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Reference dated 7-6-2004 "“ Irregularities in Purchase of Boeing 777 Aircrafts - PIA

To: The Chairman
National Accountability Bureau
President's Secretariat

Pakistan Peoples Party .....COMPLAINANT


General (Retd) Hamid Nawaz, Secretary Defence, Government of Pakistan

Ch. Ahmad Saeed, Managing Director, Pakistan International Airlines Corporation

Air Vice Marshal (Retd) Niaz Hussain, Deputy Managing Director PIAC and Others

Subject :
Complaint under section 5 and 18 (b) sub section "“ ii of the NAtional ACCOUNTABILITY BUREAU (NAB) ORDINANCE 1999 against the holders of public office for punishment under Section 10 of NAB Ordinance for causing huge finanacial loss to the national exchequer by corruption and corrupt practices

The respondents in this complaint fall within the ambit holder of public office as defined in Section 5 of the NAB Ordinance and are liable for punishment by he court of competent jurisdiction under the NAB Ordinance.

The respondents are reportedly guilty of corruption and corrupt practices as defined in Section 9 of the Ordinance and as such are subject to punishment under Section 10 of the Ordinance based upon the following facts and grounds:

Facts and Grounds:
South Asia Tribune (http://www. satribune. com/archives/ apr25_may1/ P1_pia.htm) reveals that top bosses of PIA Pakistan National carrier are totally making false misleading claims about PIA deals particularly recent purchasing of B"“777 aircrafts from US. The Company's document finds mention that the Chairman and others Executives repeatedly claim that PIA has not purchased any aircrafts. And now the Parliamentary Secretary for Defence in the National Assembly on the floor of the House categorically stated that PIA owns B-777 aircrafts. Whereas factually Texila limited, Cayman Islands Firms which was set up on 4 December 2003 just 11 days before the signing of the deal with PIA has only one shareholder who has invested just only one dollar to become its owner, whereas the entire shares of capital of Taxila Ltd is Dollar 250 divided into 250 shares of one dollar each and the only share holder Maples and Calder Inc the law firm based in Cayman Islands has singed all the agreements to lease the B-777 Aircraft to PIA. Thus PIA has leased the three aircraft through a "Master Leased Agreement" with Taxila Ltd for 12 years which also negates the claim of purchase of B-777 aircraft. Apparently there is contradiction whether B-777 aircraft have been purchased or leased by PIA which needs investigation in the better interest of the country.

Respondent No. 3 was originally appointed as Director PIA and was promoted as Deputy Managing Director who also enjoy the status of Direction Engineering, Director Finance, Director Stores and Director Procurement at once who in one go raises demands, select the goods decides the price, places the order and makes its payment and deal is done. The latest audit report for 2003 issued by Yousaf Adil Saleem and Co. and Taseer Hadi Khalid & Co. Chartered Accountants issued on 25 March 2004, sent to PIA Boards of Director reveals, apparently PIA has total inventory of spares and commercial stores valued at over rupees 10 billion about US $ 175 million which in access of the consumption and high amount was spent for procurement for the aircraft that are expected to be retired in the next few years.

The aforementioned facts apparently show that the respondents have intentionally and deliberately caused huge losses to the national exchequer and have also made contradictory statements regarding the purchase and lease of the air crafts and thus have committed offence of corruption and corrupt practices and liable to punish under the NAB Ordinance 1999.

Based on the above facts and grounds respondents have shown willful indulgence in corrupt practices under Section 9 of the Ordinance. Such persons are subject to punishment under Section 10 of the Ordinance.

As such the Chairman of the NAB is called upon to initiate investigation in connection with the matters set out herein above and further proceed to file a reference against respondents for violating the provisions of Section 9 of the Ordinance punishable under Section 10 of the Ordinance in competent court of law and proceed against those concerned for violating Section 9 of the Ordinance.

Pakistan Peoples Party

Shah Khawar Advocate
Islamabad Dated : 7-6-2004

The Reference / Complaint is based on the source incorporated as under :

How Top Bosses are Bilking PIA, Under Official Supervision
Issue No 90, May 2-8, 2004 | ISSN:1684-2057 |
By M A Siddiqui

KARACHI: PIA Chairman Choudhry Ahmed Saeed is passing the buck of leasing the Boeing 777 aircraft and its associated scandals to the ex-chairman, General Hamid Nawaz, who is also the Federal Secretary for Defence.

According to PIA sources, Saeed is under a lot of pressure as the independent media and the Opposition members of the National Assembly have started asking a lot of questions about the B-777 deals but the latest explanation Saeed has given to his colleagues and political bosses is that the deal was signed by General Nawaz and not him.

"I am not responsible for the deal and if anything is not right, ask General Hamid Nawaz," Saeed has been telling Islamabad. When the deals were signed, Saeed was the Managing Director of PIA.

