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'Dusky deal' incurs loss of Rs60m to PIA: Report
ISLAMABAD - An internal audit report of Pakistan International Airlines (PIA) has disclosed that it suffered loss of about Rs60 million in what was termed a 'dusky deal' to sell off its spares inventory under a consignment arrangement.
- PUBLISHED: Tue 21 Nov 2006, 9:14 AM UPDATED: Sat 4 Apr 2015, 3:58 PM
The national flag carrier is in financial dire straits and has been regularly incurring massive losses. According to the details, PIA had entered into an agreement with a Hong Kong based company Messrs IAA Aerospace Group Ltd in September 2003 for the sale of its surplus inventory. The spare parts were of AB-300, AB-310, B-720, B-737, B747-200, Cessna, Twin Otter and DC-10.
Spares having a book value of about Rs 1500 million were delivered to the agent in United Kingdom, without any bank guarantee or stand-by Letter of Credit(LoC) .
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Under this consignment arrangement PIA was to get 80 per cent of the price the parts get sold at. As per the agreement Messrs IAA Aerospace Group Ltd was to furnish guarantee amounting to $833,333, which was equivalent to the minimum revenue target per annum given to the agent.
The audit report says parts were then illegally transferred by Messrs IAA Aerospace Group Ltd to another company Messrs IAA-UK Ltd, although the two never had any legal connection. The parts are now stored at the warehouse of Messrs IAA-UK without any legal documents for keeping the spares inventory. The transfer was never notified to PIA either, which originally owns the parts 'till they get sold.
Till December 2005, only 3.6 per cent of the total inventory could be sold. About 138,963 parts are still in the warehouse. An internal audit found out that the agent deceitfully withheld sale of parts worth over Rs6.6 million from November 2003 to February 2004. PIA was instead told that sale of parts began after February 2004.
Several other instances were noticed where parts were sold by the agent as PIA parts, but the credit was given to other suppliers. Subsequently from February 2004 to December 2005, the audit report says, it was found that in several cases material was sold and invoices raised, but either the invoices were under-paid or omitted from the payment list provided to PIA by the agent. It is estimated that this caused a loss of Rs 15 million to the national flag carrier.
Another loss of Rs15 million was incurred because the agent did not pay PIA's 80per cent share from the sale proceeds after August 2005. Besides, PIA also has to recover Rs1.8 million as interest on delayed payments during this period. Thousands of spares have been lost. There is no exact estimate of the resulting loss, although some put it at around Rs 15 million. The auditors after a comparison of surplus inventory sent by PIA with the inventory provided by Messrs IAA-UK revealed that 6,570 parts were missing.
PIA, it has been learnt, had on number of occasions requested for returning of some of the parts, which were required by the airline itself, but this couldn't materialise and the national flag carrier eventually had to buy those parts at much higher cost from the market to keep its jets flying. Spares worth Rs3 million had to be purchased due to lack of coordination and non-reconciliation of items lying with Messrs IAA- UK.
Messrs IAA-UK attributes extremely slow sale of parts to their poor condition, whereas one of PIA reports says that most of the items were being sold at higher rates than purchased by the airline itself.Physical inspection of the parts by the auditors revealed that the spares are in good condition and some of them had been procured on AOG (aircraft on ground) basis, on a price much higher than the normal market value, but never used. PIA Senior Vice- President - Procurement & Logistics Jawaid Shaikh, said that the case is now being referred to the airline's board for a final decision.