group consolidated financial statements€¦ · 87 annual report 2006 ii) note 1.3 (i) to the...

GROUP CONSOLIDATED

FINANCIAL STATEMENTS

86 Pakistan International Airlines Corporation

AUDITORS’ REPORT TO THE MEMBERS

We have audited the annexed consolidated balance sheet of Pakistan International Airlines Corporation (theHolding company) and its subsidiary companies, PIA Investments Limited (PIAIL) and Skyrooms (Private) Limited(SRL), as at December 31, 2006 and the related consolidated profit and loss account, consolidated cash flowstatement and consolidated statement of changes in equity together with the notes forming part thereof, for the yearthen ended. We have also expressed separate opinion on the financial statements of the Holding company. Thefinancial statements of the subsidiary companies were audited by other firms of auditors, whose reports have beenfurnished to us and our opinion, in so far as it relates to the amounts included for such companies, is based solely onthe report of such other auditors. These consolidated financial statements are the responsibility of the Holdingcompany’s management. Our responsibility is to express an opinion on these consolidated financial statements basedon our audit.

Except for the matters referred to in paragraph (a) to (c) below, our audit was conducted in accordance with theInternational Standards on Auditing and accordingly included such tests of accounting records and such other auditingprocedures as we considered necessary in the circumstances.

The auditors’ of the subsidiary companies have qualified their opinion in respect of the following:

a) As more fully explained in note 11 to the consolidated financial statements, PIAIL receivable from Centre Hotelcomprises the share of joint venture’s net current assets amounting to Rs. 459.825 million (US$ 7,554,210) asat April 21, 1997, the date when joint venture period expired. The share has been incorporated based on jointventure’s management accounts as at April 21, 1997 as its audited accounts are not available. The amountsspent on renovation of the hotel and amounts set aside as renovation reserve have been added back as theseamounts were spent without authorisation of PIAIL and are subject of a dispute with other joint venture partners.Pending outcome of the arbitration proceedings, it is not possible to determine with reasonable accuracy theamount of joint venture assets, which are available for distribution to joint venture partners.

b) The Government of Pakistan (GoP) has conveyed its decision to privatise the Roosevelt Hotel, owned by PIAIL,in a quickest possible time. As the process of privatisation is managed by GoP, PIAIL’s management is not in aposition to ascertain that whether steps have been taken to make the sale as highly probable. Accordingly, weare unable to determine with reasonable certainty that the assets and liabilities relating to Roosevelt Hotel havebeen appropriately classified.

c) Provision for gratuity in SRL financial statements was computed by using accrued and valuation method insteadof projected unit credit method by actuarial valuation which treatment in our opinion, is not in accordance withInternational Accounting Standard 19 – Employee Benefits. It is not possible to quantify the effect of anyresulting adjustments.

Except for the effect of the matters stated in paragraphs (a) to (c) above, in our opinion the consolidated financialstatements examined by us present fairly the financial position of the Holding company and its subsidiary companiesas at December 31, 2006 and the results of their operations.

Without qualifying our opinion, we draw attention to the following issues:

i) note 34.1 (a) to the consolidated financial statements, explaining the difference between the amount due as perthe Holding company’s records and amounts claimed by Civil Aviation Authority (CAA) for which a reconciliationand settlement exercise is in progress through Ministry of Defence;

Ford Rhodes Sidat Hyder & Co. Anjum Asim Shahid RahmanChartered Accountants Chartered Accountants6th Floor, Progressive Plaza 1st Floor, Modern Motors HouseBeaumont Road Beaumont RoadKarachi Karachi

87 Annual Report 2006

ii) note 1.3 (i) to the consolidated financial statements, which states that the Holding company has incurred a netloss of Rs. 12,763 million which as at balance sheet date resulted in accumulated losses of Rs. 24,563 million,translating into negative equity of Rs. 788 million. Further, as of that date current liabilities exceeded the currentassets by Rs. 22,672 million and its long term debt to equity ratio further deteriorated during the year. Themitigating factors relating to the above situation have been discussed in the said note. Accordingly the separatefinancial statements of the Holding company and the consolidated financial statements have been prepared ona going concern basis; and

Further, the auditors’ of the subsidiary companies have given an emphasis of matter in respect of the following:

iii) note 1.3 (ii) to the consolidated financial statements, which states that SRL has accumulated losses of Rs. 101million at December 31, 2006 as against the paid-up share capital of Rs. 40 million, which leaves a negativeshareholders’ equity of Rs. 61 million. The company to continue as a going concern is dependent on thecontinued financial and operational support from the Holding company; and

iv) notes 1.3 (ii) and 34.1 (i) to the consolidated financial statements, which state that SRL’s lease agreement withCAA for the land and hotel building had expired on June 02, 2001. The management is pursuing the matter withCAA for renewal of lease period and removal of additional charges claimed by CAA;

Comparative financial information has been compiled from the audited financial statements of the holding companyand its subsidiary companies. Audited financial statements of the Group for the year ended December 31, 2005were not published as the holding company was exempted from preparing the consolidated financial statements bythe Securities and Exchange Commission of Pakistan.

Ford Rhodes Sidat Hyder & Co. Anjum Asim Shahid RahmanChartered Accountants Chartered Accountants

Karachi: March 29, 2007

AUDITORS’ REPORT TO THE MEMBERS


CONSOLIDATED BALANCE SHEETAS AT DECEMBER 31, 2006

ASSETS

NON - CURRENT ASSETS

Fixed assets

Property, plant and equipment 7 102,579,997 51,290,390 1,685,231

Intangibles 8 2,075,078 112,421 34,090

104,655,075 51,402,811 1,719,321

Long term investments in:

- Related parties 9 44,135 2,278,189 725

- Others 10 112,089 95,717 1,841

Receivable from Centre Hotel 11 459,825 - 7,554

Long term loan, advances and other receivable 12 1,694,077 6,646,103 27,831

Long term deposits and prepayments 13 3,406,397 1,806,938 55,962

Deferred taxation 14 - 20,190 -

Total non - current assets 110,371,598 62,249,948 1,813,234

CURRENT ASSETS

Stores and spares 15 3,382,328 2,793,105 55,566

Trade debts 16 6,521,586 5,238,444 107,140

Advances 17 552,856 465,970 9,083

Trade deposits and prepayments 18 1,476,145 581,175 24,251

Accrued interest 51,010 39,708 838

Other receivables 19 1,100,676 483,287 18,082

Short term investments 20 606,868 377,545 9,970

Advance tax - net 261,674 180,897 4,299

Cash and bank balances 21 7,079,105 2,638,866 116,299

Total current assets 21,032,248 12,798,997 345,528

Total assets 131,403,846 75,048,945 2,158,762

The annexed notes 1 to 53 form an integral part of these consolidated financial statements.

Note 2006 2005 2006(Rupees in thousand) (US$ in thousand)

Tariq KirmaniChairman / CEO

Kamal AfsarDirector


CONSOLIDATED BALANCE SHEETAS AT DECEMBER 31, 2006

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

EQUITY ATTRIBUTABLE TOEQUITY HOLDERS OF PARENT

Share capital 22 19,473,631 17,980,659 319,922Reserves 23 4,280,712 4,280,712 70,325Unrealized gain / (loss) on remeasurement

of investments - net 21,013 (15,107) 345Foreign exchange translation reserve 1,847,591 1,562,720 30,353Accumulated losses (23,717,778) (11,291,593) (389,646)

1,905,169 12,517,391 31,299

MINORITY INTEREST 520,692 - 8,554

TOTAL EQUITY 2,425,861 12,517,391 39,853

Surplus on revaluation of fixed assets - net 24 3,601,840 - 59,173

6,027,701 12,517,391 99,026

NON - CURRENT LIABILITIES

Long term financing 25 18,682,829 1,621,099 306,930Term finance certificates 26 13,246,970 14,003,940 217,627Liabilities against assets subject to finance lease 27 42,503,444 21,706,064 698,266Long term murabaha 28 - 768,075 -Long term deposits 29 261,843 290,368 4,302Deferred liabilities 30 8,045,670 2,862,096 132,178

Total non - current liabilities 82,740,756 41,251,642 1,359,303

CURRENT LIABILITIES

Trade and other payables 31 18,023,185 15,026,732 296,093 Accrued interest / mark-up / profit 32 812,278 607,769 13,344 Short term borrowings 33 15,543,446 362,075 255,355 Tax payable 89,299 - 1,467 Current portion of:

Long term financing 2,714,555 1,621,103 44,596Term finance certificates 756,970 756,970 12,436Liabilities against assets subject to finance lease 3,914,491 2,067,363 64,309Long term murabaha 781,165 837,900 12,833

8,167,181 5,283,336 134,174

Total current liabilities 42,635,389 21,279,912 700,433

CONTINGENCIES AND COMMITMENTS 34

131,403,846 75,048,945 2,158,762




Kamal AfsarDirector


CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED DECEMBER 31, 2006

Turnover - net 35 76,435,189 64,167,270 1,255,712

Cost of services

Aircraft fuel 33,370,101 26,462,721 548,219

Others 36 41,353,164 32,555,943 679,369

74,723,265 59,018,664 1,227,588

Gross profit 1,711,924 5,148,606 28,124

Distribution costs 37 4,395,834 3,809,865 72,217

Administrative expenses 38 4,910,728 4,341,071 80,676

9,306,562 8,150,936 152,893

Loss from operations 7,594,638 3,002,330 124,769

Finance costs 39 5,275,360 2,787,421 86,666

Other provisions and adjustments - net 40 898,990 (33,605) 14,769

6,174,350 2,753,816 101,435

Share of loss / (profit) from associates 15,023 (226,720) 246

Other operating income 41 798,740 1,169,831 13,122

Loss before tax 12,985,271 4,359,595 213,328

Taxation 42 (562,455) (100,899) (9,240)

12,422,816 4,258,696 204,088

Attributable to:

Shareholders of the holding company 12,426,185 4,258,696 204,143

Minority interest (3,369) - (55)

12,422,816 4,258,696 204,088

(Rupees) (US$)