While it is technically true that the B-777 deals were signed during the chairmanship of a General of the Pakistan Army, the current Chairman is extracting the real juice from the deals.

Analysts are aghast at the weird corporate structure erected by Chairman Saeed which eliminates all checks and balances and gives unprecedented authority to his trusted cronies, especially in those areas where huge spending and buying is involved.

The most glaring example is of a favorite Director-turned Deputy Managing Director, who is practically the chief Procurement Officer, who places the orders for purchases, and as Director Finance himself releases the payments. He also keeps the procured goods under his watch.

This lucky man is Air Vice Marshal (Retd) Niaz Hussain, a man sent to PIA by the group of close friends of General Musharraf including his aide Tariq Aziz and Bridge buddy Brig (Retd) Niaz. The favored AVM was first inducted as Director Engineering, despite objections by the Civil Aviation Authority, then given the additional portfolios and then promoted as Deputy MD.

AVM Niaz is enjoying the status of Director Engineering, Director Finance, Director Stores and Procurement, all at once. In one go he raises a demand, selects the goods, decides the price, places the order and makes the payment. The deal is done. Chairman Saeed has refused to fill these posts now being held by this one man. There is no explanation why a Deputy MD has to perform all these tasks at the same time.

The result is millions of dollars of extra purchases by the PIA, as revealed by the latest Audit Report for 2003, issued by Yousuf Adil Saleem & Co and Taseer Hadi Khalid & Co, Chartered Accounts.

According to their report, dated March 25, 2004, sent to the PIA Board of Directors, PIA has a total inventory of spares and commercial stores valued at over Rs 10 billion (about US$175 million).

The entire Audit Report is now available here. Click to View the Report. Financial and Corporate experts are requested to review this report and send us their expert observations about irregularities and major jugglery of figures/accounting tricks resorted to by the PIA management. The other PIA documents will also be posted soon as they are over 60 MB in size.

"Our review of consumable stores and spares and commercial stores also revealed that actual consumption from the inventory has been insignificant as procurement has mostly exceeded the consumption," the Auditors noted in para 10.6 of their report.

They also noted an "unusually high amount of procurement during the year for some of the aircraft that are expected to be retired in the next few years."

The auditors become more specific in para 13.1 titled 'Segregation of Duties'. "In our previous year's management letter we mentioned that as a result of the reorganization, management of stores and spares, including their custody, procurement and physical inspection have been given to Director Engineering," the Audit Report stated.

And it added: "We consider that procurement and custody of stores and spares should not be under the executive who is responsible for consumption"¦We consider it as a serious weakness in the system"¦"

This Director Engineering is the same AVM Niaz Hussain who is also Deputy Managing Director, Director Stores, Procurement, Finance and Purchases --- the key handler of all matters juicy and lucrative. To make matters easy, the post of Director Stores and Procurement has been abolished by the Chairman, just in case someone gets ideas and wants to induct his own person. No major airlines in the world run without procurement and purchase directorates.

The auditors have raised scores of other objections to the systems prevalent in PIA. But the management is not ready to listen as the top management believes until General Pervez Musharraf and his close friends are in power, PIA will remain out of bounds for anyone in the National Accountability Bureau.

Aviation experts say in the price of a complete aircraft, like the B-777, the shell of the plane costs 55 per cent of the total while the rest 45 per cent is spent on interior equipment like seats, galleys, trolleys, video systems, carpets etc. It is these items which provide the maximum room for buyers to make big bucks, under the table.

In the B-777 deals, while the ex-Chairman General Hamid Nawaz signed the overall deal for the aircraft, all the rest of the equipment, or 45 per cent of the aircraft, purchases have been made by the present Chairman and his hand picked Directors, including AVM Niaz Hussain.

Probably because of the lucrative nature of these purchases, Chairman Saeed is aggressively pushing for refurbishment of all old planes, including Airbus 310 in which his men are trying to replace the expensive seats and TV monitors. This is where the cream is, they believe.

http://www.satribun apr25_may1_ 04/P1_pia. htm

The text is as follows:

Citibank controls all financial matters: Planes Leased
Secret Documents Reveal PIA Owns No B-777 Aircraft

By MA Siddiqui & Shaheen Sehbai

KARACHI/WASHINGTON: Top bosses of PIA, Pakistan's national carrier, are in a thick hot soup as more than 100 pages of top secret company documents, containing explosive information about recent PIA aircraft deals with Boeing and Citibank, have been leaked to the media by frustrated officials.

A set of these 118 pages, received by the South Asia Tribune, proves these politically appointed PIA executives have been making an utter fool of the ruling military Generals and the Pakistani people at large by making totally false and misleading claims about PIA deals, specially the recent "purchases" of Boeing 777 aircraft from US.

PIA has not purchased any aircraft, as repeatedly claimed by PIA Chairman and other executives, these documents reveal. Pakistan has actually paid US$ 150 million as 15 per cent of the down payment so that a One-Dollar company in Cayman Islands could own these aircrafts on behalf of the Citibank.

