Case-I

Biman Bangladesh Airlines

Dr. Md. Fashiul

Aliln:

IIistory
Biman Bangladesh Airlines (BBA) was established on 4 January 1972 under the Bangladesh Biman Ordigance (Presidential Order No. 126). The initiative to launch the national flag carrier was taken by 2,500 former employees, including i 0 Boeing 707 commanders and 7 other pilots of PIA- Pakistan international Airlines, who submitted a proposal to the government on 31 December 1971 lollowing the independence of Bangladesh. The airline was initially called Air Bangiadesh 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 the authority as a present by the Bangladesh Air Force. Soon after, a Boeing 107 and a Fokker F27 Friendship aircraft joined the airlines fleet, allowing Biman to begin intemational flights. In 1983 Biman Acquired Douglas DC-10 aircraft, and suhsequently other planes such as the Airbus 310, Fokker F28 and British Aerospace BAeATP. On January 31,2003 the airline recived 2 Boeing 737s. As of 3 September 2009, after many changes, the fleet consists of i0 aircrafts. Biman has non-aviation enterprises, one of which is the Biman Flight Catering Centre (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 profitable operations, supplying fooci to British Airways, Qatar Airways, Dragonair, Uzbekistan Airways and lran Air, along with casual orders fi'om other airlines operating into Bangladesh. The BFCC consumes 90o/o of the eggs and chicken from the Biman Poultry Complex, another profit-rnaking subsidiary of Biman formed in 1976 and put into operation in November 1980 tcrear politry at farms
in Dhaka.

In the first year ol operatiou. Biman operated 1.079 flights carryiug jttst over 380,000 passengers. In the 2005-06 fiscal year, Biman carried 1.15 rnillion passengers, a grorvth of 70% fi-orn the prer,'ious decade's average. Horvever, with the rise of private dornestic caniers in Bangladesh, Biman's markei share for
* Prrtbssor, Dapeurtnrcnt of ,llunagentertt Stutlies, Linit'ersih' of Chittagong, Bungludcsh.

drrniestic passengers dropped by 35% over the previous ten years average, with only 162,000 passengers travelling with Biman in the domestic sector in the 2005-06 hscal year. During the same period, Biman reported its biggest annual loss of over uS$120 million (Tk. 8.3 billion), with a us$100 million (Tk. 6.9

billion) loss reported the following year. Biman also fell behind millions of
dollars in payments to its fuel supplier, the Bangladesh Petroleum corporation.

!lanagement
The airline was wholly owned by the government through the Bangladesh Biman

corporation since its inception.

rn

1977, Biman was converted into a public

of directors appointed by the government. The authorised share capital was increased to Tk. 2 billion in 1987. During the late 1980s, the president of Bangladesh at the time, served as president of Biman. The Board of Biman is
to any other authority concerning its activities and performance
neither directly accountable to any other body, nor is it under obligation to report because the Chairman of the Board is also the Minister ofAviation.

sector corporation which afforded Biman limitd autonomy, governed by a board

After an early period of expansion and growth, Biman entered an era of nosediving profits and slow growth, exacerbated by incompetent and corrupt management; with padding of purchases, falsified repair bills and unprofitable routes kept in operation for political reasons. Reseanh conducted in 1996 found
that Biman had,5.253 non-flying personnel, 30%o more than Singapore Airlines which had almost a ten-times larger fleet. The report described si*a" as "poorly

managed, overstaffed, undercapitalized, and subject interference in its day-to-day management."

to

excessive political

Owing to growing losses, which began in the late 1990s, the govemment offered 40"/" of Birnan to foreign airlines in2004, hoping a buyer wouid take over the management of the carrier. However, the proposal demanded that many decisionmaking rights remain with Bangladesh government, and the offer was ignored by outside airlines. A similar intiative in 1998 cost Biman us$ 1.6 million in consultancy fees with no positive result. In May 2007, the caretaker government approved plans to turn Biman into a public Limited company with shareholdings split between seven public sector organizations. As a part of the restructuring, the government put in place a voluntary Retriernent Scheme (vRS) to reduce the man-equipment ratio (MER) of 361: I (ratio of manpower to aircraft). The industry average at the time was 200: l, with other Asian airlines operaling r,vith MERs of around 150;1. The VRS provided compensation based on length of service, at a cost to the governrnent of over us$40 million which was bonowed from the world Bank. while Biman management had expected to reduca its

workforce by 1,600 personnel, 2,162 applications for VRS were received, many fiom employees who expected to be dismissed with little or no severance if the quota was not achieved. Biman accepted 1.877 applications and affirmed that key personnel would not be allowed to leave the organisation via VRS'

On 23 July 2007, Biman Bangladesh Airlines Ltd becarne the largest Public Limited Cornpany in Bangiadesh. The govelxment is the sole shareholder of the 1.5 biliion shares but intends to offer 49ohto the private sector while retaining
majority ownership. The top management comprises one Managing Director and six Directors. Initially, the directors were appointed from the ministries of energy, commerce, finance, civil aviation, foreign aflairs and the cabinet division with the cabinet secretary taking on the role as Chairman. The Six secretaries and a joint secretary to the civil aviation ministry have been made the seven shareholders of
the new PLC.