Loss per share 43

'A' class ordinary shares 6.62 2.46 0.11

'B' class ordinary shares 3.31 1.23 0.05




Kamal AfsarDirector


CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2006

Cash flows from operating activities

Cash (used in) / generated from operations 44 (3,869,836) 1,720,522 (63,575)Profit on bank deposits received 202,277 189,354 3,323 Deferred custom duty paid (71,102) (323,350) (1,168)Finance costs paid (5,070,851) (2,720,200) (83,306)Taxes paid (93,615) (280,323) (1,538)Dividend paid - (5,255) -Staff retirement benefits paid (693,706) (332,193) (11,397)Compensated absences paid (91,915) (80,000) (1,510)Payments made for construction of University Road (85,000) - (1,396)Long term deposits - net (935,075) (88,505) (15,362)

Net cash used in operating activities (10,708,823) (1,919,950) (175,929)

Cash flows from investing activities

Fixed capital expenditure (5,340,052) (5,882,227) (87,729)Proceeds from sale of fixed assets 280,136 792,274 4,602 Purchase of shares of PIAIL (2,834,782) - (46,571)Investments - net (197,232) 59,499 (3,240)Received from associated undertaking 103,917 902,896 1,707 Long term advances and other receivable 277,000 (49,000) 4,551

Net cash used in investing activities (7,711,013) (4,176,558) (126,680)

Cash flows from financing activities

Proceeds from issue of share capital 1,492,972 1,450,733 24,527 Proceeds / (repayment) of long term financing 10,846,388 (810,567) 178,189 Redemption of term finance certificates (756,970) (378,635) (12,436)Repayment of obligations under finance lease (3,078,876) (1,911,468) (50,581)Repayment of long term murabaha (824,810) (829,733) (13,550)

Net cash generated from / (used in) financing activities 7,678,704 (2,479,670) 126,149

Decrease in cash and cash equivalents (10,741,132) (8,576,178) (176,460)

Cash and cash equivalents at the beginning of the year 2,276,791 10,852,969 37,404

Cash and cash equivalents at the end of the year (8,464,341) 2,276,791 (139,056)

CASH AND CASH EQUIVALENTS

Cash and bank balances 21 7,079,105 2,638,866 116,299 Short term borrowings 33 (15,543,446) (362,075) (255,355)

(8,464,341) 2,276,791 (139,056)




Kamal AfsarDirector


CONSOLIDATED STATEMENT OF CHANGES IN EQUIT YFOR THE YEAR ENDED DECEMBER 31, 2006

Balance as atDecember 31, 2004 16,529,926 2,501,038 18,863 1,556,295 1,779,674 (7,032,897) - 15,352,899

Loss for the year - - - - - (4,258,696) - (4,258,696)

Issue of share capital'A' class ordinary shares 1,450,733 - - - - - - 1,450,733

Unrealized loss onre-measurement ofinvestments - - (52,261) - - - - (52,261)

Tax effect on unrealizedloss on re-measurement of investments - - 18,291 - - - - 18,291

Currency translationdifferences - - - 6,425 - - - 6,425

Balance as atDecember 31, 2005 17,980,659 2,501,038 (15,107) 1,562,720 1,779,674 (11,291,593) - 12,517,391

Loss for the year - - - - - (12,426,185) 3,369 (12,422,816)

Issue of share capital'A' class ordinary shares 1,492,972 - - - - - - 1,492,972

Unrealized gain onre-measurement ofinvestments - - 36,120 - - - - 36,120

Minority interest arisingon acquisition - - - - - - 516,595 516,595

Currency translationdifferences - - - 284,871 - - 728 285,599

Balance as atDecember 31, 2006 19,473,631 2,501,038 21,013 1,847,591 1,779,674 (23,717,778) 520,692 2,425,861


Attributable to shareholders of the holding company

Capital reserves Revenue reserve

Share Capital Unrealized Foreign Revenue Accumulated Minority Totalcapital reserves gain on exchange reserves Losses interest Equity

remeasurement translationof investment reserves

(Rupees in thousand)


Kamal AfsarDirector


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2006

1. THE GROUP AND ITS OPERATIONS

1.1 The "Group" consists of:

Holding company

Pakistan International Airlines Corporation (the Holding company) was incorporated on April 18, 1956 inPakistan under the Pakistan International Airlines Corporation Act, 1956 (PIAC Act) and its shares are quotedon all Stock Exchanges of Pakistan. The registered office is situated at Karachi Airport. Principal activity of theHolding company is to provide air transportation services. Other activities of the Holding company includeprovision of engineering and other allied services.

Subsidiaries

PIA Investments Limited (PIAIL) was incorporated on September 10, 1977 in Sharjah, United Arab Emiratesas a limited liability company under a decree issued by H.R.H. Prince Faisal Bin Khalid Bin Abdul Aziz 'The Rulerof Sharjah' and is currently registered in British Virgin Islands. The principal activities are to carry business aspromoters of and investors in projects related to construction, development and operation of hotels, motels andrestaurants throughout the world. The Holding company's controlling interest in PIAIL is 99%.

Sky Rooms (Private) Limited (SRL) was incorporated on May 20, 1975 in Pakistan as a Private LimitedCompany under the Companies Act, 1913.The Principal activity of the company is to manage Airport Hotel atKarachi. The Company is wholly owned subsidiary of the Holding company.

Associate

Minhal Incorporated, Sharjah was incorporated on January 1, 1977 in Sharjah, United Arab Emirates as alimited liability company and is currently registered in British Virgin Islands. The principal activities of thecompany are to carry on business as promoters and the managers of projects related to construction,development and operation of hotels, restaurants and clubs throughout the world. The Holding company'sinterest in the company is 40%.

Joint venture

Abacus Distribution Systems Pakistan (Private) Limited was incorporated in Pakistan on October 12, 2004as a Private Company Limited by shares under the Companies Ordinance, 1984. The registered office of thecompany is situated at Karachi. The company operates a computer reservation system which incorporates asoftware package which performs various functions including real time airline seat reservation, schedules,bookings for a variety of air, car and hotel services, automated ticketing and fare displays.

1.2 During the year, the Group has incurred a net loss of Rs.12,423 million, resulting in accumulated losses ofRs.23,718 million as of the balance sheet date. Further, as of that date the current liabilities of the Groupexceeded its current assets by Rs. 21,603 million.

1.3 The management of the holding company and its subsidiary has reported the following in their audited financialstatements to mitigate the foregoing:

(i) Holding company

During the year the Corporation has incurred a net loss of Rs.12,763 million, resulting in accumulated losses ofRs.24,563 million as of the balance sheet date. Further, as of that date the current liabilities of the Corporationexceeded its current assets by Rs. 22,672 million.

The management has initiated corrective measures to improve operating results of the Corporation. Further, theMinistry of Finance (MoF) has extended its support by approving a financial restructuring package which iscurrently in the process of implementation.



The Government of Pakistan (GoP) as a majority shareholder has committed to ensure the going concern statusof the Holding company at all times. Also, historically support of GoP is available to the Holding company asGoP has already issued guarantees to secure certain long term finance and Term Finance Certificates (TFCs)of the Holding company. The GoP had agreed to provide equity contribution to the Holding company equivalentto accumulated loss of the Holding company as at December 31, 2000, to cover interest / profit payments onlong term finances and TFCs. As part of the financial package, an amount of Rs.6,923 million (2005: Rs.5,430million) has been provided to the Holding company up to December 31, 2006 against which 692,306,294 (2005:543,009,081) ‘A’ class ordinary shares of Rs.10 each were issued to GoP up to that date. Hence, the Holdingcompany expects continued financial support of GoP in future as well. In view of the above, the Holdingcompany has prepared these financial statements on a going concern basis.

In addition GoP had approved a fleet replacement plan as a result of which the Holding company entered into anagreement for purchase of eight new Boeing 777 aircraft. GoP had provided funding of US$ 150 million (Rs.8,816million) in the form of equity and guarantees for acquisition of the said aircraft up to December 31, 2006.

Subsequent to the balance sheet date, the Holding company has been advised by the European Union (EU)that some of its aircraft are temporarily restrained from flying to various countries in Europe. The Holdingcompany has initiated steps to address the issues raised by the EU. Meanwhile, the Holding company hasreadjusted its flight schedule and rationalized the route network to ensure schedule integrity and maintainmarket share in the region.

(ii) Subsidiary company

SRL has accumulated losses of Rs.101 million as at December 31, 2006 as against the paid-up share capitalof Rs.40 million, which leaves a negative shareholders' equity of Rs. 61 million. Further, the Holding companyhas provided financial assistance of Rs. 37 million as advance against share capital. Management believes thatfinancial and operational support from the Holding company will continue in the foreseeable future as has beendone in the past.

The company had entered into a lease agreement with Civil Aviation Authority (CAA) for the plot of land andhotel's building. The lease agreement was effective from June 03, 1981 for a period of 20 years which hadexpired on June 02, 2001. The management of the company is pursuing the matter of the renewal of the leaseperiod with CAA and is optimistic about obtaining the renewal.

2. STATEMENT OF COMPLIANCE

The consolidated financial statements of the Group have been prepared in accordance with the requirementsof the PIAC Act, relevant provisions of the Companies Ordinance, 1984 (the Ordinance) and approvedaccounting standards as applicable in Pakistan. Approved accounting standards comprise such InternationalAccounting Standards (IAS) as notified under the provisions of the Ordinance. Wherever the requirements ofthe PIAC Act, the Ordinance or directives issued by the Securities and Exchange Commission of Pakistan(SECP) differ with the requirements of these standards, the requirements of the Ordinance or directives ofSECP take precedence.

3. BASIS OF PREPARATION

3.1 Basis of measurement

These consolidated financial statements have been prepared under the historical cost convention except asfollowing:

� Corporation’s aircraft fleet and land and building of hotel are stated at revalued amounts less accumulateddepreciation and impairment, if any as referred to in notes 7 and 24.

� Held for trading, available for sale and derivative financial instruments are stated at fair values inaccordance with requirements of IAS-39 “Financial Instruments: Recognition and Measurement” as referredto in note 47.



� Employee benefits are stated at present value as referred to in notes 12.3, 30.2 and 30.3.

These financial statements have been prepared on an accrual basis of accounting except for cash flowstatement.

3.2 Functional and presentation currency

These consolidated financial statements are presented in PAK Rupees, which is the functional currency of theGroup.

