Pia

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“One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man”.

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Pakistan International Airlines is Pakistan’s national and international

AIRLINE . Eventually, on March 11 of 1955, Orient Airways merged with the

Government's proposed airline, becoming Pakistan International Airways. In

March of 1960, PIA became the first Asian airline to enter the jet age when

Boeing 707 service was introduced. In 1978, the airline bought their first

747 aircraft, which have since become a staple of the airline's fleet. In

1996, the airline leased Tupolev Tu-154 planes, and re-opened services to

Beirut International Airport in Beirut, Lebanon.

Pakistan International Airlines (also known as PIA), is Pakistan’s

national and international AIRLINE . Its IATA call code is PK. In Pakistan its

initials are sometimes jocularly said to stand for "prayers in air".

History:

PIA

can trace its beginnings to the days when Pakistan still wasn't a nation. In

1946, Muhammed Ali Jinnah, also known as founder of Pakistan, realized the

need of an airline network for the forming country. He called upon the help of

an experienced industrialist, Mr. M.A. Ispahani.

On October 23 of 1946, Orient Airways was set up, registered in Calcutta. In

February of 1947, three DC-3 airplanes were bought from a company in Texas,

and in May of that year, the airline was granted a license to fly. Services were

started in June, from Calcutta to Akyab and Rangoon. This was the first post war

airline flight by an Indian registered airline company.

Two months after this service began, Pakistan as a nation was formed. Orient

Airways began relief flights to the new nation, and soon after, it moved

operations to Karachi, where it began the important route from Karachi to

Dacca. In addition, their initial domestic route in Pakistan was established, from

Karachi to Lahore to Peshawar, and from Karachi to Quetta to Lahore.

Due to increasing passenger demand, the airline increased its fleet before the

end of the 1940s, and this caused financial trouble to the airline. The

government of Pakistan, realizing the operation was failing economically, asked

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the airline to merge into a new, national airline that the government was

planning on creating. Eventually, on March 11 of 1955, Orient Airways merged

with the Government's proposed airline, becoming Pakistan International

Airways.

History Overview:

The first airline from an Asian land country and the first airline from a

Muslim country to fly the Super Constellation

The first Asian airline to operate a jet aircraft.

The 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).

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

The first airline in Asia to induct the new technology Boeing 737-300

aircraft.

An IBM 1401, the first computer in Pakistan, was installed in PIA.

The first airline to introduce a second route to People's Republic of China

over the mighty Karakoram mountains.

The first airline in the world to operate scheduled helicopter services

The first airline to show in-flight movies on international routes.

PIA set up Pakistan's first planetarium at Karachi.

The first airline in South Asia to introduce auto-ticketing facility.

First Asian airline to start flights to Oslo, the beautiful capital city of

Norway.

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Boeing 747-300 6

Boeing 747-200 4

Boeing 777-24ER 3

Airbus A-300-B4 6

Airbus A-310 12

Boeing 737-300 7

Fokker F-27-200/400 8

Twin Otter 2

Total Aircrafts PK Airways Contains = 48

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MISSION

Considering its mission statement to be a world class airline with a

distinctive Pakistani character, that is customer driven and caring

employer, Pakistan International Airlines is committed to providing top

quality service and endeavors to achieve total customer satisfaction.

Therefore we, at Customer Relations Division,look forward to receiving

from our customers their comments and suggestions regarding any

aspect of Pakistan International Airline Services.

It is our belief that comments and suggestions made by our valued

customers are of a vital information source, which enable us to

evaluate the services and to take appropriate measures for

improvement. Ultimately, this will lead us to achieve our mission.

We hope that Pakistan International Airlines will always acquire your

confidence every now and then.

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“. . . Man is still the most extraordinary computer of all.”

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Various ratios are used by managers and investors to analyze and forecast the profitability and efficiency of a company. Listed in this section are the ratios used for the financial analysis of Pakistan International Airlines.

Ratio Analysis

Financial Statement Analysis uses a primary tool a ratio which relates two figures applicable to

different categories.

Without ratios, financial statements would be largely uninformative to all but the very skilled. With

ratios, financial statements can be interpreted and usefully applied to satisfy the needs of the reader.

In order to assess the performance of a business, it is necessary to analyse and interptret the business

final accounts. Analysis involves a detailed review of the information provided in the final accounts.

The results of this analysis are interpreted to assess the performance of the business. This may

include a comparison with previous years, a comparison with targets or budgets, or even a

comparison with other similar businesses.

For comparison to be meaningful, it is used to express results in terms of accounting ratios. The

wording accounting ratios is used to describe all the calculations involved in interpreting accounts,

even though some of the calculations are expressed in terms of percentages & time periods

Users of Ratios: There are vast numbers of parties who are interesting in analyzing financial

statements, including share holders, lenders, customers, suppliers, employees, government agencies

and competitors.