The B-777 aircraft, which PIA is now claiming to own, actually belong to Taxila Limited, a Cayman Islands firm, owned by the biggest law company in Cayman Islands with the financing and liquidity coming from Citibank North America (as Paying Agent), Citicorp North America being the Administrative Agent and Citigroup Global Markets Inc. as Placement Agent of the deal.

Taxila Limited, set up on December 4, 2003, just 11 days before the signing of the deal, has only one shareholder who has invested just one US dollar to become its owner. The entire share capital of Taxila Limited is $250 divided into 250 shares of one dollar each and the only shareholder is Maples and Calder Inc, the law firm based in Cayman Islands. Click to View Memorandum of Association Page1 | Page2

PIA has signed all agreements to lease the B-777 aircraft with this one-dollar firm. Click to View Intercreditor Agreement Page1 | Signature Page

"Basically Citibank controls all the corporate and financial strings. The footprints of Finance Minister Shaukat Aziz, now on leave from Citibank, are visible all over the deal," a former World Bank official who saw the PIA documents observed in Washington.

In effect, so far PIA has leased the three B-777 aircraft through a "Master Lease Agreement" with Taxila Limited for 12 years. The text of Master Lease Document has not yet been leaked to the media but it holds the answers to many key questions which now arise after all the wrong claims and misstatements made by the PIA bosses about the 777 deals.

Why has PIA been claiming that it has purchased the B-777 aircraft is an important question but the vital part of it is at what price the aircraft have been leased from Taxila Limited.

No resolution adopted by the PIA Board has authorized PIA to purchase the aircraft. The latest resolution circulated by PIAC Secretary Ghazanfar Mashkoor on December 9, 2003, authorizes and empowers PIAC "for the acquisition of 3 Boeing 777-200 ER Aircraft. Its clause (b) (ii) authorizes and empowers PIAC to sign a Master Lease Agreement with Taxila Limited. It nowhere mentions any purchase. Click to View Resolution

PIA Chairman Choudhry Ahmed Saeed has been blowing his trumpet worldwide that PIA had obtained a very favorable deal in buying the aircraft but it now becomes clear that PIA has not purchased anything. "If the deal was good, the buyer, which is Taxila Limited, has got the benefit and it is yet to be seen at what profit-added rate the same aircraft has been leased to PIA," a financial expert said.

The expert was asked to comment on whether there was any possibility of kickbacks and wrongdoing in the B-777 deal in view of the availability of the documents. According to his view the sale of the aircraft to Taxila Limited by Boeing was transparent and above board as US companies cannot offer any under the table kickbacks.

But the deal between Taxila and PIA could include anything as that was not covered by US laws and PIA could have agreed to pay any amount as lease to Taxila, which in turn could recycle some of it to anyone agreed upon, the expert added. This will only become clear when PIA releases the Master Lease Agreement with Taxila and when the document and rates are compared with the original sale price by Boeing.

PIA Chairman has claimed many a time that he paid $105 per piece for buying each B-777. But already the documents reveal that EXIM Bank of USA had issued a guarantee of $351.3 million for the first three B-777. The net contract price for the 3 B777-200ER is: $422,410,685. So each of the three aircraft will cost $140,803,561. Exim's Guarantee Amount is (85% of net-net prices) or $351,313,900. Click to View EXIM Letter Page1 | Page2

The documents available with South Asia Tribune include a 34-Page Intercreditors Agreement between PIA, Taxila Limited, Citibank and other companies providing financial and corporate support.

Other leaked documents include a 23-Page PIA Guarantee between all these parties signed on December 15, 2003, 10 pages of PIA Board of Directors resolutions giving the go-ahead of the deal, , a 25-Page Guarantee issued by the Export-Import (EXIM) Bank of USA on February 20, 2003, a 15-Page Participation Agreement between Taxila Limited, Citibank et al as one party and EXIM Bank as the other, the Incorporation Certificate and Memorandum of Association of Taxila Limited filed in Cayman Islands, a State Bank Letter, and a 3-Page letter by Boeing written to PIA.

Surprisingly even members of the PIA Board of Directors were not informed about the details of the deal and they had no clue about Taxila Limited, the offshore company owned by Maples and Calder which owns the
B-777 aircraft, until February 26, 2004 when the PIA Board met for its 276th meeting, even after the first plane had been delivered. All the resolutions of the Board were approved by the management through a system of "Circulation" which is another way of avoiding any serious discussion about the agenda.

The confidential notice of the 276th PIA Board of Directors meeting on February 26, 2004, issued by PIAC Secretary, Ghazanfar Mashkoor, on Feb 17, stated clearly that "some Board members, whilst signing the aforementioned Resolution had desired for a briefing on Taxila Limited as Lessor in the Participation Agreement, Master Lease Agreement and Intercreditor Agreement.." Click to View Letter

The most striking revelation has been made by the Boeing Company itself, admitting that the B-777 delivered to PIA earlier this year was not up to the required specifications and PIA had expressed concerns about the quality.

