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Case-IBiman Bangladesh Airlines

Dr. Md. Fashiul Aliln:

IIistoryBiman Bangladesh Airlines (BBA) was established on 4 January 1972 under theBangladesh Biman Ordigance (Presidential Order No. 126). The initiative tolaunch the national flag carrier was taken by 2,500 former employees, includingi 0 Boeing 707 commanders and 7 other pilots of PIA- Pakistan internationalAirlines, who submitted a proposal to the government on 31 December 1971lollowing the independence of Bangladesh. The airline was initially called AirBangiadesh International but was later renamed Biman Bangladesh Airlines.Immediately after establishment, Biman started operations in February 1972,when a Douglas DC-3 that had seen action in World War Ii was given to theauthority as a present by the Bangladesh Air Force. Soon after, a Boeing 107 anda Fokker F27 Friendship aircraft joined the airlines fleet, allowing Biman tobegin intemational flights. In 1983 Biman Acquired Douglas DC-10 aircraft, andsuhsequently other planes such as the Airbus 310, Fokker F28 and BritishAerospace BAeATP. On January 31,2003 the airline recived 2 Boeing 737s. Asof 3 September 2009, after many changes, the fleet consists of i0 aircrafts.Biman has non-aviation enterprises, one of which is the Biman Flight CateringCentre (BFCC). a wholly owned subsidiary of BBA which was set up in I 989.The BFCC provides Biman's in-flight meals and is one of Biman's profitableoperations, supplying fooci to British Airways, Qatar Airways, Dragonair,Uzbekistan Airways and lran Air, along with casual orders fi'om other airlinesoperating into Bangladesh. The BFCC consumes 90o/o of the eggs and chickenfrom the Biman Poultry Complex, another profit-rnaking subsidiary of Bimanformed in 1976 and put into operation in November 1980 tcrear politry at farmsin Dhaka.In the first year ol operatiou. Biman operated 1.079 flights carryiug jttst over380,000 passengers. In the 2005-06 fiscal year, Biman carried 1.15 rnillionpassengers, a grorvth of 70% fi-orn the prer,'ious decade's average. Horvever, withthe rise of private dornestic caniers in Bangladesh, Biman's markei share for* Prrtbssor, Dapeurtnrcnt of ,llunagentertt Stutlies, Linit'ersih' of Chittagong, Bungludcsh.

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drrniestic passengers dropped by 35% over the previous ten years average, withonly 162,000 passengers travelling with Biman in the domestic sector in the2005-06 hscal year. During the same period, Biman reported its biggest annualloss of over uS$120 million (Tk. 8.3 billion), with a us$100 million (Tk. 6.9billion) loss reported the following year. Biman also fell behind millions ofdollars in payments to its fuel supplier, the Bangladesh Petroleum corporation.!lanagementThe airline was wholly owned by the government through the Bangladesh Bimancorporation since its inception. rn 1977, Biman was converted into a publicsector corporation which afforded Biman limitd autonomy, governed by a boardof directors appointed by the government. The authorised share capital wasincreased to Tk. 2 billion in 1987. During the late 1980s, the president ofBangladesh at the time, served as president of Biman. The Board of Biman isneither directly accountable to any other body, nor is it under obligation to reportto any other authority concerning its activities and performance because theChairman of the Board is also the Minister ofAviation.After an early period of expansion and growth, Biman entered an era of nose-diving profits and slow growth, exacerbated by incompetent and corruptmanagement; with padding of purchases, falsified repair bills and unprofitableroutes kept in operation for political reasons. Reseanh conducted in 1996 foundthat Biman had,5.253 non-flying personnel, 30%o more than Singapore Airlineswhich had almost a ten-times larger fleet. The report described si*a" as "poorlymanaged, overstaffed, undercapitalized, and subject to excessive politicalinterference in its day-to-day management."Owing to growing losses, which began in the late 1990s, the govemment offered40"/" of Birnan to foreign airlines in2004, hoping a buyer wouid take over themanagement of the carrier. However, the proposal demanded that many decision-making rights remain with Bangladesh government, and the offer was ignored byoutside airlines. A similar intiative in 1998 cost Biman us$ 1.6 million inconsultancy fees with no positive result. In May 2007, the caretaker governmentapproved plans to turn Biman into a public Limited company with shareholdingssplit between seven public sector organizations. As a part of the restructuring, thegovernment put in place a voluntary Retriernent Scheme (vRS) to reduce theman-equipment ratio (MER) of 361: I (ratio of manpower to aircraft).The industry average at the time was 200: l, with other Asian airlines operalingr,vith MERs of around 150;1. The VRS provided compensation based on length ofservice, at a cost to the governrnent of over us$40 million which was bonowedfrom the world Bank. while Biman management had expected to reduca its