Ratio Analysis is a first step in assessing an entity. It removes some of the mystique surrounding

the financial statements and makes it easier to pinpoint items which it would be interesting to

investigate further.

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Short Term Liquidity Ratios for Pakistan International Airlines.

Objective

To measure the solvency, or the ability, of Pakistan International Airlines to

meet its short-term financial obligations and to assess the liquidity, or the

ability, of PIA to convert current assets to cash to reduce current liabilities.

The Ratios

The most widely used financial ratios for establishing the short-term liquidity of

a company are highlighted in the below chart.

The short-term liquidity ratios are used in the evaluation of short-term liquidity

to convert current assets into cash in order to reduce the financial obligations of

the company as they become due. These ratios are particularly significant to

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the creditors and potential lenders of a company because they determine the

ability of that company to meet current payments of a debt.

Quick Comparison

Financial Ratio 2005 2004

Current Ratio 2.657 2.038Quick Ratio 1.415 1.781

Financial Ratio 2005 2004

Current Ratio 1.932 1.817Quick Ratio 0.893 0.865

Analysis

As shown in the above comparative table, Pakistan International Airlines short-

term liquidity has various over the past decades and has consistently remained

below a 2:1 ratio, which could be perceived as less than optimal. The quick ratio

also has remained under 1:1, which is considered to be the benchmark value for

this ratio. However, relative to the Finn air airlines, Finn air airlines has

maintained a higher current ratio and PIA’s quick ratio has remained Lower than

its competitors. These trends indicate PIA has been in a poor position than its

competition to meet its short-term financial obligations.

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Financial Leverage Ratios for Pakistan International Airlines.

Objective

To apply ratio analysis to assess the debt levels of Pakistan International

Airlines.

The Ratios

The most commonly used ratios by financial analysts for determining the long-

term solvency of an entity are shown in the following table:

Financial Ratio Numerator Denominator

Debt-to-Equity Total Debts Equity

Debt-to-Total Assets Total Debt Total Assets

These ratios are used for solvency evaluation. The main focus of these ratios is

the entity’s ability to repay long-term creditors. Both creditors and shareholders

are equally interested in these ratios. Typically, these ratios should be as low as

possible. These ratios indicate the entity’s ability to withstand relatively sour

business conditions without suffering net losses or insolvency. Although, these

ratios should not be taken at face value since they are dependent on many

factors, these ratios are most useful for making apple-to-apple comparisons in

the industry.

Quick Comparison

2005 2004

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Financial Ratio

Debt to Equity 1.992 1.792Debt to total Assets 0.435 0.308

Financial Ratio 2005 2004

Debt to Equity 1.205 1.556Debt to total Assets 0.515 0.608

Analysis

As evident from the above table there is a decreasing trend in all of the above

ratios from December 2004 to September 2005. This shows the Decreasing

Trend of PIA and this shows the poor ability of the entity to meet its long-term

obligations unsuccessfully with being in danger of encountering net losses or

insolvency. In short this above table shows that the PIA is totally dependent on

the debts.

Profitability Ratios for Pakistan International Airlines.

Objective

To determine the profitability of Southwest Airlines using various financial ratios.

The Ratios

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Profitability ratios are used in an effort to evaluate management’s ability to

monitor and control expenses and to earn a profit on resources committed to

the business. The ratios assess Southwest Airlines’ strengths and weaknesses,

operating results and growth potential. These ratios are used to measure how

efficiently the assets are being used to generate net income and sales. The

higher the ratio, the more effectively a company is using their assets. The ratios

also allow comparison of the profitability of Southwest Airlines to that of similar

airlines within the industry.

Listed in the table below are the primary ratios used to determine profitability Ratio.

Financial Ratio Numerator Denominator

Gross Profit Gross Profit Net salesNet Profit Ratio Net profit Net sales

Operating Profit Ratio EBIT Net sales

Quick Comparison

Financial Ratio Sep.2005 Dec.2004

Gross Profit 64.92 % 62.53 %Net Profit Ratio 43.67 41.45%

Operating Profit Ratio 49.86 % 47.55 %

Sep.2005 Dec.2004

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Financial Ratio

Gross Profit 99.2 % 56.%Net Profit Ratio 2.558 % 0.290 %

Operating Profit Ratio 3.87 % 0.65 %

Analysis

Gross profit and gross profit percentage are used to assess whether the profits

will cover operating expenses. The gross profit rate has remained unstable in

the periods. Pakistan International Airlines has a relatively Low gross profit rate

this year, primarily because of High operating costs. High operating costs is one

of the main threats for this firm, “By keeping costs High, we can’t keep our

fares low. This, in turn, gives customers to fly with other Airlines.”

Activity Ratios for Pakistan International Airlines.

Objective

Activity ratio are used to determine how quickly various accounts are converted

into sales or cash.