In a letter addressed to General Manager, Fleet Planning of PIA, on February 13, 2004, Boeing's Attorney-in- Fact, who signed the letter, admitted that the first B-777 delivered to PIA earlier this year "does not meet the configuration requirements of the reference Detail Specification or with which PIA has expressed concern regarding the quality of the Aircraft."

"Resolution of such conditions will be accomplished by Boeing as described in the Attachment," the letter said but forbade PIA from making the Attachment public as "Boeing considers the commitments to PIA described in the Attachment to be privileged and confidential information. " But Boeing promised in the letter to meet its commitments and provide parts, service and labor free of charge. Click to View Boeing Letter Page1 | Page2 | Page3

South Asia Tribune will place the entire 118 pages on its web site next week after obtaining the point of view of PIA and other parties on the contents and meanings of these documents.

Overdue pending information from PIA
July 20, 2005

 A meeting of the Standing Committee on Defence and Defence Production was held on Wednesday 20th July 2005 at 10.00 a.m. in Committee Room No.1 Parliament House Islamabad. Senator Nisar A. Memon was in the Chair. The following attended the meeting.
 1. Senator Kamil Ali Agha    Member
 2. Senator Asif Jatoi     Member
 3. Senator Mushahid Hussain Sayed   Member
 4. Senator Mouhim Khan Baloch   Member
 5. Senator Naeem Hussain Chattha   Member
 6. Senator Farhat Ullah Babar    Member
 7. Senator Sardar Mahtab Ahmad   Member
 8. Senator Kamran Murtaza    Member
 9. Senator Mrs. Rukhsana Zuberi   Member
 The list of officers, who attended the meeting, is annexed.
2. The agenda before the Committee was as follows:-
 i) Overdue pending information from PIA;
ii) Contradictory information from PIA and CAA on the sale of six Air Buses;
 iii) Transparency issues
 iv) Specific questions raised by Senator Rukhsana Zuberi regarding
  Sale/lease of A300 B4 sent to PIA on 8th July, 2005.
 v) Reports on recent possible mid air collision between PIA and Air Blue.
 vi) Any other item with permission f the Chair.
3. The meeting started with recitation from the Holy Quran.     
4. In his introductory remarks the Chairman welcomed the Members and the participants to the meeting.  He informed that the Minister for Defence was busy in his constituency due to local bodies elections and would not be able to attend the meeting. He thanked the Ministry and the PIA Management for accommodating the change of date of the meeting at a short notice.  He pointed out that at times the Members go into detailed scrutiny of certain issues, which is part of Parliamentary oversight function of the committee. The Committee has no audit functions but when public funds are involved the Committee does come into the picture.  Members of the Committee can seek information about an organization and bring it up before the Committee.  The Chairman thanked PIA for sending the working paper on time but it has to be seen whether the queries raised by the Members have been replied. The Chairman informed that requisitioned meeting which was delayed will now be held tentatively on the 6th of August 2005 and the visit to Siachin will be scheduled after the impending Senate Session.  Thereafter he opened the floor for discussion and invited Senator Mrs. Rukhsana Zuberi, to raise questions that she may have.
5. Senator Mrs. Rukhsana Zuberi stated that in the last meeting held on 24th May 2005, Chairman PIA had declared that the main reason for disposing off A300 B4 Air Craft was safety. Since that statement was made before the Committee it is for the Chairman to say that the statement was incorrect.  The Chairman did not agree to this.
6. Senator Farhat Ullah Babar stated that he had a question pertaining to GPS.  PIA Management says that GPS equipment was not removed from A300 B4 so as to keep Air craft airworthiness certificate valid.  His objection was that in the meeting of 24th February 2005 held at PIA headquarter Karachi the then Chairman PIA had made a categorical statement that GPS equipment will be removed from the said planes.  Now the Management are taking a position that if we remove the GPS we will have to install INS equipments which is far more expensive. He stated that he agreed with the latest statement but there seems to be lack of transparency. 
7. Senator Mouhim Khan Baloch commended Chairman PIA for reducing fairs.  He asked the management to look into the reservation problem of Parliamentarians since at the time of reservations they are generally kept on waiting list and a short while before the flight they are informed to take the flight.  He stated that as Parliamentarians they should be treated on priority basis and not left to languish in the departure lounge.  He also raised the issue of PIA Service between Gwadar and Sharjah which was promised at the meeting in Karachi but has still not materialized.  He further informed that people of Balochistan get visas for performing Umra but do not get seats on PIA to travel to Jeddah. He demanded that flights between Balochistan cities and DG Khan / Multan may also be started for the convenience of businessmen from Balochistan. Regarding flights between Islamabad and Quetta he stated that since there is no flight on Tuesday therefore a bigger aircraft may be operated on Wednesday so as to clear the back log of Tuesday.