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workforce by 1,600 personnel, 2,162 applications for VRS were received, manyfiom employees who expected to be dismissed with little or no severance if thequota was not achieved. Biman accepted 1.877 applications and affirmed that keypersonnel would not be allowed to leave the organisation via VRS'On 23 July 2007, Biman Bangladesh Airlines Ltd becarne the largest PublicLimited Cornpany in Bangiadesh. The govelxment is the sole shareholder of the1.5 biliion shares but intends to offer 49ohto the private sector while retainingmajority ownership. The top management comprises one Managing Director andsix Directors. Initially, the directors were appointed from the ministries of energy,commerce, finance, civil aviation, foreign aflairs and the cabinet division with thecabinet secretary taking on the role as Chairman. The Six secretaries and a jointsecretary to the civil aviation ministry have been made the seven shareholders ofthe new PLC.Standard of Customer ServicesBiman is notable for poor cuslumer service and disruptions to its flight schedulewhich is reflected in its Star ranking from Skytrax, a United Kiugdom-basedconsultancy whose research has been used by the UK government in formulatingair transport policy. The two star ranking (out of five) is indicative of the poorstandard of service provided by the airline which falls below the industryaverage. In200l , Birnan faced strong criticism from major international airportsincluJing Heathrow and Dubai International Airport for its failure to maintainflight s;hedules. Heathrow AiSport operatof BAA wrote to Biman providing"uid"rr. which showed Biman had not achieved the minimum 807o usage of itsallocated ianding slots at Heathrow, as required by EU and IAfA regulations'during summer 2007. Biman Shuld therefore not expect solt allocations atHeathrow for summer 2008 and should look to Stansted or Gatwick airport if itwished to continue serving London.In an arlicle published on 10 September 2008 in The Tirnes, Biman was labelledthe worst performer for punctuality at Heathrow Airport, with flghts delayed onaverage by three hours. In-flight entertainment aboard Biman aircraft is rated"very poor" by Skytrax. The Douglas DC-lO-30s are equipped with a projectorin each cabin while the Airbus A3l0s have monitors that drop down from theceililg below the luggage racks in the center of the aircraft. While other airlinesusing modern aircraft are able to provide mole personal in-flight experiences viaseatback LCD screens, Birnans ageing fleet has maintained the standardequipment available when the planes were tnanufactured. Birman operates afrequent flyer programme which awards customers with a free round trip flighton production of ticket stubs for ten round tlip journeys on Biman. The free ticket

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is fbr rhe route which has been flor.vn the most out of the ten. Journeys on localroutes are exch"rded frorn the offer.An agreement was sig'ed with Amadeus in 2007 to upgrade Bimans ticketingsystem with an e-ticketing solution.in order to comply with International AiiTransport Association rules, which set out a deadline of 3l December 2007 forall member airlines to switch over their ticketing systems. E-ticketing has enabledmajor airlines, such as British Air-ways, to provide'online check-in facilitiesreducing the need to queue up at check-in counters. However, Biman has notrnade any attempts to improve customer service thiough the adoption of e-ticketing although it has been able to reduce its own costs.Biman's CargoBiman also operates a cargo service using the cargo holds of its passenger aircraftto ship fi'eight to internationai destinations. It has established u curgo village at7ia rnternational Airporl where the cargo is packaged and labelled Lefore beingloaded onto its aireraft. whill the air cargo industry in Bangladesh grew by16.5% in the fiscal year 2003-04, Bimans cargo operations remained ,tugnurrtwhen private operators such as Bismillah Airlines, Best Aviation" and AirBangladesh produced a r08% growth from the previous year. The privateoperators increased their shair of the cargo marker by 10.6% and wereresponsible for handling 24oA of the total 99,000 tons of cargo at the expense ofboth Biman and foreign airlines which saw a reduction in their shares iy 4.6%and 6Yo respectiveiy. Foreign airlines handled 4lo/o of the totai cargo with Bimantaking on the remaining 29%. As with its passenger senice and management,comrption has also been rife at Biman Cargo.