4. BUSINESS COMBINATIONS

The fair values at the date of acquisition of the identifiable assets and liabilities of PIAIL acquired during the yearare as follows:

Assets

Property, plant and equipment 17,676,776Investment in associate 160,030Receivable from Centre Hotel 452,346Long term prepayments and other receivables 233,084Receivable and prepayments 696,210Amount receivable from associated company 433,286Amount due from related parties 3,820Stores and spares 9,543Investments 12,343Cash and bank balances 1,367,028

21,044,466

Liabilities

Long term debts and Share holders' loans 11,983,727Amount due to related parties 91,307Differed tax 3,713,568Accounts payable and accruals 747,575Advances and deposits 95,581Taxes payable 15,140

16,646,898

Fair value of identifiable net assets acquired 4,397,568

Group's share of fair value of identifiable net assets 2,154,808Goodwill 2,047,002

Purchase price 4,201,810

Impact of piecemeal acquisition on goodwill

Goodwill on new acquisition 2,047,002Reinstatement of goodwill on initial investment -

Total goodwill acquired during the year (note 8.1) 2,047,002

2006(Rupees in thousand)



5. BASIS OF CONSOLIDATION

The consolidated financial statements include the financial statements of the Holding company and itssubsidiary companies - "the Group".

5.1 Subsidiaries

(i) Subsidiary companies are consolidated for the first time, as in prior years the Holding company hadobtained exemption from the SECP to prepare consolidated financial statements.

(ii) The assets and liabilities of subsidiary companies have been consolidated on a line by line basis and thecarrying value of investments held by the the Holding company is eliminated against the subsidiaries'shareholders' equity in the consolidated financial statements.

(iii) Minority interest is that part of the net results of operations and of net assets of subsidiary companiesattributable to interests which are not owned by the Holding company.

(iv) Material intra-group balances and transactions have been eliminated.

(v) Midway House (Private) Limited is wholly owned subsidiary of the Holding company. The company is underwinding up and has been fully provided in the books of the Holding company and accordingly notconsolidated in these financial statements.

(vi) The subsidiaries of the Holding company, PIA Holdings (Private) Limited, PIA Shaver Poultry BreedingFarms (Private) Limited and PIA Hotels Limited, had applied under the 'Easy Exit Scheme' announced bythe SECP for voluntary winding up. Assets and liabilities of these subsidiaries were taken over by theHolding company and accordingly not consolidated in these financial statements.

(vii) Special Purpose Entities (SPE) formed during the year for acquiring aircraft have not been consolidated inthese financial statements as the shareholding and controlling interest and risk and rewards of SPE restswith the trustees' representing foreign banks.

5.2 Associates

Associated companies are those entities in which the the Holding company has significant influence, but whichit does not control. Investment in associated companies are included in the balance sheet at cost plus theappropriate share of post acquisition retained profits / (losses) and reserves less impairment loss, if any ( theequity method ).

5.3 Joint Venture

Joint ventures are contractual arrangements which establish joint control. For investments in jointly controlledoperations, each venturer individually recognizes the assets it controls, liabilities and expenses it incurs and itsshare of income from the provision of services rendered by the joint operations.

Investment in joint venture is included in the balance sheet at cost plus the appropriate share of post acquisitionretained profits / (losses) and reserves less impairment loss, if any (the equity method).

6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6.1 Critical accounting estimates and judgements

The preparation of consolidated financial statements in conformity with approved accounting standards requiresthe use of certain critical accounting estimates. It also requires the management to exercise its judgement in theprocess of applying the Group’s accounting policies. The Group makes estimates and assumptions concerningthe future. The areas involving a higher degree of judgement or complexity, or areas where assumptions andestimates are significant to the consolidated financial statements are as follows:



� Provision for taxes and deferred taxation� Provision for slow moving stores and spares� Estimates made for revaluation / impairment of property, plant and equipment� Assumption and estimations in determining the residual values and useful lives of property, plant and

equipment.� Provision for employee benefits� Unearned and earned revenue� Provision for frequent flyer programme

Estimates and judgements are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.

6.2 Standards, interpretation and amendments to published approved accounting standards

IAS – 1 “Presentation of Financial Statements” effective from January 01, 2007- Capital Disclosures

Adoption of the above amendment may only impact the extent of disclosures presented in the financialstatements.

In addition to above, a new series of standards called “International Financial Reporting Standards (IFRSs)”have been introduced and seven IFRSs have been issued by the International Accounting Standard Board. Outof these following four IFRSs have been adopted by the Institute of Chartered Accountants of Pakistan (ICAP)and have been approved by SECP, which are effective from January 01, 2007:

(i) IFRS-2 “Share-Based Payments”(ii) IFRS-3 “Business Combinations”(iii) IFRS-5 “Non Current Assets Held for Disposal and Discontinued Operations”(iv) IFRS-6 “Exploration for and Evaluation of Mineral Resources"

The Group expects that the adoption of these pronouncements mentioned above will have no significant impacton the Group’s financial statements in the period of initial application.

6.3 Property, plant and equipment

Operating fixed assets and depreciation

OwnedLeasehold land is stated at cost or revalued amounts. Building and improvements of hotel properties and Aircraftfleet, are stated at revalued amounts less accumulated depreciation and impairment, if any. Other fixed assetsare stated at cost less accumulated depreciation and impairment, if any. Cost of certain fixed assets compriseshistorical cost and exchange differences incurred in the financial year 1983 on foreign currency loan obtainedfor acquisition of fixed assets.

Depreciation is calculated on straight-line method to write-off the cost or revalued amount of assets, less theirresidual values, over their expected useful lives. Remaining useful lives of significant assets and their residualvalues are reviewed periodically and changes in estimates arising from such review are accounted forprospectively. The rates of depreciation are stated in note 7.1.

Proportionate depreciation is charged on aircraft fleet from the date of acquisition till the date of disposal. Forother assets, full year’s depreciation is charged on additions during first six months whereas six months’depreciation is charged on additions during the second half of the year, and no depreciation is charged in theyear of disposal.

Repairs and maintenance costs are charged to income as and when incurred. Major renewals andimprovements are capitalized.

Gains and losses on disposal of fixed assets are dealt through profit and loss account.



LeasedThe assets under finance lease are recorded at an amount equal to fair value of the leased assets at inceptionof the lease or, if lower, at the present value of minimum lease payments. In calculating the present value of theminimum lease payments, the discount factor is the interest rate implicit in the lease or incremental borrowingrate of the Group, where appropriate.

Financial charges are allocated to accounting periods in a manner so as to provide a constant periodic rate ofcharge on outstanding liability.

Depreciation is charged to income applying straight-line method on a basis similar to owned assets.

The fair value of aircraft signifies cost less manufacturer's credit, if any.

Capital work-in-progressThese are stated at cost less impairment, if any. The assets are transferred to operating fixed assets when theyare available for use.

Surplus on revaluation of fixed assetsThe surplus on revaluation of fixed assets is reflected in balance sheet as “Surplus on Revaluation of FixedAssets” in accordance with the requirements of section 235 of the Companies Ordinance, 1984.

� A revaluation deficit is recognized in the profit or loss account, except in case of any surplus realized for thesame asset in prior periods, in which instance the deficit is debited to surplus on revaluation of fixed assetsaccount.

� The difference between depreciation computed on the revalued amount and original cost of assets istransferred from the surplus on revaluation of fixed assets account to retained earnings annually.

� Accumulated depreciation as at the revaluation date is eliminated against gross carrying value of the assetsand the net amount is restated to revalued amount of the assets. Upon disposal, any revaluation reserverelating to the particular assets is transferred to retained earnings.

6.4 Intangibles

Costs that are directly associated with identifiable software products controlled by the Group and have probableeconomic benefit beyond one year are recognized as intangible assets.

Intangible assets are stated at cost less accumulated amortization and impairment, if any. Intangible assets withfinite lives are amortized on a straight line basis over their estimated useful lives as specified in note 8.2.2.

6.5 Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of the share of the net identifiableassets acquired by the Group in its subsidiaries at the date of acquisition.

Goodwill is carried at cost less accumulated amortization and impairment losses, if any.

6.6 Impairment

The carrying amount of the Group’s assets is reviewed at each balance sheet date to determine whether thereis any objective evidence that an asset or group of assets may be impaired. If any such evidence exists, theasset's or group of assets’ recoverable amount is estimated. An impairment loss is recognized in profit and lossaccount whenever the carrying amount of an asset exceeds its recoverable amount.

6.7 Investments

Held for tradingThese are securities which are acquired with the intention to trade by taking advantage of short-term market /interest rate movements. These are carried at market value, with the related surplus / (deficit) being taken toprofit and loss account.



Held to maturityFinancial assets with fixed or determinable payments and fixed maturity for which the Group has ability to holdthem till maturity are classified as held to maturity investments. These instruments are initially recognized in thebalance sheet at cost and subsequently measured at amortized cost using effective interest rate method. Allfinancial assets categorized under held to maturity are subject to annual review for impairment.

Available for saleAll of the Group’s investments other than fixed maturity investments and investments in subsidiaries, associatesand joint venture are classified as available for sale as the Group has no intention for the purpose of generatinga profit from short term fluctuations in prices or dealer’s margin. All investments classified as available for saleare initially recognized at cost inclusive of transaction costs and are subsequently marked to market usingperiod end bid prices from stock exchange quotations and quotations from brokers and in case of unquotedinvestments, at cost, less impairment. Any resultant gain / loss is recognized directly in equity until theinvestments is de-recognized. Any impairment loss including that had been recognized directly in equity isremoved from equity and recognized in profit and loss account for the year.

SubsidiariesSubsidiaries are all entities over which the Holding company has the power to govern the financial and operatingpolicies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fullyconsolidated from the date on which control is transferred to the Holding company. They are de-consolidatedfrom the date on which control ceases.

AssociatesAssociates are all entities over which the Group has significant influence but not control, generallyaccompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates areaccounted for by the equity method of accounting and are initially recognized at cost.

The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement; itsshare of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisitionmovements are adjusted against the carrying amount of the investment. When the Holding company’s share oflosses in an associate equals or exceeds its interest in the associate, including any other unsecuredreceivables, the Group does not recognize further losses, unless it has incurred obligations or made paymentson behalf of the associate.

Joint VentureThe Group has interests in a joint venture which is a jointly controlled entity. A joint venture is contractualarrangement whereby two or more parties undertake in economical activity that is subject to a joint control, anda jointly controlled entity in a joint venture that involves the establishment of separate entity in which eachventures has an interest. The Holding company recognizes its interest in joint venture using the equity methodof accounting and is initially recognized at cost.

