Case Study: Pakistan International Airlines - Future of the CFO & Finance Function
Presentation by Khalilullah Shaikh, CFO, Pakistan International Airlines | November 2, 2020
About Pakistan International Airlines
- Formed in 1955
- Public sector entity - 94% government owned airline
- Workforce: Approx. 11,000 people
- Operates in the Middle East, Far East, Europe, North America
- Routes to 25 international destinations and 19 domestic
Pakistan International Airlines (PIA) was successful up until the late 90s, but began to decline in 2000, largely as a result of aviation policy issues, frequent changes in management, interference of unions and poor decisions.
After a failed attempt to privatize the airline in 2015, the new government in 2018 put in place a new management team to improve the airline’s performance with a new strategy to first fix and transform PIA, and then plan for privatization.
Khalilullah Shaikh joined the leadership team as Chief Financial Officer in early 2019. His main challenges included dealing with:
- Weak capital structure
- Liquidity crisis
- Pending statutory audits
- Poor network planning and fleet constraints
- Demotivated workforce/talent retention
- Discipline & accountability issues
- Associations & unions exerting undue influence
- Aviation policy issues
Business turnaround strategy
The new management team developed a 5-year business plan and turnaround strategy, with finance playing a pivotal role in its development. 2019 was the first year of the plan and focused on strengthening governance, recognizing that no strategy would succeed without a foundation of good governance and the right culture. Priority actions taken included embedding a culture of merit and performance with over 1,000 promotions awarded, while at the same time instilling discipline through more than 700 disciplinary actions.
Accountability and performance were also improved by connecting department performance KPIs to the overall organization performance matrix. Breaking silos within the organization structure was a huge challenge, which was addressed through collaboration with HR to set up cross functional project teams and develop team performance matrices, where individuals’ performance outcomes were linked with team outcomes to promote a strong culture of team work.
To bring credibility to the finance data and to be able to use it to inform the transformation, management worked with the auditors to resolve financial reporting issues and outstanding audits and addressed issues with the ERP system.
The second year of the plan was centered around a principle of consolidation to ensure changes were fortified to become part of the DNA of the organization. From year 3 onwards, the focus will shift to growth.
To transform the finance team, key actions taken included:
- Strengthening the finance team by hiring more professional accountants. PIA’s finance team went from having several professional accountants in key reporting and controller roles in 2011 to very few in 2019. Hiring more professional accountants helped address compliance issues, as well as improve the internal control environment and help increase the function’s business partner role.
- Job rotations and reorganization.
- Providing training for over 50 finance team members. Working with the training department, a training program was developed for the finance team, covering areas from ERP and data analytics to soft skills such as communication, collaboration, negotiation and dispute resolution.
- Focusing on building trust and collaboration, including
○ Trust of business users on finance
○ Trust on data – bringing together commercial heads and the finance team to understand, across the organization, the various systems to capture data and calculate metrics. This provided comfort across teams as to the accuracy and reliability of the data and insights being used to make decisions.
○ Encouraging an inquisitive and challenging mindset – for finance to play a leadership role in the business transformation, it is important that they challenge and break the status quo.
Example: Optimizing Route Profitability
To understand route profitability, finance, in coordination with the commercial team set up ‘Route Diagnostic Labs’ to analyze each route, examining cost drivers, revenue drivers, competitors and benchmarking. Using simulation models, the team sought to understand why particular routes were not performing well and determine whether any actions could be taken to improve profitability or whether a route should be closed.
Outcome: 6 routes closed, 7 new routes opened, 20% of routes that were underperforming in 2018 became profitable in 2019.
In 2019, PIA began to recover financially with passenger revenues up by 42.5%, a seven-fold increase in charter revenue, passenger yield increase of 32% and cargo yield up 19%, and a gross profit (for the first time in 8 years) of Rs.7.8bn.
Aviation industry across the globe has been badly hit by Covid-19 pandemic. PIA took early actions from February 2020 before many of the global shutdowns began, which include:
- Developing a ‘cash ICU’, engaging with financial institutions, major vendors and suppliers to pre-empt and manage cash flow crisis better.
- Operating early repatriation flights. In total 300k Pakistanis have been repatriated, many from regions PIA had not previously flown to.
- Quickly shifting to remote working.
- Adoption of strict operating procedures to ensure passenger and crew safety.
In the wake of the COVID-19 pandemic, PIA will continue to face a very challenging and uncertain environment. Priority areas of focus will remain on cash flow management, motivating and retaining talent, and improving product and service quality and safety.
This was a presentation to the IFAC Professional Accountants in Business Advisory Group during their September 2020 meeting. See here for the full meeting report: Accountants Supporting Sustainable Recovery