Vol. 5 Num 1094 Fri. June 29, 2007  

Plans to salvage Biman: A drift off-course

With 10 days to go before Biman turns into a Public Limited Company, a high-powered inter-ministerial meeting was held on June 20, chaired by the Adviser for Civil Aviation and Tourism, Mr. M.A. Matin. According to the reports published in a number of national dailies on June 21, the meeting confirmed that Biman Bangladesh Airlines would be renamed as Bangladesh Airlines Limited. It also confirmed a number of decisions which raised eyebrows, and quite understandably so, in search for answers that would make some sense.

It hurts to keep the eyebrows raised for too long, so I will just ask the five questions I have and wish upon a star that someone answers them soon!

First, Biman is being restructured, and is being turned from a Corporation into a Public Limited Company without completion of a full-fledged, comprehensive audit. This will invariably entail a long-enduring complication in the future, as the board of directors gets reconstituted, with a new set of objectives, and adopting a new pattern of management. How could the decision-makers sitting around the table overlook the cost of such a lapse?

Newspaper reports mentioned that, once restructured, the airline would begin from square one, and that the government of Bangladesh would take full responsibility of all its accumulated liabilities. Without a comprehensive audit, it will be impossible to ascertain the actual figure of the liabilities, and the actual value of the assets that will be transferred to the new entity.

Second, the new draft proposal suggested leaving 100% ownership of the airline with the government, until the time when the airline becomes profitable, when the government will offload 49% shares to the private sector.

Firstly, as optimistic as I am, I am of the belief that it will be extremely difficult (read: impossible) for our government (political or otherwise) to ever make the airline "profitable." This is simply because our government, because of its own limitations, will not be able to ensure the level of efficiency, in the foreseeable future, that is required to run an airline profitably in today's world.

Secondly, even if we hypothetically assume that the government does indeed make the airline profitable at some point in time, why would it then want to offload shares to the private sector? Why would the Government want to let go of what is making money for it?

Third, it has been reported that the government, while owning 100% shares of the airline, and promising to keep the airline's management free from being under control of the ministry, will appoint a reputable international airline to run the new national carrier as its "operator."

Now, without any stake in the airline's ownership, what will motivate the operator to truly do its best for the airline? This concept could actually encourage the operator to do its least for the betterment of the airline, if there is a way to indirectly benefit its own airline outfit. The whole scenario could be like appointing a fox to guard the poultry farm!

Fourth, according to a number of reports in the press and the electronic media, the much-talked-about Voluntary Retirement Scheme (VRS) had not encouraged enough "voluntary" response, and many of those who submitted their applications were actually forced to do so, under the threat that if they did not they would eventually be laid off, and would then be deprived of the benefits they are entitled to.

On another note, it has been reported that the Managing Director of Biman, Dr. MA Momen, has said that those who were "indispensable" for Biman would not be allowed to leave, even if they submitted their applications under the VRS.

I fail to comprehend this double standard. If some people are not required at Biman, they can simply be handed over their benefits along with a polite letter of appreciation, and be compelled to accept the retirement.

And why should Biman hold back those whom it finds indispensable, even when the person voluntarily submits his application under VRS? His tendering of the application means that the person has lost his passion to work for Biman, for whatever reasons. And an employee who does not have the real passion to work for the airline should not be held back at all. An uninterested skilled employee would not be anything more than an unskilled employee.

Fifth, Mr. M.A. Matin also said after the meeting that 7 to 10 directors, selected from secretary-level government officials, will form the new board of directors of the airline. I would like to reiterate what I mentioned in my previous articles, with due respect to the secretary-level government officials, that managing and operating a commercial airline profitably has not ever been, and will not ever be, their game.

If the government truly wants to keep the airline free from government control, why is it intending to keep 100% ownership to itself, and form the board with government officials? Like I suggested through my earlier articles, the new board should have a maximum of 2 secretaries, one each from the ministries of finance and civil aviation and tourism. Everyone else should be professionals from different sectors which are directly related to the airline business -- finance, travel, business, accounting, etc.

The World Bank is assisting with nearly Taka 300 crore for the golden handshake being executed in the form of VRS. This will help the airline streamline its manpower structure, which provides a great start. But it is the plan of action thereafter that lacks sense. Subject to scrutiny by more knowledgeable professionals from the airline industry, I have the following set of three suggestions:

  • The government should move all accumulated liabilities of Biman into a block account, and sell 51% shares of the airline to the highest-bidding, and eligible, investor (eligibility would include having substantial airline operation experience).
  • While selling off the 51% shares, and therefore allowing absolute legal control of management to the new investor, the government should also commit in advance that once it receives dividends (for its 49% stakeholding) equivalent to the amount of liabilities transferred to the block account, it would give away the remaining 49% shares to the investor as well.
  • This way, the government would get the money back, and the investor would be motivated to maximize profits to allow it to buy out the remaining 49% stakeholding at the soonest.
  • The government should amend the Air Service Agreements (ASA) with other countries, to allow the airline to operate more competitively. The airline should be entitled to preferential use of the ASA rights for a predefined stipulated period of time. This would ensure a failsafe, sustainable, business plan for the airline.

With this approach, the airline will be run by its own management, but the government would always have an indirect control over it, just like every other nation has over the airlines belonging to them.

While the government will earn dividends from its 49% stake holding, the Board of Directors will know what is going on. Even when the government sells its 49% shares, it will still be able to exercise a strong level of control through the Civil Aviation Authority of Bangladesh.

The current non-political government is in the best position to build a platform for the national carrier which can help it take to the skies in a manner bolder than ever before. The mad-rush to restructure the airline under the current plan will eventually take it nowhere better than where it is now. Let us not waste the opportunity we have in hand. Let us not drift off-course into nothingness.

The author is an aviation industry consultant.