Standard of Customer Services Biman is notable for poor cuslumer service and disruptions to its flight schedule which is reflected in its Star ranking from Skytrax, a United Kiugdom-based consultancy whose research has been used by the UK government in formulating air transport policy. The two star ranking (out of five) is indicative of the poor standard of service provided by the airline which falls below the industry average. In200l , Birnan faced strong criticism from major international airports incluJing Heathrow and Dubai International Airport for its failure to maintain flight s;hedules. Heathrow AiSport operatof BAA wrote to Biman providing which showed Biman had not achieved the minimum 807o usage of its "uid"rr. allocated ianding slots at Heathrow, as required by EU and IAfA regulations' during summer 2007. Biman Shuld therefore not expect solt allocations at Heathrow for summer 2008 and should look to Stansted or Gatwick airport if it
wished to continue serving London.

In an arlicle published on 10 September 2008 in The Tirnes, Biman was labelled the worst performer for punctuality at Heathrow Airport, with flghts delayed on average by three hours. In-flight entertainment aboard Biman aircraft is rated "very poor" by Skytrax. The Douglas DC-lO-30s are equipped with a projector in each cabin while the Airbus A3l0s have monitors that drop down from the ceililg below the luggage racks in the center of the aircraft. While other airlines using modern aircraft are able to provide mole personal in-flight experiences via seatback LCD screens, Birnans ageing fleet has maintained the standard equipment available when the planes were tnanufactured. Birman operates a frequent flyer programme which awards customers with a free round trip flight on production of ticket stubs for ten round tlip journeys on Biman. The free ticket

is fbr rhe route which has been flor.vn the most out of the ten. Journeys on local routes are exch"rded frorn the offer.

An agreement was sig'ed with Amadeus in 2007 to upgrade Bimans ticketing system with an e-ticketing solution.in order to comply with International Aii Transport Association rules, which set out a deadline of 3l December 2007 for
major airlines, such as British Air-ways, to provide'online check-in facilities reducing the need to queue up at check-in counters. However, Biman has not rnade any attempts to improve customer service thiough the adoption of eall member airlines to switch over their ticketing systems. E-ticketing has enabled

ticketing although it has been able to reduce its own costs.

Biman's Cargo to ship fi'eight to internationai destinations. It has established u curgo village at 7ia rnternational Airporl where the cargo is packaged and labelled Lefore being loaded onto its aireraft. whill the air cargo industry in Bangladesh grew by 16.5% in the fiscal year 2003-04, Bimans cargo operations remained ,tugnurrt when private operators such as Bismillah Airlines, Best Aviation" and Air Bangladesh produced a r08% growth from the previous year. The private operators increased their shair of the cargo marker by 10.6% and were responsible for handling 24oA of the total 99,000 tons of cargo at the expense of both 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 Biman taking on the remaining 29%. As with its passenger senice and management, comrption has also been rife at Biman Cargo.
Destinations Birnan has air services agleements with 43 countries but operates its routes only to 16, leaving room for expansion for which it lacks aircraft. The airline operates Biman also operates a cargo service using the cargo holds of its passenger aircraft

flights to several destinations in the Middle East, some destinations in South and South East Asia and only two destinations in Europe- Rome and London. Foreign airlines are encroaching on Biman's routes, parlicularly the lucrative London-Dhaka route, on which traditionaily only Bima' and British Airways have operated direct flights. ln 2005, Air India commenced a route which pcrmitted flights betweeu London ancl Dhaka without rcquiring a tr.alsit flight wlrich has occupied the space freed r-rp by Biman *h.n it recluced Lo'don-Dhaka fliglrts. New airlines are aiso hoping to cash in on Bima''s shortlall: Air Syihet and Royal Bengal Airlines are two such airlines launched by expatriate British-Bangladesliis hoping to provide direct fligirts between London and Dhalqa. Froni 1993 to 2006, Birna'operated flights to John F. Kennedy