6.8 Stores and spares

Capital sparesRotable and repairable stores are treated as operating fixed assets and are depreciated based on the averageuseful remaining life of the related aircraft. The average rate is stated in note 7.1.

Other stores and sparesThese are valued at lower of cost and net realizable value except goods-in-transit, which are valued at cost.Cost is determined as follows:

� Fuel and medical inventories first-in-first-out basis� Other stores and spares moving average cost

Net realizable value signifies the estimated selling price in the ordinary course of business less cost ofcompletion and cost necessary to be incurred in order to make the sale.



6.9 Trade debts and other receivables

Trade debts are recognized and carried at original invoice / ticket amount less provision for doubtful debts.Provision is made when collection of amount is no longer probable. Known bad debts are written off, if any.

6.10 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of cash flow statement,cash and cash equivalents comprise cash in hand, balances with banks and short term placements readilyconvertible to known amounts of cash and subject to insignificant risk of changes in value. Cash and cashequivalents also include bank overdrafts / short term borrowings that are repayable on demand and form anintegral part of the Group’s cash management.

6.11 Trade and other payables

Trade and other payables are stated at their costs, which is the fair value of consideration received.

6.12 Interest / mark-up bearing loans and borrowings

All loans and borrowings are initially recognized at the fair value of the consideration received less directlyattributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized costusing the effective interest method.

Gains and losses are recognized in profit and loss account when the liabilities are de-recognized as well asthrough the amortization process.

6.13 Financial instruments

Financial assets and financial liabilities are recognized at the time when the Group becomes a party to thecontractual provisions of the instrument and assets and liabilities are stated at fair value and amortized costrespectively. Financial assets are de-recognized at the time when the Group loses control of the contractualrights that comprise the financial assets. Financial liabilities are de-recognized at the time when they areextinguished, that is, when the obligation specified in the contract is discharged, cancelled, or expired. Any gainsor losses on de-recognition of the financial assets and financial liabilities are taken to the profit and loss accountimmediately.

6.14 Offsetting

Financial assets and financial liabilities are only offset and the net amount reported in the balance sheet when,and only when, the Group:

� currently has a legally enforceable right to set off the recognized amounts; and� intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

6.15 Equity instruments

Equity instruments issued by the Group are stated at their face value.

6.16 Taxation

Current taxationProvision of current taxation is based on taxable income for the year determined in accordance with theprevailing laws of taxation on income earned for local as well as foreign operations, as applicable to therespective jurisdictions. The charge for the current tax in consolidated financial statements using prevailing taxrates or tax rate expected to apply to the profits for the year at enacted rate or minimum tax at the rate of 0.5%of turnover whichever is higher. The charge for the current tax also includes adjustments wherever considerednecessary relating to prior year, arising from assessments framed during the year.



Deferred taxationDeferred tax is provided, using the liability method, on all temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are not recognized in respect of taxable temporary differences associated with interestsin joint ventures, where the timing of the reversal of the temporary difference can be controlled and it is probablethat the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assetsand any unused tax losses, to the extent that it is probable that taxable profits will be available against whichthe deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extentthat it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferredincome tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period whenthe asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date.

Income tax relating to the items recognized directly in equity are recognized in equity and not in the profit andloss account.

6.17 Revenue recognition

Passenger and cargo revenuePassenger and cargo sales are recognized as revenue when the transportation is provided. The value ofunutilized tickets and air way bills is shown as an advance against transportation. However, in view of thelimitation of the Holding company’s revenue accounting system, the value of unutilized tickets and airway billsis not provided by the system and is determined by the management on the basis of estimated number of daysdelay between the sale of ticket / air way bills and actual travel / lift.

Engineering and other servicesRevenue for the provision of engineering and other services is recognized net of discounts when the outcomeof such services rendered can be measured reliably.

Room, food and beveragesRevenue from room, food, beverages and other related services is recognized on the provision of services.

Interest / mark-up and dividend income

� The Group recognizes interest income / mark-up on short term bank deposits and interest bearing advanceson time proportion basis.

� Interest on held to maturity investments are recognized using the effective interest method.� Dividend income is recognized, when the right to receive dividend is established.

6.18 Borrowing costs

The Group recognizes the borrowing costs as an expense in the period in which these costs are incurred.

6.19 Provision for obligations

A provision is recognized in the balance sheet when:

� the Group has a legal or constructive obligation as a result of a past event,� it is probable that an outflow of resources embodying economic benefits will be required to settle the

obligation; and� a reliable estimate can be made of the amount of obligation.



6.20 Foreign currency translation

Foreign currency transactions are converted into Pak Rupees applying the exchange rate at the date of therespective transactions. Monetary assets and liabilities in foreign currencies including assets / liabilities of netinvestment in foreign operations are translated into Rupees at the rates of exchange prevailing at the balancesheet date.

Profit and loss account balances of foreign operations are translated at average exchange rate prevailing duringthe year. Gains and losses on translation are included in the profit and loss account except net gain arising ontranslation of net investment in foreign operations which is credited to foreign exchange translation reservereflected under reserves.

6.21 Employee benefits

The holding company:

Provident FundThe Holding company operates a defined contribution provident fund scheme for all its permanent employees.Equal monthly contributions are made to the Fund by the Holding company and the employees in accordancewith the Fund’s Rules.

Pension FundsThe Holding company operates a funded defined benefit pension scheme for all its permanent employees.Pension scheme is a final salary pension scheme and is invested through three funds for both cockpit and non-cockpit employees namely PALPA, FENA and Employees’ Pension Funds. Contributions are made to thescheme on the basis of actuarial valuation that is carried out every year. Actuarial gains and losses arerecognized immediately.

Post retirement medical benefitsThe Holding company operates an unfunded defined benefit medical scheme and provides medical allowancesand free hospitalization benefits to all its retired employees and their spouse in accordance with their serviceregulations. The post retirement medical benefit is accounted for on the basis of actuarial valuation that iscarried out every year. Actuarial gains and losses are recognized immediately.

Compensated absencesThe Holding company accounts for all accumulated compensated absences when the employees renderservice that increases their entitlement to future compensated absences based on actuarial valuation.

Subsidiary Companies:

PIA Investments LimitedThe company operates a funded gratuity scheme for employees who have completed one year of service. Thecompany also operates a provident fund scheme for it's permanent employees. Equal contributions are made,both by the company and the employees to the fund at the rate of 10% of basic salary.

Roosevelt Hotel Corporation, N.V.The company is a party to the Industry wide Collective Bargaining Agreement between the Union and the HotelAssociation of New York City, Inc., which provides a Union sponsored multi - employer pension plan. The multi- employer Pension Plan Amendments Act of 1980 imposes certain liabilities upon employers associated with aplan, who withdraw from such a plan or upon termination of said plan. The company has not receivedinformation from plans' administrators to determine its share of unfunded vested benefits, if any. The companyhas not undertaken to terminate, withdraw or partially withdraw from the plan. Amount charged to expense forthe contributions to the multi employer plan for the year 2006 and 2005 amounted to Rs.87.128 million(US$ 1,431,373) and Rs.68.828 million (US$ 1,130,750) respectively.



Currently, all Roosevelt Hotel staff both union and non - union are employees of the management company,Interstate Hotels and Resorts. The Company reimburses the management company for matching contributionsit makes on behalf of the Hotel staff to management company's 401 (k) pension plan. Amount charged toexpense for contributions to the 401 (k) pension plan for the years 2006 and 2005 amounted to Rs.9.219 million(US$ 151,457) and Rs.6.635 million (US$ 109,011) respectively.

Minhal France, S.A.On retirement, the company's employees are entitled to an indemnity under the law and in accordance with hotelindustry labour agreements. Provision is made for the liability at the balance sheet date in accordance with theagreements.

SKY Rooms (Pvt) LimitedThe company operates an un-funded defined benefits gratuity scheme for all permanent employees. Provisionis made annually to cover obligations under the scheme.

The company also operates a defined contribution provident fund scheme for all its permanent employees.Contributions are made to the fund by the Company and the employees in accordance with the Fund's Rules.

6.22 Segment Reporting

A segment is a distinguishable component of the group that is engaged either in providing related products orservices (business segment), or in providing products or services within a particular economic environment(geographical segment), which is subject to risks and rewards that are different from those of other segments.The Group's primary format for segment reporting is based on geographical segments.

6.23 Management Fee

Roosevelt Hotel Corporation N.V.The management of the day-to-day operations of the Roosevelt Hotel is undertaken by interstate hotelscorporation under a management agreement. The agreement provides for a base management fee calculatedat 1.25% of gross operating revenues per year and an incentive management fee calculated at 15% of netoperating income as defined in the agreement. This agreement as amended will expire in April 2009.

Minhal France S.A.On March 20, 2002 Minhal France S.A acquired Scribe Gestion ( SG ), a company whose principal activity isthe holding of 99.99 % of the shares of Canadian National France ( CNF ), the company which owns the buildingand the goodwill of the Hotel Scribe ( both SG and CNF merged into Minhal France S.A effective January 1,2006 ). During the year ended December 31, 2003 the freehold value of Hotel Scribe was assessed by PKFHotel Experts, who have determined the value of Hotel Scribe and ground floor shops to be around Rs.6,681million (Euro 83,500,000). Accordingly, the hotel has been accounted for at this value.

Scribe HotelScribe Hotel is currently managed by ACCOR with assistance of Parisian Management Company B.V, relatedparties, under a management agreement. The agreement provides for a base management fee calculated at3.5% of turnover per year and an incentive management fee calculated at 12% of gross operating profit, asdefined in the agreement. However, the agreement further provides that the fee to be paid would be remitted to6.75% of the turnover.

6.24 Frequent flyer programme

The Holding company operates an Award Plus frequent flyer programme. The incremental cost of providingtravel in exchange for redemption of miles earned by members is accrued in these financial statements as anoperating cost and a future liability after allowing for miles which are not expected to be redeemed.