DestinationsBirnan has air services agleements with 43 countries but operates its routes onlyto 16, leaving room for expansion for which it lacks aircraft. The airline operatesflights to several destinations in the Middle East, some destinations in South andSouth East Asia and only two destinations in Europe- Rome and London.Foreign airlines are encroaching on Biman's routes, parlicularly the lucrativeLondon-Dhaka route, on which traditionaily only Bima' and British Airwayshave operated direct flights. ln 2005, Air India commenced a route whichpcrmitted flights betweeu London ancl Dhaka without rcquiring a tr.alsit flightwlrich has occupied the space freed r-rp by Biman *h.n it reclucedLo'don-Dhaka fliglrts. New airlines are aiso hoping to cash in on Bima''sshortlall: Air Syihet and Royal Bengal Airlines are two such airlines launched byexpatriate British-Bangladesliis hoping to provide direct fligirts between Londonand Dhalqa. Froni 1993 to 2006, Birna'operated flights to John F. Kennedy

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lnternatiorralAirport,NewYor.k,fromDlrakaviaBrussels'NervYorklvasBiman,s farthest und r1rort p."stigioLls destinatio[ anLl was kept rullllitlg despiteheavy financial losses on "u.lt fiight in ordet'to maintain a iancling slot rrr the

uS'To curb the losses, Biman reduced the service to one flight per rveek and re-routecl it through fUu""ft"*i"t l'irporl in England' capitalising on travel detnandsflon the expatriate tsangiadeshi community rn the norlh of England' On 8 April2006, Biman's inaugurai nlght ,o Mancheiter.landed at Manchester Airpoft enfoute to JFK. Howev".,'rt,"-1"a..a1 Aviation

Administration (FAA) liad placedthe CAAB into Category 2 (does not meet lnterr-rational Civil Aviationorgunlutron standardsiaccording to its Intemationa Aviation Safety AssessmentProgram,whichplacedadclition"alrestrictionsonthecountry'sairlineswhenflyingtotheUS.AtbrmerCAABassistantdirectorrnadescathingremarksabouttheCAABlnunop,n,onarticleintheAviatour,amonthlytraveiar-rdtourismsupplernent of nungf^Jt'hi news magazine Weekly Holiday' For Biman' thismeant that it could .;;;t tlti"g tJ the US' but could 'ot expand or makechanges to its routes ,ulf-' ut "(un[ing the transit from Brussels to Manchester'The FAA fined Biman ior breaching its rules' and flights to New York were againre-routed through tsrussel' The incident put an end to the route' which had beenlosingUS$80,000p"'fligl'"orvingtoitsuse.ofobsoleteDC-l0s'Bimandecidedto axe the route along *ittt a nuib"' of other regional and domestic routes tocurb the huge losses b.*g in.u.,"d each month. F{owever, in october 2007'BimanwasdirectedbytlrethencaretakergovernmenttoresumeflightstoNewYork.Bimanwasgivenuntil25october2008(extendedfromanearlierdeadlirreof 23 March 2008) to tttt*" ntgftts to the airport by the JFK uiTol authorityafter whicir it would lose the talnaing slot permanently. Biman 1-rad a plan torestafiflightsontheroutewitlraleasedaircraftbutitfailecltodosowithirrthedeadiine.Charges of IrregularitiesSotne notable ineguiarities would also reveal the national flag can'ier's pitiablestate of affairs. rt is att"g"a that Biman was llever allowed to operateirrdependerrtlyarrclitskeymarragementpersonnelrvereirrvoivedir-rconuptionandinegularitiesir-rtlrenationalairlirres'leadingtoitsbar-rkruptcy.Intlre|ggz-g3fi,.uty.u,,'o.corrntstrnclertlreMirristryofCivilAviationarrdTourisn-rrevealed that Tk. 22 nrillion i' tax was not paid to the Governnlent The auclitcarriedoutirilggg,alsoslrowecltlratBimarrwasorvedTk.2.2nrilliorrbytrar'elagentsfl.onrtheproceedsofticketsales,nrostlikelywitlrthecolirrsiolrofBin.ranofficials'Additionally,Tk.2.4nrilliorrrvasovetpaiciasincentiveconlmissiontotl.re sales age'ts i. uioiatio' of Bi'ran policies' Several co''rplai*ts exist agai'st asection oiofttcials ;;;;;i;;.. oi gin*n's purclrase ciepatlment rvho had)