8. Senator Sardar Mehtab Ahmad showed concern about the financial benefits ignored by PIA while selling A300 B4 and leasing in of A310.  The cost benefit of selling and leasing of the planes was not carried out on rational financial grounds.  He was of the view that the amount to be paid for leasing in air crafts for Hajj season is much higher than what PIA received by selling the 6 air craft.  As an example, he stated that PIA leased one engine to Tri Star for $ 1.2 million per year so what could be the revenue generated by PIA if it leased 12 engines and if the aircraft were sold in pieces?  PIA received $ 10.1 million for the 6 air crafts which comes to $ 1.683 million per plane. The difference between the  lease price of one engine and the total price of the Air craft is minimal. 
9. Senator Rukhsana Zuberi stated that the information provided by PIA management is incomplete and do not provide focused answers.  In the meeting of 24th February 2005 we asked for the grounds on which decision was taken to sell 6 A300 B4 air Craft and it was stated that the decision was based on feasibility report and the marketing plan prepared by the management.  She stated that the feasibility report despite numerous reminders has not been provided to the committee, which should be provided.  Senator Zuberi informed that the said report was not even placed before the PIA Board. She asked as to which components will go with the air crafts sold. Moreover, previously the management had stated that per seat cost of A300 B4 is more than per seat cost of A310 but now they have reversed that statement.  She informed that PIA is losing passenger business as the A310 has inadequate cargo space and most of the time an A310 is followed by a freighter which carries the passenger luggage. She also raised objection regarding annexure A, which compares the economic implications of retaining A300 B4 and leased A310. She said that several known expenses on A310 leasing have not been included. Moreover, leasing cost of 5 rather than 6 air craft is detailed.  Senator Zuberi also objected to the incorrect calculation of the fuel cost and no cost reported in �other cost�. Leasing of A310 PIA will entail buying spare engine which again is not reported and so is the training cost of crew and maintaining personnel, who are new to A310. Moreover PIA will have to buy a simulator for training of A310 crew or send them abroad for training, in both cases additional cost will be incurred.  Also PIA will have to buy inventory of part for the leased planes, which will further add up the cost.  She also questioned the difference in maintenance cost of Pratt Whitney and GE engines. 
10. Senator Rukhsana Zuberi added that the last meeting was closed on the statement given by Chairman PIA that passenger safety was vital in making decisions about sale of aircraft, she asked that if the sale of the air crafts was not based on the feasibility report, which was the earlier argument, what factors compelled PIA to sell A300 B4 and lease A310 air craft. Last time the Committee was told that PIA lost 4 A300 B4 air crafts during the last couple of years and that these were not safe. She informed that cracks in A300 B4 were detected by Airbus personnel and they had offered to fix them but apparently the opportunity was not availed.  About crash at Jeddah she said that one of the tires of that air craft was not sufficiently inflated and it burst on landing. On the other hand Boeing 777 is a new aircraft but there were five incidents of fire on those planes.  Moreover, one of the Air craft AP BEL was on dry lease which the PIA later bought.  She asked as to what price was paid for that Air Craft and whether any pre-delivery inspection was carried out on that aircraft. Was any assessment carried out to determine the reasons of buying this aircraft and ultimately selling it? Apparently that aircraft was bought to be sold.  Senator Zuberi further stated that the tender document of A300 B4 do not mention GPS equipment being offered as the aircraft is already installed with LTN 92, which is a requirement for air worthiness. Then why the management argues that INS equipment has to be installed on these aircraft. At this point she presented the tender document to the Committee. The Chairman Committee stated that in the last meeting Chairman PIA had informed the Committee that the planes were being sold since they were not safe but now there are different statements. He asked DG CAA to give his position on the air worthiness issue. The Chairman committee asked the Management to explain the difference in the maintenance cost of the two engines and the other costs involved.
11. Senator Rukhsana Zuberi Continued and stated that the reply from the Management regarding leasing of one engine to Tri Star the possibility of selling these planes in parts is not satisfactory. She also asked why is it necessary to have test flights of A300 B4? Is it because maintenance work has been carried out on these planes? She preferred a response from CAA. Chairman Committee while summing up the questions of Senator Zuberi asked whether any comparison was carried out between a dry lease and wet lease and what is the concept of test flights of the planes being sold.  He further asked whether PIA can retain the air craft till the next Hajj and Umra season and then lease them out subsequently.  He asked whether an in house feasibility was carried out to look at this issue.
12. Senator Kamran Murtaza asked the following questions:-
(a) At the time when cracks were detected on A300 B4 planes what action was initiated by PIA Management to ensure that the aircraft are safe. 
(b) Since the air craft are air worthy why these cannot be used by PIA.
( c ) Since GPS is not being removed whether PIA is asking for extra amount from the buyer for this gadget. 
(d) The amount spent on the 6 planes sold on �as is where is basis�
(e) According to the sale agreement the law of England will apply in case of a dispute between PIA and MNG.  He asked why this clause was agreed to.
(f) Why the contract document is confidential?  Why not open it to people in related business.  