7. PROPERTY, PLANT AND EQUIPMENT

Operating fixed assets (note 7.1) 95,942,231 41,050,943Capital work-in-progress (note 7.2) 6,637,766 10,239,447

102,579,997 51,290,390

7 .1 Operating fixed assets

2006 2005(Rupees in thousand)

Owned

Leasehold land 67,824 - - 66,821 - - - - 66,821 -(1,003) - -

Buildings on leasehold land 952,149 120,459 - 1,072,608 332,566 35,668 - 362,658 709,950 2.5-5 (5,576)

Hotel property (note 7.1.1) - 229,946 - 24,320,909 - 437,537 - 2,233,513 22,087,396 3.3320,727,291 - 2,872,4993,363,672 * (1,076,523) *

Workshops and hangars 802,264 17,398 - 819,662 682,455 12,442 - 694,897 124,765 5

Renovation and improvements 448,374 38,306 - 485,094 382,991 31,101 - 412,506 72,588 20 (1,586) - (1,586) -

Aircraft fleet (note 7.1.2 and 7.1.3) 24,445,800 2,215,722 908,437 27,362,335 14,394,271 843,505 908,437 14,173,656 13,188,679 3.85-4.55(207,624) (207,624) -

(1,764,933) *

Operating ground equipment,catering communication andmeteorological equipment 520,164 22,251 - 514,683 366,358 24,568 - 364,146 150,537 10

(27,732) - (27,512) 732

Engineering equipment and tools 989,063 54,097 - 1,043,160 835,672 34,049 - 869,721 173,439 10-20

Traffic equipment 1,594,216 137,271 - 1,703,811 1,127,937 63,737 - 1,166,790 537,021 10-20 (27,676) (24,884) -

Furniture, fixture and fitting 617,892 1,116,582 - 4,178,808 526,934 179,665 - 2,556,101 1,622,707 10(400,560) 2,844,894 (387,848) 2,237,350

Motor transport 201,659 22,998 - 212,323 165,676 12,400 - 166,783 45,540 25(17,847) 5,513 (14,581) 3,288

Office equipment 76,835 2,040 - 77,845 64,332 3,459 - 66,844 11,001 15(1,030) - (1,009) 62

Computer and office automation 1,160,478 140,947 - 1,285,583 873,522 108,679 966,485 319,098 10-20(15,842) - (15,791) 75

Precision engineering equipment 820,031 55 - 809,297 783,041 23,415 - 795,687 13,610 10(10,789) - (10,769) -

Printing press equipment 15,039 - - 15,039 11,942 688 - 12,630 2,409 20

Reservation equipment 12,619 - - 12,619 12,618 - - 12,618 1 10

Heat ventilation and air-conditioning 8,242 170 - 8,412 2,765 665 - 3,679 4,733 10- - - 249

Kitchen & bar equipments 3,484 - - 3,484 2,560 51 - 3,130 354 10- - - 519

Television / dish / stand 2,399 - - 2,399 935 474 - 1,515 884 20- - - 106

Other equipment 382,827 70,915 - 443,049 361,060 12,190 - 363,042 80,007 10(10,693) - (10,688) 480

Capital spares 6,127,065 1,454,744 (706,892) 6,834,108 2,844,925 333,523 (644,555) 2,493,084 4,341,024 3.85-4.55(40,809) - (40,809) -

39,248,424 5,643,901 201,545 71,272,049 23,772,560 2,157,816 263,882 27,719,485 43,552,564(763,191) 23,577,698 (743,101) 5,109,784

3,363,672 * (2,841,456)

Leased

Aircraft fleet 30,254,454 29,048,562 - 59,303,016 4,794,370 1,865,265 - 6,999,464 52,303,552 4.55- - - 339,829 *

Vehicles - MT 139,989 835 - 130,142 92,420 19,077 - 103,854 26,288 25(10,682) - (7,643) -

Vehicles - TGS 84,430 - - 84,430 17,004 7,599 - 24,603 59,827 10-20

30,478,873 29,049,397 - 59,517,588 4,903,794 1,891,941 - 7,127,921 52,389,667(10,682) - (7,643) 339,829 *

Total 2006 69,727,297 34,693,298 201,545 130,789,637 28,676,354 4,049,757 263,882 34,847,406 95,942,231 (773,873) 23,577,698 (750,744) 5,109,784

3,363,672 * (2,501,627) *

COST / REVALUED AMOUNT DEPRECIATION Net book AnnualJanuary 1, Additions/ Transfers/ December 31, January 1, For the year/ Transfers / December 31, value at depreciation

2006 (disposals) Adjustment 2006 2006 (on disposals) Adjustment / 2006 December, rateRevaluation* Revaluation* 31, 2006

(Rupees in thousand) %



Operating fixed assets

Owned

Leasehold land 67,828 - - 67,824 - - - - 67,824 -(4) - - -

Buildings on leasehold land 811,881 140,268 - 952,149 308,042 24,524 - 332,566 619,583 2.5-5

Workshops and hangars 799,290 2,974 - 802,264 667,529 14,926 - 682,455 119,809 5

Renovation and improvements 402,103 46,271 - 448,374 349,558 33,433 - 382,991 65,383 20

Aircraft fleet 29,952,223 71,220 - 24,445,800 19,993,150 1,578,337 - 14,394,271 10,051,529 3.85-4.55(5,577,643) - (5,448,346)

(1,728,870) *

Operating ground equipment,catering communication andmeteorological equipment 434,189 98,900 - 520,164 356,733 22,550 - 366,358 153,806 10

(12,925) - (12,925) -

Engineering equipment and tools 956,965 32,227 - 989,063 806,861 28,925 - 835,672 153,391 10-20(129) - (114) -

Traffic equipment 1,430,318 170,229 - 1,594,216 1,153,800 72,496 - 1,127,937 466,279 10-20(6,331) - (6,314) (92,045)

Furniture, fixture and fitting 597,206 23,097 - 617,892 510,819 18,190 - 526,934 90,958 10 (2,411) - (2,075) -

Motor transport 201,424 19,197 96,268 201,659 186,791 13,203 37,30 165,676 35,983 25(115,230) - (55,300) (16,325)

Office equipment 73,507 3,508 - 76,835 61,052 3,460 - 64,332 12,503 15(180) - (180) -

Computer and office automation 1,107,903 54,640 - 1,160,478 777,595 96,432 - 873,522 286,956 10-20 (505) (1,560) (505) -

Precision engineering equipment 815,671 4,360 - 820,031 759,575 23,466 - 783,041 36,990 10

Printing press equipment 11,599 3,440 - 15,039 11,598 344 - 11,942 3,097 20

Reservation equipment 12,619 - - 12,619 12,618 - - 12,618 1 10

Heat ventilation and air-conditioning 7,529 713 - 8,242 2,156 609 - 2,765 5,477 10

Kitchen & bar equipments 3,484 - - 3,484 2,458 102 - 2,560 924 10

Television / dish / stand 2,189 210 - 2,399 569 366 - 935 1,464 20

Other equipment 406,679 4,189 - 382,827 384,827 4,265 - 361,060 21,767 10(28,041) - (28,032) -

Capital spares 5,421,106 615,925 136,298 6,127,065 2,609,541 587,512 - 2,844,925 3,282,140 3.85-4.55(46,264) - (46,264) (305,864)

43,515,713 1,291,368 232,566 39,248,424 28,955,272 2,523,140 37,307 23,772,560 15,475,864(5,789,663) (1,560) (5,600,055) (414,234)

(1,728,870) *

Leased

Aircraft fleet 30,254,454 - - 30,254,454 1,309,445 1,619,147 - 4,794,370 25,460,084 4.55 - 1,865,778 *

Vehicles - MT 222,155 14,102 (96,268) 139,989 99,742 32,676 (37,307) 92,420 47,569 25 - - - (2,691)

Vehicles - TGS 84,430 - - 84,430 8,561 8,443 - 17,004 67,426 10-20

30,561,039 14,102 (96,268) 30,478,873 1,417,748 1,660,266 (37,307) 4,903,794 25,575,079 - - - (2,691) -

1,865,778 *

Total 2005 74,076,752 1,305,470 136,298 69,727,297 30,373,020 4,183,406 - 28,676,354 41,050,943(5,789,663) (1,560) (5,600,055) 416,925)

136,908 *

COST / REVALUED AMOUNT DEPRECIATION Net book AnnualJanuary 1, Additions/ Transfers/ December 31, January 1, For the year/ Transfers / December 31, value at depreciation

2005 (disposals) Adjustment 2005 2005 (on disposals) Adjustment / 2005 December, rateRevaluation* 31, 2005

(Rupees in thousand) %



7.1.1 Hotel property

Roosevelt Hotel Corporation N.V.

The Hotel property is stated at a revalued amount. The valuation was performed by an independent appraiser,Hospitality Valuation Services, a division of Hotel Consulting Services Inc. for a financial institution. Theappraisal determined the market value of the simple interest in the property as of November 12, 1999 to beRs.13.860 billion (US$ 227,700,000). The carrying value of land, building and improvements and furniture andequipment at December 31, 1999 amounted to Rs.7.388 billion (US$ 121,375,000) and accordingly the resultingdifference of Rs.6.472 billion (US$ 106,325,000) was credited to revaluation reserve. Management believes thatbased on a valuation by Hospitality Valuation Services in 2004, the fair value of the property is close to it'scarrying value and no additional revaluation is required as of December 31, 2006.

The increase in the revalued amount of property and equipment of Rs.6.472 billion (US$ 106,325,000) wasallocated to its various components. The portion allocated to building and improvements of Rs.1.827 billion (US$30,007,000) is being amortized over a 37 years 4 months period beginning in January 2000. The allocation offurniture and equipment of Rs.103.722 million (US$ 1,704,000) is being amortized over 7 years while the portionrelating to land and improvements of Rs.4.542 billion (US$ 74,614,000) is not being amortized. The historicalcost of building and improvements are being depreciated over a range of 12 to 40 years while furniture andequipment are being depreciated over a range of 7 to 12 years.

Had there been no revaluation, the written down value of the these revalued assets in the balance sheet wouldhave been as follows:

Land, buildings and improvements 7,953,735 1,901,245 6,052,490Furniture and equipment 1,333,803 1,193,389 140,414

Minhal France S.A

During the year ended December 31, 2003, the freehold value of Hotel Scribe was assessed by PKF HotelExperts, who have determined the value of Hotel Scribe and ground floor shops to be around Rs. 6,687 million(Euro 83.5 million). Accordingly, the Hotel has been accounted for at this value.

This value has been apportioned between land amounting to Rs.1,671.712 million (Euro 20.875 million) andbuildings amounting to Rs.5,015.135 million (Euro 62.625 million). The value assigned to land is not amortizedand other building value is being amortized over 30 years.