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llicgedly ernbezzeled Tk. 50.0 million througir purchases of spare parts for theailcraft and other materials. Besides, they pocketed the huge amount of money incollaboration with some 'fake fl*rans' that supplied the spares and other materialsduring 200 1-2005. It was aiso alleged that these officials and employeespurchased many imporlant'priiis for aircraft of Biman at higher rates comparedwith the market prices. Allegation exists a.s to the purchasc of a part at US$3,000although the real puce was only $ 100.In 2004, the purchase department bought 2000 pieces ofsilk sarees at a total costof Tk 3.4 million but it paid Tk 5.0 million to the firm that supplied the items. Inone instance, the authorities had to buy a spare part at $7000, which is availableat $125 in the international market. Birnan's main com;ption point wasengineering maintenance. Here fake bills were prepared in millions of dollarsevery month. There are instances where 10 times more was paid and it wasdiscovered later that wrong spare had been bought. They purchased parts athigher price from the companies like M&S. USA, Air Source, USA, Big Air,USA, Air Parts International, USA, Inteitrbine Logistic, Germany, Hyper Coat,Singapore and Ansett Aircraft, USA. Sources said Messrs M&S, USA is a 'fake'company but a iocal supply firm-New Generation Graphics Limited-supplied agood number of parts to Biman in the name of this company. With the support oflocal agents, the purchase department prepared indents or demand schedule sothat they could win tender to supply parts and other materials for Biman.Comrption in Biman's marketing and sales division had also reached an alarmingproportion. Managers of this section sucked Biman dry in collusion with generalsales agents (GSAs) and travel agents. Biman was no symbol of pride anymore.Biman was bleeding the country's hard earned resources. It held the country'sfinancial institutions hostage single-handed. An investigation in 2004 uncoverediregularities in a number of Biman's Middle East operations which deprived thegovernment of miliions of dollars in revenlre. Biman officials in Dubai werefound to have been "extending special privileges" to the main freight handler inexchange for bribes. Smuggling of foreign currency and gold bars is reported tohave taken place at the Biman Cargo VJllage by Biman and CAAB employees. Anurnber of arrests were made but the perpetrators evaded punishment throughlack of evidence and pressure fi-om the CAAB union.In a TIB report pLrblished in 2007, Biman has incumed a total ioss of Tk. 19billion so far since its inception in 1912, which also mentioned that around $45nrillion were misapplopliated ir-r the process of leasing aircraft during the last liveyears. lt has been alleged in tlre reporl tl-rat the Biman manpower has beendownsized ivithout arly assesslnent and evaluation of their perfon-nance. Majorcormption iu Biman took place in the pr-ocess of aircraft lease and procureritent.

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Arbitrary decision by Biman chairman, exciuding technicaliy sound professionalsin tenders, ignoring technical and legal aspects due to lack ofexpertise and non-participation of chief executive officer in the process are some of the reasonsbehind the massive comrption and irregularities in aircraft procurement andlease. Besides huge graft in overseas stations, colTuption also took place inmaintenance and repair of old fleets, bidding process, and ticket purchase andreconfirmation. The TIB found that of the annual reievant allocations of Tk. 900million, at least Tk. 500 million got lost, as a handful of agencies dominated thebusiness, using political influence arid cronyism. About comrption in foreignstations, the report said staff recruitment on political consideration, financialbungiing by country managers, excess manpower and continuation of countryoffrces despite route closure were the main reasons behind the losses of overseasoffrces. In the last four years, the Biman's annual maintenance budget swelled toTk. 4.89 billion from Tk. 2.15 billion, although the number of aircraft came downto 13 from 17 during the same period. Until 2006, the accumulated losses of theerstwhile Biman stood at Tk. 19 billion. The national flag carrier did not followthe business fundamentals since its inception. In 2007 , the caretaker govemmentlaunched an antlcorruption drive which saw the arrest of Shamm Iskander, thebrother of an ex-prime minister and a former Biman flight engineer, on multiplecorruption charges. This was shortly followed by the forced retirement of 35other employees and officials, some of whom were close aides of Iskander.