039,282 16,880,558

Current Liabilities 52,049,542 72,528,401 68,817,616

=Current Assets / Current Liabilities 0.25 0.21 0.25

 PROFITABILITY RATIO
a. Gross Profit Ratio

Gross Profit Ratio 2007 2008 2009

Gross Profit 3,924,239 3,587,447 15,934,338
Total Revenue 70,480,734 88,863,258 94,563,765
= Gross Profit / Total Revenue 5.57% 4.04% 16.85%
 PROFITABILITY RATIO CONT…
b. Net profit ratio

Net Profit Margin Ratio 2007 2008 2009

Net Profit / Loss (13,398,706) (36,138,642) (5,822,431)
Revenue 70,480,734 88,863,258 94,563,765
=Net Profit / Revenue -19.01% -40.67% -6.16%
 PROFITABILITY RATIO CONT…
c. Return on Asset Ratio:

Return On Assets ratio 2007 2008 2009

Net Profit / Loss (13,398,706) (36,138,642) (5,822,431)

Total Assets 118,773,574 139,669,867 160,013,178
=Net Profit or Loss/ Total Assets -11.28% -25.87% -3.64%
 PROFITABILITY RATIO CONT…
d. Return on equity ratio

Return on Equity 2007 2008 2009

Net Income / Loss (13,398,706) (36,138,642) (5,822,431)
Total Equity (11,903,558) (46,701,927) (49,054,745)
= Net Income / Total Equity 112.56% 77.38% 11.87%
 DEBT MANAGEMENT
a. Debt to Assets Ratio

Long Term Debt to Assets Ratio 2007 2008 2009

Long Term Debt 74,606,384 97,227,984 105,784,077
Total Assets 118,773,574 139,669,867 160,013,178
= Total Debt / Total Assets 0.63 0.70 0.66
 DEBT MANAGEMENT CONT..
b. Debt to equity ratio

Long Term Debt To Equity Ratio 2007 2008 2009

Long Term Debt 74,606,384 97,227,984 105,784,077
Equity -11,903,558 -46,701,927 -49,054,745
= Long Term Debt / Equity -6.27 -2.08 -2.16
 DEBT MANAGEMENT CONT..
c. Time interest earned ratio

Time Interest Earned Ratio 2007 2008 2009

Earning Before Tax & Interest -5,935,076 -31,636,127 -4,064,996

Interest Expanse 7,135,845 8,351,648 9,243,768

= Earning Before Tax & Interest/ Interest Expanse -0.83 -3.79 -0.44
 ASSET MANAGEMENT
a. Total assets turnover

Return On Assets 2007 2008 2009

Net Profit / Loss (13,398,706) (36,138,642) (5,822,431)

Total Assets 118,773,574 139,669,867 160,013,178

=Net Profit / Total Assets -11.28% -25.87% -3.64%
 Market Value
a. EPS
b. Average Market Price

Market Value 2007 2008 2009

EPS -6.16 -17.79 -2.72

Average Market Price 11.30 3.17 3.40

 CONCLUSION & RECOMMENDATION

PIA needs radical business restructuring to come out of the

crisis and meet customers' expectations
 For short-term sustainability, PIA shall restructure
its business, its loans and liabilities, and further injection
of equity/funds.
 For long-term sustainability, brand building and
organizational restructuring is being pursued. In the
pursuit of achieving improvement both in operational
and financial efficiency, PIA is currently utilizing its
existing human resources and infrastructure. To achieve
these objectives, management intends to convert its
business activities
 CONCLUSION & RECOMMENDATION CONT..

 The major challenges ahead of the

corporation are to regain its market share
and profitability through achievement of
higher yield, focus on profitable routes,
improved revenue management and cost-
cutting measures.