Another valuation of the property was carried out in October 2006 by an independent appraiser BDO MG HotelsTourism. The appraiser determined that the value of fee simple interest in the property as on October 2006amounted to Rs.11,363.292 million (Euro 140.6 million) equivalent to Rs.11,271.298 million (US$ 185.17million). The carrying value of land and building improvements and furniture and equipment at December 31,2006 amounted to Rs.6,837.892 million (US$ 112.336 million) and accordingly the resulting difference ofRs.4,440.162 million (US$ 72.945 million) was credited to revaluation reserve.

Had there been no revaluation, the written down value of the these revalued assets in the balance sheet wouldhave been as follows:

Land, buildings and improvements 6,634,633 1,076,524 5,558,109Furniture and equipment 1,959,057 695,602 1,263,455

Cost Accumulated Book valueDepreciation






The useful lives of the assets for calculation of depreciation are as follows:

Assets

Leasehold improvements 30Hotel furniture and equipment 3 to 15Technical equipment 5 to 25Fixtures and fittings 5 to 15Office furniture and equipment 5

7.1.2 During the year, aircraft fleet of the Holding company was valued by an independent valuer Airclaims Limited -UK on the basis of professional assessment of current market values as of December 31, 2006. Current marketvalue represents the value that an aircraft could best achieve under today’s open market conditions and,therefore, takes into account a thorough review of recent market activity and known transactions involving thesubject aircraft covering new sales, new orders, the limited open market and financial activity that has occurredto date. It additionally considers the perceived demand for the type, its availability in the market and further takesaccount of the expressed views of informed industry sources.

The appraisal has taken into account the age, specification, accrued hours and cycles of the aircraft andproduced a Current Market Half-life Values (CMHLV). Half life or mid-time assumes the airframe, engine, gearsand all major components are half way between major overhauls. CMHLV has been then adjusted to accountfor the maintenance status of the aircraft in accordance with the information supplied. The determination of suchvalues involves a multiplicity of variables and some variation in perceived value must be expected. In this case,the appraiser considers that a tolerance of +/- 5% may reasonably apply to the calculated market value.

As a result of valuation made by the appraiser, net surplus of Rs.1,425 million (2005: Rs.137 million deficit) onrevaluation of aircraft fleet has arisen. Surplus on revaluation of fixed assets has been recorded at Rs.926.32million net of deferred tax of Rs. 498.79 million. However, in connection with this analysis, the valuer did notphysically inspect any of the aircraft and has relied on the information provided by the Holding company.

Airclaims Limited - UK reviewed the useful lives of the aircraft and these have been estimated as follows:

Airframes 30 25 25 25 25

Engines 35 30 25 35 30

Other component 30 25 25 25 25

7.1.3 Had there been no revaluation, the written down value of the revalued aircraft in the balance sheet would havebeen as follows:

Aircraft fleet - 2006 78,912,495 16,265,774 62,646,721

- 2005 52,243,279 12,911,023 39,332,256

Years

BOEING AIRBUS737-300 747-200 747-300 777-200 A310-300

Years






Cost of services (note 36) 3,852,103 3,623,543Distribution costs (note 37) 55,884 44,234Administrative expenses (note 38) 141,770 98,705

4,049,757 3,766,482

7.1.4 Included in "operating fixed assets" are four Fokker aircraft and other fixed assets costing Rs.331.880 millionand Rs.8,701 million respectively, which are fully depreciated.

7.1.5 Following fixed assets were disposed off during the year:

7.1.4 Depreciation charge for the year has been allocated as under:

Leasehold land Mr. Manzoor Hussain Through auction 33 - 33 81,000(Rawalpindi)M/s. Ambala Sweet & Nimco Through auction 269 - 269 50,667 M/s. Ambala Sweet & Nimco Through auction 702 - 702 6,667

Aircraft fleetDH-6(AP-BCG) M/s. F & M Aviation USA Through negotiation 16,695 16,695 - 39,385 DH-6(AP-BCH) M/s. F & M Aviation USA Through negotiation 16,695 16,695 - 39,385 F-27 (AP-BAL) National Insurance Corporation Insurance claim 56,925 56,925 - 12,122 F-27 (AP-BDQ) National Insurance Corporation Insurance claim 117,309 117,309 - 12,148

Motor vehiclesTo employeesHonda Civic (GA-9905) Mr. Jawed Khan As per Holding company's policy 1,237 619 618 - Honda Civic (GA-9906) Syed Farooq Hussain Shah As per Holding company's policy 1,238 619 619 -Honda City (GA-4810) Mr. Jamil Rauf As per Holding company's policy 735 661 74 - Honda City (GA-4742) Mr. Zafar Ahmed Khan As per Holding company's policy 735 661 74 - Honda City (GA-8499) Mr. Nadir Ali Shah As per Holding company's policy 735 661 74 - Honda City (GA-8506) Mr. Imran Maqsood As per Holding company's policy 735 662 73 - Toyota Corolla (GA-9451) Mr. AVM Jawed Iqbal As per Holding company's policy 939 587 352 586 Honda City (GA-4816) Mr. Dawood Nasir Paul As per Holding company's policy 735 661 74 - Honda City (GA-8762) Mr. Mureed Abbas Khan As per Holding company's policy 735 661 74 - Honda City (GA-8505) Mr. Mahmood Manzoor As per Holding company's policy 735 662 73 - Honda City (AJM-725) Mr. Talat A Malik As per Holding company's policy 835 104 731 803 Suzuki Margalla (GA-8899) Mrs. Farzana - W/O Asmatullah As per Holding company's policy 349 262 87 - Toyota Corolla (GA-8752) Mr. Rasheed -ul-Hassan As per Holding company's policy 939 822 117 - Toyota Corolla (AKT-460) Capt. Shahnawaz As per Holding company's policy 969 - 969 -

To othersHonda Civic (18-SRI-3702) Ms. TT Dealwis Through auction / negotiation 688 619 69 417 Toyota Camry (IR-JULA-186) Mr. Thong Through auction / negotiation 1,331 1,198 133 286 Nissan Sunny (BAAYAN-9618) Mr. Nirmal - K Quresh Through auction / negotiation 1,156 1,041 115 349 Mercedez - BENZ (PIA-9999) Mr. M. Ahmed Through auction / negotiation 3,084 2,776 308 185 Mazda 626 LX 899 (67373-AD) Ms. Nayyar Adeel Through auction / negotiation 590 531 59 110 Honda City (Sedan ) 2CH-7799 Mr. Siraj Ahmed Through auction / negotiation 810 729 81 177Various * 19,596 17,274 2,322 395

Aggregate value of items whereWDV is less than Rs.50,000 Various 128,131 126,079 2,052 22,476

Assets disposed off bysubsidiaries (note 7.1.6) 398,208 385,231 12,977 12,977

Total 2006 773,873 750,744 23,129 280,135

2005 5,789,663 5,600,055 189,608 790,685

* This includes various operating fixed assets, having WDV above Rs.50,000. In view of large number of items, the management considers it impracticable todisclose the particulars of all items.

Sale of fixed assets is made through disposal committee in accordance with the prescribed procedures.

Sale /Accumulated Net Insurance

Description Sold to Method of disposal Cost depreciation book value proceeds




7.1.6 Represents disposal of assets pertaining to subsidiary - PIAIL including motor vehicles and furniture and fixturehaving book value of Rs.0.274 million and Rs.12.704 million respectively.

7.2 Capital work-in-progress


Buildings 23,696 27,244 Other equipment 404,249 86,653 Renovation and improvements 115,542 80,135 Non-refundable advance against

purchase of aircraft and related equipments 24,899,773 10,119,877

25,443,260 10,313,909

Less: transfer to operating fixed assets 18,775,030 68,038 charged off / adjustment 30,464 6,424

18,805,494 74,462

6,637,766 10,239,447

8. INTANGIBLES

Goodwill (note 8.1) 1,976,803 Computer software (note 8.2) 98,275 112,421

2,075,078 112,421

8.1 Goodwill

Cost (note 4) 2,047,002 -Translation adjustment 32,151 -

2,079,153 -Less: accumulated amortization 102,350 -

1,976,803 -

Useful life (years) 20 -

8.2 Computer software

Cost (note 8.2.1) 199,601 182,741 Less: accumulated amortization (note 8.2.2) 101,326 70,320

98,275 112,421

8.2.1 Cost

Opening balance 182,741 111,228 Add: additions during the year 16,860 71,513

Closing balance 199,601 182,741

8.2.2 Accumulated amortization

Opening balance 70,320 36,974 Amortization for the year 31,006 33,346

Closing balance 101,326 70,320

Useful life (years) 5 - 10 5 - 10

9. LONG TERM INVESTMENTS IN RELATED PARTIES

Associates (note 9.1) 44,135 2,278,189 Joint venture (note 9.2) - -

44,135 2,278,189



- 400,000 PIA Investments Limited Sharjah - United - 50 AED 100 each - 2,164,525Arab Emirates

1,600 1,600 Minhal Incorporated Sharjah - United 40 40 AED 100 each 44,135 113,664Arab Emirates

44,135 2,278,189

The share of profit / (loss) after taxation of associated company has been incorporated in the financialstatements of the Group on the basis of the operating results of the associated company for the year endedDecember 31, 2006 (2005: December 31, 2005).

9.2 Joint venture - unquoted

Percentage ofShareholding

2006 2005 Country of 2006 2005 Face value/ 2006 2005No. of shares Name of the company incorporation % Market value (Rupees in thousand)

9.1 Associates - unquoted

89,310 - Abacus Distribution Systems Pakistan 20 - Rs. 100 1 -Pakistan (Private) Limited

Less: share in post acquisition losses 1 -

- -

During the year, the Holding company acquired 20% equity participation at a cost of Re.0.01 per share. As perthe Joint Venture Agreement, shareholding of the Holding company will increase to 75% during the period of 9years. The Abacus Distribution Systems Pakistan (Private) Limited is a joint venture between the Holdingcompany and Abacus International Pte Limited, Singapore.