lnternatiorralAirport,NewYor.k,fromDlrakaviaBrussels'NervYorklvas destinatio[ anLl was kept rullllitlg despite Biman,s farthest und r1rort p."stigioLls the uS' fiight in ordet'to maintain a iancling slot rrr heavy financial losses on "u.lt to one flight per rveek and reTo curb the losses, Biman reduced the service in England' capitalising on travel detnands routecl it through fUu""ft"*i"t l'irporl the norlh of England' On 8 April flon the expatriate tsangiadeshi community rn at Manchester Airpoft en 2006, Biman's inaugurai nlght ,o Mancheiter.landed Administration (FAA) liad placed foute to JFK. Howev".,'rt,"-1"a..a1 Aviation lnterr-rational Civil Aviation the CAAB into Category 2 (does not meet Aviation Safety Assessment orgunlutron standardsiaccording to its Intemationa Program,whichplacedadclition"alrestrictionsonthecountry'sairlineswhen flyingtotheUS.AtbrmerCAABassistantdirectorrnadescathingremarksabout theCAABlnunop,n,onarticleintheAviatour,amonthlytraveiar-rdtourism Weekly Holiday' For Biman' this supplernent of nungf^Jt'hi news magazine tlti"g tJ the US' but could 'ot expand or make meant that it could .;;;t the transit from Brussels to Manchester' changes to its routes ,ulf-' ut "(un[ing York were again breaching its rules' and flights to New

The FAA fined Biman ior put an end to the route' which had been re-routed through tsrussel' The incident

losingUS$80,000p"'fligl'"orvingtoitsuse.ofobsoleteDC-l0s'Bimandecided to regional and domestic routes to axe the route along *ittt a nuib"' of other each month. F{owever, in october 2007' curb the huge losses b.*g in.u.,"d BimanwasdirectedbytlrethencaretakergovernmenttoresumeflightstoNew York.Bimanwasgivenuntil25october2008(extendedfromanearlierdeadlirre the airport by the JFK uiTol authority of 23 March 2008) to tttt*" ntgftts to slot permanently. Biman 1-rad a plan to after whicir it would lose the talnaing

restafiflightsontheroutewitlraleasedaircraftbutitfailecltodosowithirrthe
deadiine.

Charges of Irregularities pitiable reveal the national flag can'ier's Sotne notable ineguiarities would also was llever allowed to operate Biman

state

of affairs. rt is att"g"a that

irrdependerrtlyarrclitskeymarragementpersonnelrvereirrvoivedir-rconuption

andinegularitiesir-rtlrenationalairlirres'leadingtoitsbar-rkruptcy.Intlre |ggz-g3fi,.uty.u,,'o.corrntstrnclertlreMirristryofCivilAviationarrdTourisn-r auclit was not paid to the Governnlent The revealed that Tk. 22 nrillion i' tax carriedoutirilggg,alsoslrowecltlratBimarrwasorvedTk.2.2nrilliorrbytrar'el agentsfl.onrtheproceedsofticketsales,nrostlikelywitlrthecolirrsiolrofBin.ran officials'Additionally,Tk.2.4nrilliorrrvasovetpaiciasincentiveconlmissionto a Bi'ran policies' Several co''rplai*ts exist agai'st tl.re sales age'ts i. uioiatio' of oi gin*n's purclrase ciepatlment rvho had section oiofttcials ;;;;;i;;..

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llicgedly ernbezzeled Tk. 50.0 million througir purchases of spare parts for

the

ailcraft and other materials. Besides, they pocketed the huge amount of money in collaboration with some 'fake fl*rans' that supplied the spares and other materials during 200 1-2005. It was aiso alleged that these officials and employees purchased many imporlant'priiis for aircraft of Biman at higher rates compared with the market prices. Allegation exists a.s to the purchasc of a part at US$3,000 although the real puce was only $ 100. In 2004, the purchase department bought 2000 pieces ofsilk sarees at a total cost of Tk 3.4 million but it paid Tk 5.0 million to the firm that supplied the items. In one instance, the authorities had to buy a spare part at $7000, which is available

at $125 in the international market. Birnan's main com;ption point

was

engineering maintenance. Here fake bills were prepared in millions of dollars every month. There are instances where 10 times more was paid and it was discovered later that wrong spare had been bought. They purchased parts at higher 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 a good number of parts to Biman in the name of this company. With the support of local agents, the purchase department prepared indents or demand schedule so that they could win tender to supply parts and other materials for Biman. Comrption in Biman's marketing and sales division had also reached an alarming proportion. Managers of this section sucked Biman dry in collusion with general sales 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's financial institutions hostage single-handed. An investigation in 2004 uncovered iregularities in a number of Biman's Middle East operations which deprived the government of miliions of dollars in revenlre. Biman officials in Dubai were found to have been "extending special privileges" to the main freight handler in exchange for bribes. Smuggling of foreign currency and gold bars is reported to have taken place at the Biman Cargo VJllage by Biman and CAAB employees. A nurnber of arrests were made but the perpetrators evaded punishment through lack of evidence and pressure fi-om the CAAB union.

In a TIB report pLrblished in 2007, Biman has incumed a total ioss of Tk.
billion so far since its inception in 1912, which also mentioned that around

19

$45

nrillion were misapplopliated ir-r the process of leasing aircraft during the last live years. lt has been alleged in tlre reporl tl-rat the Biman manpower has been downsized ivithout arly assesslnent and evaluation of their perfon-nance. Major cormption iu Biman took place in the pr-ocess of aircraft lease and procureritent.

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