13. Senator Kamil Ali Agha was of the view that sufficient questions have been raised in the meeting today however his concern was issues pertaining to safety and asked why PIA supported the selling of these air Crafts. Senator Mushahid Hussain Sayed complimented Senator Zuberi for the thorough investigation and stated that she can become a good investigative reporter in the future.  He informed that recently he traveled by PIA to the UK and found that things have changed for the better.
14. Mr. Tariq Kirmani, Chairman PIA thanked the Committee for providing PIA management an opportunity to appear before the committee.  He assured the Members that whatever information is asked by the Committee will be provided but the only constraint is time factor, which has now been taken care of and the system for Senate and National Assembly has been streamlined.  Responding to the concerns of the Members regarding provision of incorrect information he said that there could be an oversight and the information was not withheld intentionally.  He informed that the previous business plan was inward looking and the management is preparing a new one presently.  DMD PIA stated that commitment about GPS was made by the previous Chairman as at that time the then Director Engineering supported by the Chairman had said that GPS will be removed. The Director was not well prepared on the subject.  Chief Engineer PIA stated that previously LTN 92 was installed on this plane but after 20 years LTN 72 was introduced in the market and was installed.  In 2001 when spares for this gadget were not available PIA opted for GPS.  The tender documents did mention that the planes are offered without GPS but this was wrong information.  Chairman Committee stated that Chairman PIA should look into this matter and the Committee will not go beyond this.
15 Senator Sardar Mehtab Ahmad said that he was not satisfied with the answer and why should only Chairman PIA look into the matter and restrain the committee from probing further.  How can a Director now say that the statement made by the previous Chairman was incorrect. The previous management was brought in to focus on restructuring but the new Chairman is also talking of restructuring.  He asked whether the previous management was carrying out restructuring on its own keeping in view the market conditions or through consultants. He demanded transparency in PIA affairs. 
16 Chairman PIA stated that there are commercial organizations owned by the government and they have to work on commercial lines.  When we operate commercially changes have to be made keeping in view the market conditions. A few years ago PIA hired a consultant and he advised to close down routes.  That was an inward looking approach. As an example he stated that 4 flights of a foreign Air line came into Karachi while 2 PIA flights to their destination when empty.  Will any new management worth its salt not look into what happened in the past and the results obtained from those policies. Senator Kamran Murtaza asked whether the new Chairman can take action against the previous Chairman. He suggested that the Committee should take action. Chairman Committee stated that the statement was made by the previous Chairman in the light of input from his technical team. I asked Chairman PIA to take action against the people who made wrong assessment and statement because he has the authority to do so. Senator Kamran Murtaza demanded that in that case the Committee should be informed about the action taken.  Senator Farhat Ullah Babar stated that the management has accepted that GPS issue happened inadvertently.  We should express our concern and the PIA management should share the enquiry report with the committee.  Senator Rukhsana Zuberi asked whether PIA had informed the bidders that the air Crafts were being sold on �as is where basis is� and whether they knew that the aircraft will be installed with GPS and new seats etc.  She of the view that if PIA gave these planes on wet lease it can get $ 2600 per hour for these. Chairman PIA responded that the Air craft were undoubtedly offered on �as is where is basis� but they have to be air worthy, which is mentioned in the tender document.
17. DG CAA stated that the Air craft were air worthy and their certificates were valid.  If the air craft are in storage for 60 days then test flights are necessary.  Secondly INS is necessary for air worthiness. Thirdly cracks in the body of the air craft have certain limitations and it can still fly.  The cracks on these air crafts were within these limitations.  Senator Kamran Murtaza asked Chairman PIA whether he was satisfied with the deal. The Chairman responded that there is no problem with the sale of these air craft and these should be dispensed with. The maintenance cost of old planes is very high and there are stringent inspection requirements.  These planes are uncomfortable and 4 out of 10 have crashed. PIA has signed a contract with Transparency International. We have merged all purchases into one department and will get discount on bulk purchases.  We have installed new software whereby in case we require a certain part any company around the world can approach PIA to provide the same at the nearest point.  Regarding the incidents of fires on Boeing 777 Chairman PIA stated that he called the Boeing people to enquire why this problem has recurred.  We were informed that there is a problem with some part which is being supplied by a company not approved by PIA.  Now this issue has been taken care of. Responding to question regarding application of British law in case of a dispute between PIA and MNG he stated that the former argued for applicability of Pakistani law while the latter insisted on Turkish law but ultimately  both sides agreed on a third country hence the applicability of British law.  