10. LONG TERM INVESTMENTS IN OTHERS



Available for sale (note 10.1) 68,358 31,493Held to maturity (note 10.2) 43,731 64,224

112,089 95,717

10.1 Available for sale


Quoted172,913 172,913 Pakistan Services Limited Pakistan Rs. 10

Rs. 393 67,989 31,124

Unquoted10,000 10,000 Pakistan Tourism Development Pakistan Rs. 10

Corporation Limited 100 100

87,512 87,512 Duty Free Shops (Private) Limited * Pakistan 11.31 24.95 Rs. 100 269 269

68,358 31,493

* During the year, the Holding company did not exercise the option to acquire right shares issued by Duty Free Shops(Private) Limited, due to which the Holding company's percentage of holding in the company has decreased.





Promissory notes issued by the Nigerian Government 61,570 77,914Less: current maturity (note 20) 17,839 13,690

43,731 64,224

This represents two promissory notes issued by Nigerian Government on May 8, 1988 amounting to US$ 1.32million and US$ 2.94 million. These were issued in consideration of bank balance of the Holding company inCentral Bank of Nigeria which was seized by the Nigerian Government at the time of coup and civil war inNigeria. These notes and interest thereon are redeemable in fixed quarterly installments of US$ 58,676 and US$26,325 respectively during the period starting from April 5, 1990 to January 5, 2010.

11. RECEIVABLE FROM CENTRE HOTEL

Receivable by PIAIL from Centre Hotel comprises share of net current assets of Centre Hotel, Abu Dhabi, JointVenture as of April 21, 1997. This joint venture was in the form of a partnership agreement between ashareholder of PIAIL (i.e. PIAC) and H.E. Sheikh Hamdan Bin Mohammed Al Nahyan. The shareholder hadissued an assignment in favour of the company (PIAIL) but the assignment was not registered.

The joint venture was for a period of 17.5 years, which expired on April 21, 1997. According to the agreement,net current assets of the joint venture at the end of the term were to be distributed to joint venture partners inthe ratio of their investment. The amount for PIAIL's share of net current assets as at April 21, 1997 is basedon the management financial statements of the joint venture, as its audited financial statements are notavailable. In arriving at the share of net current assets as at April 21, 1997, amounts spent on renovationprogramme amounting to Rs.579.501 million (Dh 35.565 million) and reserve for renovation amounting toRs.72.265 million (Dh 4.435 million) in total amounting to Rs.649.300 million (US$ 10.667 million) - PIAIL'sshare Rs.318.167 million (US$ 5.227 million) have not been considered as these amounts have been spentwithout authorization from the PIAIL.

A notice of arbitration was served on Sheikh Hamdan's estate by the PIAIL on February 23, 1997. The disputerelates to the correct legal interpretation of joint venture agreement and partnership deed regarding theconstruction and subsequent operation of the hotel. The term of the joint venture and partnership expired onApril 21, 1997, when the land and buildings comprising the hotel reverted to the estate of the late SheikhHamdan without payment or compensation to the partnership / joint venture. The partners are in dispute as tothe partnership liability to reinstate the building prior to completion of joint venture period and expenses incurredon renovation and creation of reserve for renovation of referred to above. In respect of suit filed against SheikhKhalifa bin Hamdan Al Nahyan, the Abu Dhabi Federal Court on January 26, 2004 decreed referring the caseto arbitration and informing the Supreme Judicial Board to delegate one of the judge to act as an arbitrator fordeciding the dispute.

However, on July 12, 2004 Honourable Supreme Court has decided to stay the execution proceedings, pendingthe outcome of the cassation appeal lodged by the Sheikh Khalifa bin Hamdan Al Nahyan. The date of hearinghas not yet been fixed.

12. LONG TERM LOANS, ADVANCES AND OTHER RECEIVABLE

10.2 Held to maturity


Long term loans (note 12.1) 9,880 10,066Long term advances (note 12.2) 197 4,675,037Other receivable (note 12.3) 1,684,000 1,961,000

1,694,077 6,646,103




To employees 14,697 14,176 Less: current maturity 4,817 4,110

9,880 10,066

The loan carries interest at the rate of 8% to 20% per annum. The loan is repayable within four year from thedate of disbursement. The maximum amount aggregate balance due from employees at the end of any monthduring the year was Rs. 15.98 million (2005: 14.18 million). There are no loans to directors, chief executiveofficers and other executives.

12.2 Long term advances - unsecured

Associate

PIA Investments Limited - considered good (note 12.2.1)Advance for working capital requirements - 936,760 Accumulated interest on- advance for working capital requirements - 2,890,637 - loan for renovation of Hotel - 847,536

- 4,674,933 Employees (note 12.2.2) 164 67 Other 33 37

197 4,675,037

12.2.1 Maximum aggregate amount due from the associate at the end of any month was Rs.4,173 million (2005:Rs.4,675 million).

12.2.2 This represents advance salary to employees other than directors, chief executive officer and other executivesand adjustable against future salary.

12.3 Other receivable - pension funds

Asset recognized in the balance sheetPresent value of defined benefit obligation 9,466,000 8,930,000 Less: Fair value of plan assets 11,150,000 10,891,000

1,684,000 1,961,000

Expense recognized in profit and loss accountCurrent service cost 214,000 241,000 Interest cost 925,000 807,000 Settlement cost - 17,000 Expected return on plan assets (1,141,000) (993,000)Actuarial loss / (gain) recognized - net 377,000 (23,000)

375,000 49,000

Movement in asset during the yearBalance at the beginning of the year 1,961,000 1,912,000 Charge for the year (375,000) (49,000)Payments made during the year 98,000 98,000

Balance at the end of the year 1,684,000 1,961,000

Actual return on plan assets 890,000 827,000

Number of employees of the Holding company covered by the scheme as on December 31, 2006 was 12,116(2005: 12,725).

12.1 Long term loans - unsecured




Deposits

Aircraft fleet lease deposits 1,564,544 854,203Engine maintenance 215,695 226,205 Rent 35,320 33,871 Utilities 9,697 10,419 Aircraft fuel 6,591 6,444 Guarantee deposit 3,222 2,923 Occupancy coefficient 9,589 -Others 67,956 65,098

1,912,614 1,199,163

Prepayments

Finance fee (note 13.1) 73,074 - Rental commission 20,909 - Rental income (note 13.2) 32,226 - Exposure fee to support financing (note 13.3) 1,509,793 675,837 Others 6,900 1,961

1,642,902 677,798Less: current portion (note 18.1) 149,119 70,023

3,406,397 1,806,938

13.1 The finance fee incurred in connection with the refinancing of the mortgage loans payable are being amortizedover the term of the respective mortgage.

13.2 Many of the Roosevelt Hotel commercial leases provide for scheduled rent increases and free rent periods. Therental income receivable represents pro-rata future receipts.

13.3 This represents the payment made by the Holding company to Ex-Im Bank in consideration of 12 years'guarantee issued by Ex-Im Bank. Accordingly, this exposure fee is being amortized over the period of lease termi.e.12 years.

14. DEFERRED TAXATION

Holding company - PIAC (note 14.1) - -Subsidiary - SRL (note 14.2) - (20,190)

- (20,190)14.1 Holding company

Deferred tax credits:Accelerated tax depreciation 17,349,229 9,236,381 Surplus on revaluation of fixed assets 498,786 -Unrealized gain on re-measurement of investments 12,642 -

17,860,657 9,236,381 Deferred tax debits:

Unrealized loss on re-measurement of investments - (18,291)Unused tax losses (20,011,344) (7,356,877)Provision for liabilities and to write down other assets (2,134,853) (2,333,238)

(22,146,197) (9,708,406)

(4,285,540) (472,025)

The fair value of plan assets includes investments in the Holding company's shares amounting to Rs.4 million(Rs.7 million).

13. LONG TERM DEPOSITS AND PREPAYMENTS




Deferred tax credits:

Accelerated tax depreciation 2,938 2,459

Deferred tax debits:

Provisions (467) (467)Unused tax losses - (8,341)Deferred liability - gratuity (14,267) (13,841)

(14,734) (22,649)

(11,796) (20,190)

14.3 Deferred tax asset recognized in prior has been completely reversed during the year in accordance with theaccounting policy stated in note 6.16.

15. STORES AND SPARES

Stores 839,848 662,580Spares 3,387,842 3,924,807

4,227,690 4,587,387 Less: provision for slow moving stores and spares (note 15.1) 1,604,338 2,427,229

2,623,352 2,160,158

Inventory held for disposal (note 15.2) 2,266,825 1,253,852 Less: adjustment to write down

surplus inventory to net realizable value 1,935,827 1,012,936

330,998 240,916 Goods-in-transit 427,978 392,031

3,382,328 2,793,105

15.1 Movement in provision is as follows:

Balance at the beginning of the year 2,427,229 2,645,730 Transferred to inventory held for disposal (922,891) -Provision made during the year (note 40) 100,000 (218,501)


The provision against slow moving stores and spares is being made in a manner whereby the book value ofstores and spares at the end of each year is charged to the profit and loss account. Such provision is made inproportion to estimated average useful lives of the relevant category of the aircraft attained up to the balancesheet date.

15.2 It includes inventory held with foreign third party for sale in the open market.

Deferred tax asset has not been recognized in these financial statements in accordance with the accountingpolicy stated in note 6.16.

14.2 Subsidiary - SRL




Considered good 6,521,586 5,238,444

Considered doubtful 455,325 408,213 Less: provision for doubtful debts (note 16.1) 455,325 408,213

- -

6,521,586 5,238,444


Balance at the beginning of the year 408,213 588,178 Written off during the year (198) (13,612)Provision / (reversal) made during the year (note 40) 47,310 (166,353)

Balance at the end of the year 455,325 408,213

16.2 Trade debts include debts due from Government agencies, other airlines and International Air TransportAssociation's (IATA) approved agents. Certain portion of trade debts is secured by bank guarantees receivedfrom agents but due to very large number of agents all over the world the amount of secured debts is notdeterminable.

17. ADVANCES

Considered good

AssociatesPIA Investments Limited (note 17.1) - 16,704

Amount due to related party of PIAIL 21,895 -

Current portion of long term loans 4,817 4,110

OthersExecutives (note 17.2) 54,942 22,752 Employees 85,534 97,075 Suppliers 383,070 241,872 Others 2,598 83,457

526,144 445,156

Considered doubtful 28,985 25,048 Less: provision for doubtful advances (note 17.3) 28,985 25,048

- -

552,856 465,970

17.1 The maximum aggregate amount due from related parties at any month end was Rs. 165 million (2005: Rs. 146million)

17.2 This represents due from executives other than directors and chief executive officer (CEO) in respect ofadvances for expenses and furniture etc. in accordance with the terms of employment. The maximum aggregateamount of advances due from executives at the end of any month during the year was Rs.54.94 million (2005:Rs.22.75 million).