The Ratios

Financial Ratio Numerator Denominator

Receivable turnover Credit sales ReceivablesPayable turnover Credit Purchases Payables

Inventory Turnover Cost of Goods Sold Average Inventory

Over all the Liquidity ratios generally do not give an adequate picture of a

company’s real liquidity, due to differences in the kinds of current assets and

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liabilities the company holds. Thus, it is necessary to evaluate the activity or

liquidity of specific current accounts.

Quick Comparison

Financial Ratio 2005 2004

Receivable turnover 10.27 times 9.88 timesPayable turnover 3.53 2.08

Inventory Turnover 58.93 56.54

Financial Ratio 2005 2004

Receivable turnover 6.29 times 7.64 timesPayable Turnover 0.225 0.278

Inventory Turnover 43.28 46.95

Analysis

Pakistan International Airlines contains a nominal Debtors turnover change from

previous year. PIA can turn its accounts into sales 9.88 times but if we compare

it with Finn Air then we will find that Finn Air can turn its debtors into sales

faster than PIA.

The total asset turnover of PIA increases and it is a positive response as assets

are utilizing more significantly by the organization. If we compare with the Finn

Air then they are also utilizing their assets. Both company’s use to assets are

comparatively good.

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Interest Coverage Ratios for Pakistan International Airlines

Objective

The interest coverage ratio reflects the number of times interest expense is

covered by earnings or cash flows.

The Ratios

Listed in the table below are the primary ratio used to determine Interest

Coverage Ratio.

Financial Ratio Numerator Denominator

Interest coverage Ratio EBIT Interest charges

The ratio reveals the magnitude of the decline in Income that a firm can

tolerate and still be able to meet its interest payments.

Quick Comparison

Financial Ratio Sep.2005 Dec.2004

Interest coverage Ratio 0.617 1.051

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Financial Ratio Sep.2005 Dec.2004

Interest coverage Ratio 24.85 5.4

Analysis

The decline in interest coverage from 2004 to 2005 is a negative indicator for

Pakistan International Airlines. This drop in the ratio in the second year would

be of concern to creditors, but if we compare it with Finn Air then we will find

that Finn Air has increase in Interest Coverage Ratio from 2004 to 2005 is a

positive indicate.

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Summary of Financial Ratio

Ratio FormulaDec. 2004 Sep.2005 Evaluation Trend Dec. 2004 Sep.2005 Evaluation Trend

NWC Current assets – Current Liabilities 0.0092 (0.093) Deteriorated 0.006 0.012 ImprovedCurrent Current Assets / Current Liabilities 1.038 0.657 Deteriorated 1.017 1.032 ImprovedQuick Cash + Cash Equivalent

+Receivables / Current Liabilities0.415 0.781 Improved 0.465 0.493 Improved

Debt equity

Total Liabilities / Shareholder Equity 3.946 3.792 Improved 1.556 1.605

Debt T.A. Total Debt / Total Assets 3.308 4.817 Deteriorated 0.608 0.615Total Capitalization

Total Debt / Total Capitalization 1.039 1.054 Deteriorated 0.437 0.445

Debt Ratio Total Liabilities / Total Assets 0.789 0.773 Improved 0.609 0.616Gross Profit Gross Profit / Net Sales 15% 08% Deteriorated 100.096 % 99.2 %Net Profit Net Profit / Net Sales 02 % (6.7 %) Deteriorated 0.290 % 2.558 %O. Expense Operating Expense / Net Sales 102.6 % 97.9 % 102.6 % 97.9 %O. Profit EBIT / Net Sales 04 % 03 % 0.65 % 3.87 %Debtors T.O. Credit Sales / Receivables 10.27Time 9.88 Time 2.01 Time 1.80 Time

T. Asset T.O Net Sales / Total Assets 2.08 3.53 0.278 0.285NWC T.O. Sales / Net Working Capital 56.54 6.80 8.80 19.30Interest Coverage

Operating Income / Interest Charges 1.051 0.617 5.40 24.85

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Horizontal analysis is used to evaluate the trend in the accounts over the years

“The real danger is not that computers will begin to think like men, but that men will begin to think like computers”.

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Stages of Group Development

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Stages of Group Development

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There are five stages for group development

Forming stage

Storming stage

Norming stage

Performing stage

Adjourning stage

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“The scientific theory I like best is that the rings of Saturn are composed entirely of lost airline

luggage”.

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External conditions are imposed on a work group.

There are external conditions which influence the

performance of the groups in Pakistan International

Airlines.

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Toward Explaining Work-Group Behavior.

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In PIA group’s performance are predicted by

assessing the knowledge, skills, and abilities of its

individual members.

Group Member Resources

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All groups have norms “acceptable standards of

behavior that are shared by the group’s members.”

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Norms tell members what they ought and ought not to

do under certain circumstances

Group Structure

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Group Processes

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