18. Senator Mouhim Khan Baloch stated that since PIA is a commercial organization it should have good planes, efficient staff, serve good food and charge reasonable fares.  Moreover many air hostesses who should be at home are still serving PIA.  Senator Zuberi added that the senior flying staff inclusive of the stewards be given other back office assignments. Chairman PIA responded that there is no consideration of age for air hostesses in PIA and if they can work satisfactorily they continue. Previously the Supreme Court reinstated some air hostesses that PIA had retired at the age of 45.  Menu is being improved.  Reservations appearing on the system are genuine and I have ordered that there should be no manual intervention in the system.  We will look into your demand for special reservation for parliamentarians but we do not want empty seats as these are perishable items.  There are no reserved seats on PIA for any office in Pakistan.  DMD is looking into the possibility of initiating flights form Gwadar to Sharjah.  The Civil Aviation laws of Sharjah require specific equipment on the Fokker operating to and from their airport.  Chief Engineer PIA informed that RMP-1 is required for arrival at Sharjah because Fokker cannot fly that accurately and since Sharjah and Dubai Airports are in close vicinity hence the requirement of this equipment.  DMD assured that this equipment will be on board soon and we will inform the Committee about the date for Sharjah flights.  Chairman PIA stated that we are trying to improve aircraft utilization time and given the existing fleet PIA has started flights to Singapore, Kuala Lumpur and Kenya.  We are buying and leasing additional planes and will start flights to DG Khan and Multan as well.  Presently we are flying back to back.
19. Chairman Committee asked about the replacement of F-27�s.  Chairman PIA responded that we have arranged finances and will get the new planes by June 2006. In response to Senator Mouhim Baloch question,   DMD PIA stated that Umra is handled by agents designated by Saudi Consulate and PIA is not involved.  Chairman Committee asked whether feasibility comparing A300 B4 and A310 planes presented to the Board. Mr. Rashid Hassan, Director Corporate Planning stated that the plan in question was not presented but the changed plan was presented to the Board.  Senator Rukhsana Zuberi stated that Board had given conditional acceptance to the sale of planes by asking the management to carryout a detailed study.  Chairman Committee asked Chairman PIA to look into this and ensure that the demands of the Board are met.  Senator Sardar Mehtab Ahmad stated that we have shown concern because public money is involved.  Chairman PIA responded that we borrowed from abroad and are repaying the amount while the Government is paying interest only.
20. Senator Kamil Ali Agha stated that even if the Government is paying interest only it involves public money.  Addressing the Chairman Committee he stated that you are withdrawing so many rights as Chairman. This is my first Committee where I have not spoken being on the treasury benches.  You are giving latitude to PIA whereas it is not giving any benefits to the public.  PIA management should tell us why fares on Lahore Islamabad section have not been reduced. We can take it up in the senate and request the Government to withdraw the monopoly of PIA on this route. There were many breach of privilege today which we did not raise. We are taking up things with stride because of the new Chairman.  Senator Rukhsana Zuberi stated that from the discussion it is clear that the decision of selling of planes was not based on safety or financial feasibility.  PIA should come up with all audited accounts and work out the expenditure being incurred on A300 B4 and A310 leased aircrafts. The management was asked to look into the feasibility of retaining A300 B4 for this year Hajj and Umra operations but they responded that PIA has limited slots at Jeddah Airport so they are leasing 747 which is a bigger aircraft. Senator Zuberi was of the view that the Management is not clear about the economics of Umra/Hajj operations therefore they cannot decide about using old planes.  Senator Zuberi also referred to the confusion regarding the sale of 6 planes whereas the information provided by PIA talks of 5 planes.  There was also some misunderstanding about the cost per seat of A300 B4 and A310 which was explained by Chief Engineer PIA and Capt. Adnan Haris.
21. Senator Kamil Ali Agha further stated that we should close this issue unless we find something new. PIA has a new Chairman and we expect that he will improve the performance of the Airline.  Senator Rukhsana Zuberi suggested that PIA management should give answers to the questions of the Members on oath.  Responding to Senator Kamil Ali Agha�s queries about not reducing fares on Lahore Islamabad section Chairman PIA stated that PIA does not monopolise this route. Private airlines do not operate on this route because it is not feasible at low fares compared to the cost of operation. Senator Sardar Mehtab Ahmad raised the issue of difference in quality of service provided to passenger traveling to the north of the country from the Gulf compare to those traveling to the South. Chairman PIA responded that all the customers are treated at par by PIA.  Senator Ali Agha tabled some news paper cuttings and asked Chairman PIA to respond to allegations raised therein and the action taken by the management on those issues.  Chairman PIA responded that we recalled station manager Manchester as he did not provide the service required of him and was absent at the time of the reported incident while Station Manager Sri Lanka was transferred due to complaints of his rude behaviour with passengers.
