Financial Analysis of Pakistan International Airlines

Presented to:

Prof. Ayesha Anwar

Presented by:

SAAD QAMMAR(111124)

M.FAHAD(121103)

Topics of Presentation

Introduction Services Provides PIA Experience Financial Reports Analysis of Financial Reports Recommendations Conclusion

Introduction

Birth of a Nation, Birth of an AirlineBefore the foundation of Pakistan, Quaid e Azam ordered M.A Ispahani to establish a new Airline for the new country

Orient Airways Takes to the Skies

Founded on 23 October 1946 Obtained License in May 1947 Was based in Calcutta

Introduction

PIA’s First International Service First international Flight was flown in 1956 Revenues were doubled due to international

flights

New Planes, New Directions, New Management Modern air crafts of its time were procured New flight destinations were added

Introduction

Historic Firsts and Unbroken Records Set record of fastest flight from London to

Karachi in just 6hours 15mins First Asian Airline to Fly to China and Norway

The Pursuit of Excellence Through Technology and Quality Control First organization in Pakistan who started

using computers in 1967

Services Provided

Business Plus Seats Business Plus Check in Counters Priority based Services In Flight Entertainment( Movies, Songs

Dramas, Games etc.) Customized meals including (Break fast,

Lunch, Snacks, Dinner) Special Hajj Flights

PIA Experience

PIA Cargo PIA SpeedEX PIA Training services Customer Care City Check In Seat Reservation Via Internet and Mobile

Phone

FINANCIAL REPORTS

Consolidated Statement of Financial Position

Rs.000 2012 Rs.000 2011

Property, Plant And Equipment 146,214,419 146,188,607

Intangible 2,973,990 2,856,379

149,188,409 149,044,986

Long-Term Investment 86,088 89,715

Receivable From Hotel 679,487 648,116

Long Term Loan Advances 15,407 14,107

Long Term Deposit 9,278,981 9,409,373

159,248,372 159,206,297

CURRENT ASSETS

Stores and spares 3,895,832 3,873,673

Trade debts 8,936,690 8,788,214

Short-term loans and advances 329,433 456,714

Trade deposits and prepayments 1,305,268 1,596,800

Other receivables 2,423,473 1,438,007

Short-term investments 594,749 1,306,037

Taxation – net 93,680 96,577

Cash and bank balances 3,239,943 5,575,572

20,819,068 23,131,594

Total Assets 180,067,440 182,337,891

Consolidated Statement of Financial Position

Rs.000 2012 Rs.000 2011

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Share capital 28,779,674 25,774,948

Reserves -107,420,680 -82,306,920

Attributable to the Holding company's share -78,641,006 -56,531,972

Non-controlling interest 1,081,405 1,224,376

TOTAL EQUITY -77,559,601 -55,307,596

SURPLUS ON REVALUATION OF PROPERTY, 22,854,589 21,059,425

NON-CURRENT LIABILITIES

Long-term financing 44,633,808 29,454,413

Term finance and sukuk certificate 10,925,653 17,457,280

Liabilities against assets on finance lease 47,351,568 53,757,595

Long-term deposits 444,817 384,293

Deferred taxation 15,189,571 15,381,025

Deferred liabilities 9,228,697 6,408,140

127,778,945 122,842,746

CURRENT LIABILITIES

Trade and other payables 46,336,731 34,392,732

Accrued interest 4,727,025 3,096,164

Provision for taxation 1,072,935 1,640,243

Short-term borrowings 25,801,027 22,685,884

Current maturities of:

Long-term financing 11,317,288 21,176,940

Term finance and sukuk certificates 8,664,107 2,135,040

Advance rent 4,392

Liabilities against assets subject to finance lease 9,070,002 8,616,313

106,993,507 93,743,316

TOTAL EQUITY AND LIABILITIES 180,067,440 182,337,891

Analysis of Financial Reports

Consolidated Statement of Financial PerformanceRs. 000 2012

Rs.000 2011

ANALYSIS

Vertical Horizontal

REVENUE 127,476,192 117,602,938 100% 108.40%

COST OF SERVICES

Aircraft fuel -62,965,435 -44,707,004 -49.39% 140.84%

Others -58,692,933 -54,048,189 -46.04% 108.59%

GROSS PROFIT 5,817,824 18,847,745 4.56% 30.87%

Distribution costs -6,830,850 -6,301,504 -5.36% 108.40%

Administrative expenses -11,009,338 -9,979,295 -8.64% 110.32%

Other provisions and adjustments -652,950 -726,222 -0.51% 89.91%

Exchange loss - net -4,220,191 -2,091,706 -3.31% 201.76%

Other operating income 525,563 2,289,179 0.41% 22.96%

-22,187,766 -16,809,548 -17.41% 132.00%

(LOSS) / PROFIT FROM OPERATIONS -16,369,942 2,038,197 -12.84% -803.16%

Finance costs -10,487,413 -9,622,520 -8.23% 108.99%

Share of loss from associated company -790 -486 0.00% 162.55%

LOSS BEFORE TAXATION -26,858,145 -7,584,809 -21.07% 354.10%

Taxation 934,790 -12,476,148 0.73% -7.49%

LOSS FOR THE YEAR -25,923,355 -20,060,957 -20.34% 129.22%

Vertical Analysis of Statement of Financial Performance

The major problem is Cost of Services

due to: High salaries Overstaffing Finance cost etc.

Low Gross Profit despite very good sales revenues

Horizontal Analysis of SOCI

Cost of services increased by 48% in 2012 but surprisingly sales are increased only by 8%

Gross profit is decreased by 70% which indicates clearly that even the increase in sales did nothing due to the increase in the cost of services.

Exchange loss has increased by 108% with a value of more than Rs.4 Billion which has significantly increased the operating cost in the current year.

Horizontal Analysis of SOCI

Due to all problems and unfavorable business performance the overall loss of the organization has increased by 29% which is extremely dangerous and in the future it may end up the desolation of the organization.

Consolidated Statement of Financial Position

Rs.000 2012

Rs.000 2011

ANALYSIS

Vertical Horizontal

Property, Plant And Equipment 146,214,419 146,188,607 81.20% 100.02%

Intangible 2,973,990 2,856,379 1.65% 104.12%

149,188,409 149,044,986 82.85% 100.10%

Long-Term Investment 86,088 89,715 0.05% 95.96%

Receivable From Hotel 679,487 648,116 0.38% 104.84%

Long Term Loan Advances 15,407 14,107 0.01% 109.22%

Long Term Deposit 9,278,981 9,409,373 5.15% 98.61%

159,248,372 159,206,297 88.44% 100.03%

CURRENT ASSETS

Stores and spares 3,895,832 3,873,673 2.16% 100.57%

Trade debts 8,936,690 8,788,214 4.96% 101.69%

Short-term loans and advances 329,433 456,714 0.18% 72.13%

Trade deposits and prepayments 1,305,268 1,596,800 0.72% 81.74%

Other receivables 2,423,473 1,438,007 1.35% 168.53%

Short-term investments 594,749 1,306,037 0.33% 45.54%

Taxation – net 93,680 96,577 0.05% 97.00%

Cash and bank balances 3,239,943 5,575,572 1.80% 58.11%

20,819,068 23,131,594 11.56% 90.00%

Total Assets 180,067,440 182,337,891 100.00% 98.75%

Consolidated Statement of Financial Position

Rs.000 2012

Rs.000 2011

ANALYSIS

Vertical Horizontal

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Share capital 28,779,674 25,774,948 15.98% 111.66%

Reserves -107,420,680 -82,306,920 -59.66% 130.51%

Attributable to the Holding company's share -78,641,006 -56,531,972 -43.67% 139.11%

Non-controlling interest 1,081,405 1,224,376 0.60% 88.32%

TOTAL EQUITY -77,559,601 -55,307,596 -43.07% 140.23%

SURPLUS ON REVALUATION OF PROPERTY, 22,854,589 21,059,425 12.69% 108.52%

NON-CURRENT LIABILITIES

Long-term financing 44,633,808 29,454,413 24.79% 151.54%

Term finance and sukuk certificate 10,925,653 17,457,280 6.07% 62.59%

Liabilities against assets on finance lease 47,351,568 53,757,595 26.30% 88.08%

Long-term deposits 444,817 384,293 0.25% 115.75%

Deferred taxation 15,189,571 15,381,025 8.44% 98.76%

Deferred liabilities 9,228,697 6,408,140 5.13% 144.02%

127,778,945 122,842,746 70.96% 104.02%

CURRENT LIABILITIES

Trade and other payables 46,336,731 34,392,732 25.73% 134.73%

Accrued interest 4,727,025 3,096,164 2.63% 152.67%

Provision for taxation 1,072,935 1,640,243 0.60% 65.41%

Short-term borrowings 25,801,027 22,685,884 14.33% 113.73%

Current maturities of:

Long-term financing 11,317,288 21,176,940 6.29% 53.44%

Term finance and sukuk certificates 8,664,107 2,135,040 4.81% 405.81%

Advance rent 4,392 0.00%

Liabilities against assets subject to finance lease 9,070,002 8,616,313 5.04% 105.27%

106,993,507 93,743,316 59.42% 114.13%

TOTAL EQUITY AND LIABILITIES 180,067,440 182,337,891 100.00% 98.75%

Vertical Analysis of SOFP

Normal and favorable Asset side

Liability side is in a very bad shape

Alarming fact is the Current Liabilities as they comprise of 60% of the total liabilities and equities.

Horizontal Analysis of SOFP

Cash and bank balances has been decreased significantly

Short term investments have also been decreased by 55%

Negative balance of the reserves has been increased by 50%

Long term financing of the organization has also been increased by 50%

Current Liabilities have also been increased by Rs. 13 Billion.

Ratio Analysis of PIA

Ratios 2012 2011

Current Ratio 1.49 1.70

Quick Ratio 1.45 1.66

Gross Profit Ratio 4.56% 16.03%

Operating Profit Margin (13)% 2%

Net Profit Ratio (20.34)% (17.06)%

Return on Capital Employed (32.60)% 3.2%

Return on Assets (9.09)% 1.12%

Asset Turnover 0.71 0.64

Earning per share (9.42) (8.1)

Price/Earning Ratio (0.37) (0.44)

Capital Gearing Ratio 401% 430%

Debt Ratio 130% 119%

Interest Cover (1.56) 0.21

Liquidity Ratios Analysis

Current ratio 1.49 1.70

Unfavorable, it doesn’t even fulfill the normal criteria

Unable to payoff its current liabilities

Bad impact on the creditors

Quick ratio 1.45 1.66

Profitability Ratios Analysis

G.P margin 4.56% 16.03%

Indication of very poor performance of the organization Decreasing every year Just because of cost of services

Net loss margin (20.34%) (17.04%)

• Extremely poor performance of the organization • Due to Cost of Services, operating expenses and Finance cost

Profitability Ratios Analysis

Return on Capital Employed: (32.60%) 3.20%

• Extremely Unfavorable• PIA is not utilizing its Assets to generate Revenues properly • Just because of Cost of Services

Return on Assets: (9.09%) 1.12%

• Extremely Unfavorable• Assets are not being utilized• Due to heavy costs

Financial Risk Ratios Analysis

Capital gearing Ratio: 401% 430%

• Highly Unfavorable• Debts are 4 times to Equities• Highly financial Risks

Debt Ratio: 130% 119%

• Highly Unfavorable• risks in terms of its Debt-Load • Major part is the Current Liabilities

Financial Risk Ratios Analysis

Interest Cover: (1.56) 0.21

• Unable to meet Interest expense obligations• Questionable this year• Due to heavy operating losses

Recommendations and Financial Strategy:

Overstaffing at PIA due to Political pressures Reduce staff to avoid heavy salaries Utilization of Assets properly Must increase G.P to avoid losses Finance Costs

Should privatize supporting staff duties to lower down the cost

Operate flights on time Needs exemplary leadership Qualified and merit based staff and Technically strong administration

Recommendations and Financial Strategy:

Conclusion

Flag carrier of Pakistan One of the largest and oldest airline of the

region Glorious past and it has helped many leading

airlines of the world Its performance has suffered dramatically due

to many factors like, political pressure, nepotism, corruption, over employment and many other factors

Conclusion

The Airline is going in continuous loss since 2004

These mentioned steps are some points which may help PIA to regain its lost glory and to become profitable once again. But for this the whole organization has to be redesigned and its organizational needed to be changed and unfortunately it is not possible under the current regime and system, hence in the near future there are no chances of improvement in the organization.