As Bangladesh Biman Airlines Acquires More Boeing (NYSE: BA) Aircraft, Profitability Remains Elusive

Biman Bangladesh Airlines, the national flag carrier of Bangladesh, has added two Boeing (NYSE: BA) aircraft to its fleet, prompting the country’s prime minister to demand an improvement in services and the achievement of profitability, citing the partly state-owned company’s history of sustaining losses. "Biman is a commercial entity, not a service organization only," Prime Minister Sheikh Hasina said at a ceremony last Sunday that inducted the two new airplanes, the recently purchased new Boeing 777-300ER, named ‘Raanga Pravat,’ and a Boeing 777-200ER model, leased from Egypt Air, at the Hazrat Shahjalal International Airport in Dhaka.

The Daily Star newspaper reported that ‘Raanga Pravat’ is the fourth Boeing 777 to join Biman's fleet as part of the Dhaka government's 2008 deal for 10 new aircraft -- four 777s, four 787s and two 737s -- with the US-based company. In 2011, Biman added two Boeing 777s -- named ‘Palki’ and ‘Arun Alo’ -- to its fleet, with a third one, ‘Akash Pradip’, arriving in February of this year. Boeing is expected to deliver the two B-737s by late 2015 and four Dreamliner B-787s by 2020 to Biman. Hasina said that Biman has already made pre-delivery payments for the two 737s, but the prime minister conceded that raising funds for such transactions is not easy. “We have no problem giving sovereign guaranty [a guarantee by the government that all obligations will be satisfied when the primary obligor goes into default],” she said, “since the [government’s] foreign currency reserve now stands at $19 billion and the economy is on a strong footing.” With respect to the four 787 Dreamliners, Hasina said Boeing has been asked to speed up those deliveries by 2015-2016.

Turning to domestic aviation matters, Hasina said that Biman needs to improve customer service, in addition to buying more aircraft. "Able stewardship, skills development and sincerity of workers are needed first,” she said. Hasina also emphasized that the government is committed to help the airline’s overall service and profitability by upgrading security at airports, increasing intelligence agency efforts at these sites, and practicing more aggressive seizures of smuggled gold and other contraband at air hubs. But she asserted the company must take steps to become profitable on its own -- for example, by purchasing their own cargo aircraft instead of chartering expensive foreign airlines for cargo shipments. “We are developing the infrastructure [for Biman]. But the service needs to be improved,” she said.

Aside from incurring losses, Biman is reputedly plagued with many problems, including poor customer service, delayed flights and schedule disruptions. Bangladesh Economic Review 2013 reported that since the Dhaka government converted the airline into a public limited company in 2007, Biman posted losses every year except fiscal 2007-08 and 2008-09. The airline reported its highest loss ever in fiscal 2011-12 of about $78 million and is again running in the red this year.

Without profitability, Biman cannot survive, Hasina warned. “And you all know very well what will happen if it’s shut down. Everyone will be out of work. We want you to work properly so that Biman can be a profitable organization,” she said at the induction ceremony.

Biman Bangladesh was formed in 1972, the year after Bangladesh became an independent nation following a deadly secession war with Pakistan in the prior year. According to PlaneSpotters.net, Biman’s current fleet comprises ten aircraft.

The delivery of the two new aircraft also coincided with the resignation of Biman’s chief executive officer. The Daily Star reported that Kevin Steele, the first foreign CEO and managing director of the company, quit after only a year after reportedly failing to turn around the airline. His resignation will be effective on April 17. But Khan Mosharraf Hossain, general manager for public relations at Biman, said in a statement that Steele is resigning on “medical grounds,” after having suffered tuberculosis and a mild heart attack. “Steele's family urged him to give up the job for health reasons,” Hossain added.

Daily Star speculated that Steele quit after getting into arguments with senior members of Biman’s government-appointed board of directors. The Star reported that Steele and the board likely fought over a number of issues, including the appointment of general sales agents and the recent shutting down of the carrier’s DC-10 aircraft. Steele initially sought to reform Biman by commencing e-ticketing and improved timely departures, among other measures. But he could not put it back into the black. “I do not say all his [Steele's] decisions and initiatives were right, but he took several steps to improve Biman's performance and take the carrier on the path of stability," said Kazi Wahidul Alam, editor of The Bangladesh Monitor, an aviation and tourism periodical. “But his resignation may affect continuity of the initiatives taken to bring dynamism in Biman. It is unexpected.”

Alam added that “professional chief executives would be required to run the national carrier.”