22. Lt.Gen (R) Tariq Waseem Ghazi expressed his deep sense of honour to be present in the meeting. He stated that it was not a deliberate effort to be away from the previous meeting.  This has been a valuable experience to me and I appreciate the interest shown by the Members.  If we have more people like this we can improve things. Unfortunately there has been an intimidating environment from both sides.  Committee feels that PIA is not responding adequately while PIA thinks that there are too many unnecessary questions. We are also interested in protecting the finances of the Government of Pakistan therefore, this kind of intimidating position. He was of the view that respondents must respond responsibly.  I think in the past PIA management has not been responsible. Chairman PIA should look into these issues and all office bearers must be equipped with right and proper answers.  Many a times we get request for an early reply and in such situations we cannot give you proper response.  He asked the Committee to be concerned with procedures and ensure that these are followed and there is no under hand deal. The Members concern is that a wrong decision was taken. He asked whether it was malafide or lack of credibility or a wrong route was adopted.  If the figures are incorrect please point them out rather than going into details.  As long as we can tell PIA management that your procedures need improvement we will have done our job.  If there is under hand deal this should be pointed out and we will enquire into it.  We will support Chairman PIA till such time that he delivers.  PIA will have to wake up or die its death.
23. Secretary defence informed that he has allowed private air lines to operate on routes they wanted and cautioned PIA to be competitive.  There is no protection or monopoly.  Secondly PIA is a public organization and is open to questions.  Some people in PIA at the senior level are not satisfied, rightly or wrongly, and provided this information.  If there are corruption issues we will come down on it very strongly.  We are negotiating with 40 countries for opening new destinations but we have not taken a decision on the same because we cannot compete.  We have asked the foreign airlines to bring Pakistan registered air craft so that they can hire our crew and maintenance facility.  He asked the Committee members to let the Board of Directors Question Chairman PIA on many of these questions.
24. Concluding the meeting Senator Nisar A. Memon thanked every one for participating very actively in the meeting. He also thanked PIA Management particularly for the patience that they showed in responding to all the questions that were put to them. He also appreciated the improvement in quality of the working paper provided to the Members. He was of the view that our responsibility is parliamentary oversight.  We are not here to micro manage any institution that falls under the jurisdiction of the Ministry of Defence and towards that end we ourselves have to check whether we are going in the area which can be termed as micro management. We felt it important that instead of bothering the organization we will decide as to where parliamentary over sight begins and where it ends.  We are cognizant and we are going to hold an internal discussion on deciding these limitations. My observation is that information from PIA has been coming in drops therefore this situation is persisting for the last more than one and half years. If the answers were given with full understanding questions would have been resolved and the committee would have moved further. 
25. Chairman Committee said that PIA is a public organization and is open to questions. PIA Management has to sort out its internal issues and solve problems of people who are dissatisfied especially at the higher level so that they stop providing this kind of information to the public. It comes as public involvement but more than that it emerges from your own internal dissatisfaction therefore, I am sure that on the one hand you have a vision which I think is a right one and on the other we would like to see that it is implemented.  Wherever the committee feels that there are issues of corruption we will come very hard on it. Transparency is very essential and it must have been witnessed that lack of transparency in the tender process was brought up vigorously.  PIA should provide the authentic comparison of expenses on A300 B4 and A310 leased planes along with original agreements to the Committee Members. The meeting for collecting this information will be arranged by Secretary Committee in consultation with PIA. Finally he stated that we will be protective of PIA because it is public a organization and with this sprit the Committee will move forward. Our interaction with PIA was crisp in terms of facts, comments and questions.  The Chairman closed the meeting by saying that nobody should take any personal offence if there were intrusive questions about PIA.
26. The meeting concluded with a vote of thanks to the Chair.
 (Drafted by Iftikharullah Babar, Joint Secretary)
Shahiq A. Khan           Senator Nisar A. Memon
Secretary Committee                                                         Chairman Committee

1.  Lt. Gen (R) Tariq Waseem Ghazi,         Secretary Defence
2.  Tariq Kirmani      Chairman PIA
3.  Air Marshal (R) Pervez Nawaz   DG CAA
4.  Air Cdre Shadab Hussain    PSIB (CAA)
5.  Zafar Ullah Khan     DAW (CAA)
6.  Muhammad Jahangir Khan    DOPS (CAA)
7.  Syed Farooq H. Shah     DMD PIA
8.  Mohammad Rasheed     DCP PIA
9.  Arif Majeed      DF PIA
10.  Mohammad Tariq Farooq    CE (Dev Engg)
11.  Capt. S. Adnan Haris     CPPS (PIA)
12.  Shahnawaz Rehman     DFM & A
13.  Qasim Rizvi      Chief Engr (Plg)
14.  Muhammad Younis     DS MOD
15.  Maj. (R) Abdul Karim Gill    SO Council MOD
16.  Iftikhar Ahmed Janjua     SO MOD
17.  Rashid Ahmed      C/R
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