16. TRADE DEBTS




Balance at the beginning of the year 25,048 20,777 Provision made during the year (note 40) 3,937 4,271


18. TRADE DEPOSITS AND PREPAYMENTS

Trade deposits 280,954 37,640 Prepayments (note 18.1) 1,195,191 543,535

1,476,145 581,175

18.1 Prepayments

Current portion of long term prepayment (note 13) 149,119 70,023 Commission 425,367 348,495 Interest on leased aircraft 284,190 47,047 Insurance 78,824 66,602 Rent 252,855 10,652 Others 4,836 716

1,195,191 543,535

19. OTHER RECEIVABLES

Considered good

Insurance and other claims 283,899 154,063 Excise duty [note 34.1 (b)] 100,000 100,000 Receivables against commercial development of land (note 19.1) 233,045 -Sales tax receivable 121,521 190,983 Receivables against manufacturers' credits 166,312 -Others 195,899 38,241

1,100,676 483,287

Considered doubtful 38,381 31,196 Less: provision for doubtful receivables 38,381 31,196

- -

1,100,676 483,287

19.1 The above includes Rs.43.312 million (US$ 711,549) receivable from Board of Control for Cricket in Pakistan(BCCP) on account of various payments made during 1980 to 1981 in terms of an agreement dated October 7,1980 between the company and BCCP for commercial development of land owned by BCCP. Later, the projectcould not go through and on September 13, 1987, BCCP transferred a piece of land measuring five acresthrough a sub-lease agreement in full and final settlement of the debt. Due to certain reasons, the land wasregistered in the name of one of the shareholders of the PIAIL - the Holding company. The lease is for a periodof 92 years six months and thirteen days. However, in 1990 BCCP demolished the boundary wall on the landand instituted legal proceedings against PIAC. On May 13, 2004 the above legal proceedings were dismissedby the Honourable High Court of Sindh, Pakistan.

The above receivable was provided in earlier years and now the company is negotiating an amicable settlementwith PIAC regarding transfer of land or other ways of compensation to the company. Pending completion of suchnegotiations, the above provision has not been reversed and the land has not been recorded in the financialstatements.





Held to maturityCurrent portion of long term investment (note 10.2) 17,839 13,690

Held for trading

Bred Institution 185,474 -47 shares (2005: 5 shares) (note 20.1)Available for sale

Quoted

France Telecom, France232,791 shares (2005: 232,791) 390,556 351,073 having market value of 20.95 Euro (2005: 20.99 Euro) each (note 20.2)

Unquoted

SITA INC N.V. 19,220 19,220 325,491 shares (2005: 325,491 shares) (note 20.3)Less: provision for diminution in value of investment (note 20.4) 6,221 6,438

12,999 12,782

606,868 377,545

20.1 These represents marketable securities held by Minhal France S.A. costing Rs. 134.123 million.

20.2 These shares are currently in the custody of Citibank N.A, London.

20.3 These shares are held by SITA INC. N.V. on behalf of the Holding company and are transferable subject tocertain specified conditions.


Balance at the beginning of the year 6,438 7,667 Reversal made during the year (217) (1,229)


21. CASH AND BANK BALANCES

With banks

In current accounts

Collection (note 21.1) 4,589,327 1,630,388Overdrawn bank balances (684,597) (633,608)

3,904,730 996,780 In short term deposit accounts 3,062,339 1,533,815

6,967,069 2,530,595In hand 6,586 8,061

In transit 105,450 100,210

7,079,105 2,638,866

21.1 Includes Rs.1.7 million (2005: Rs.1.3 million) held in the Holding company's bank account with a Libyan bankwhich is not currently repatriable due to Foreign Government's restrictions.

20. SHORT TERM INVESTMENTS




Authorized capital

Ordinary share capital

2,949,250,000 2,949,250,000 'A' class shares of Rs.10 each 29,492,500 29,492,5001,500,000 1,500,000 'B' class shares of Rs.5 each 7,500 7,500

2,950,750,000 2,950,750,000 29,500,000 29,500,000

Preference share capital

50,000,000 50,000,000 Preference shares of Rs.10 each 500,000 500,000

3,000,750,000 3,000,750,000 30,000,000 30,000,000

Issued, subscribed and paid upshare capital

Ordinary share capital'A' class shares of Rs.10 each

1,711,747,563 1,562,450,349 Issued for consideration in cash (note 22.1) 17,117,476 15,624,504Issued for consideration other than cash

931,028 931,028 for acquisition of shares 9,310 9,310233,934,482 233,934,482 Issued as bonus shares 2,339,345 2,339,345

1,946,613,073 1,797,315,859 19,466,131 17,973,159

'B' class shares of Rs.5 each

1,003,374 1,003,374 Issued for consideration in cash 5,017 5,017Issued for consideration other than cash

2,625 2,625 for acquisition of shares 13 13494,000 494,000 Issued as bonus shares 2,470 2,470

1,499,999 1,499,999 7,500 7,500

19,473,631 17,980,659

22.1 Under the terms of financial package as stated in note 1.3, an amount of Rs.1,493 million (2005: Rs.1,451million) has been received from GoP as equity contribution. Accordingly, 149,297,214 ordinary shares of Rs.10each (2005:145,073,203 ordinary shares of Rs.10 each) have been issued to GoP during the year.

22.2 At December 31, 2006 GoP held 1,736,459,539 and 1,462,515 'A' class ordinary shares and 'B' class ordinaryshares respectively (2005: 1,587,162,325 and 1,462,515 'A' class ordinary shares and 'B' class ordinary sharesrespectively).

23. RESERVES

2006 2005 2006 2005No. of shares (Rupees in thousand)

22. SHARE CAPITAL


Capital reserves

Reserve for replacement of fixed assets (note 23.1) 1,966,779 1,966,779 Capital redemption reserve fund 250,000 250,000 Others 284,259 284,259

2,501,038 2,501,038Revenue reserves 1,779,674 1,779,674

4,280,712 4,280,712



Surplus on revaluation of fixed assets - Group 3,538,171 -Surplus on revaluation of fixed assets - Minority 63,669 -

3,601,840 -

25. LONG TERM FINANCING - secured

23.1 Up to June 1988, depreciation on fully depreciated aircraft was charged and credited to the reserve forreplacement of fixed assets and excess of sale proceeds over cost of fixed assets disposed off was also creditedto the aforesaid account. With effect from 1989 - 90, the Holding company changed this policy to comply with theIASs and the excess proceeds over cost of relevant assets are credited to the profit and loss account.

24. SURPLUS ON REVALUATION OF FIXED ASSETS


From Banking Companies

United Bank Limited Syndicate 1,045 2004 - 2006 6 Six months - 348,327Half-yearly T-Bills+2.5%

Habib Bank Limited Demand 2,135 2004 - 2006 6 Six months - 711,667 Finance Half-yearly T-Bills+2.5%

National Bank of Pakistan Demand 1,683 2004 - 2006 6 Six months - 561,110Finance Half-yearly T-Bills+2.5%

United Bank Limited 25.1 Syndicate 1,650 2005 - 2009 12 Six months 1,621,098 1,621,098 & 25.2 Finance Half-yearly KIBOR+0.79%

Citibank / DVB Bank 25.3 Syndicate 6,603 2006 - 2008 note 25.4 One month 3,491,443 -& 25.4 Finance LIBOR+0.77%

Habib Bank Limited 25.5 Demand 530 2006 - 2009 36 One month 456,389 -Finance Monthly KIBOR+1.50%

Citibank, N.A. 25.6 Demand 4,985 2006 - 2016 20 5.28% 2,180,178 -& 25.7 Finance Half-yearly

Habib Bank Limited 25.8 Demand 200 2006 - 2009 36 One month 194,444 -Finance Monthly KIBOR+1.75%

ABN Amro Bank 25.9 Demand 3,538 2009 - 2013 19 Three months 1,556,842 -Finance Quarterly LIBOR+1.60%

JP Morgan Chase 25.10 Loan 6,087 2006 - 2009 Variable 6.025% 5,882,516 -& 25.12 per annum

JP Morgan Chase 25.11 Mezzanine 3,652 2006 - 2009 Variable 6.025% 3,652,200 -& 25.12 Finance per annum

Hong Kong Shangai 25.13 Loan 2,362 2004 - 2012 Variable Three monthsBanking Company CCF & 25.14 EURIBOR+1.15% 2,362,274

21,397,384 3,242,202Less: current portion 2,714,555 1,621,103

18,682,829 1,621,099

25.1 Following are the participating banks:

United Bank LimitedNational Bank of PakistanHabib Bank Limited

25.2 The finance is secured by way of hypothecation of capital spares and traffic equipment.

Limit Number ofType of (Rupees in Repayment installments / Mark-up 2006 2005

Financier Note Facility million) Period mode % (Rupees in thousand)



25.3 Following are the mandated lead arrangers:

CitigroupDVB Bank AG (DVB)

25.4 The finance is secured by way of first charge in the assignment of the purchase contracts relating to three newB - 777 aircrafts. Repayment is to be made at the time of delivery of each aircraft.

25.5 The finance is secured by way of hypothecation charge and lien on receivables of Peshawar, Islamabad andRawalpindi booking offices and sinking fund account amounting to Rs.267 million.

25.6 Following are the lenders:

Citibank International Plc. - ParisCitibank, N.A. - London

25.7 The Holding company entered into financing agreement of US$ 81.90 million for acquiring seven ATR aircraftand initial spares package, out of which three aircraft have been delivered during the year and the remaining fouraircraft will be delivered in first half of year 2007. The finance is secured by way of mortgage over each aircraft.

25.8 The finance is secured by way of first charge hypothecation over all present and future receivables / book debtsfrom various travel agents and booking offices in respect of ticket sales from Peshawar, Islamabad andRawalpindi.

25.9 The Holding company has entered into an arrangement with the bank to finance 15% of the Holding company'sshare towards cost of the aircraft to the Boeing Company in respect of B 777-300 aircraft. This finance issecured against GoP guarantee.

25.10 On September 08, 2006, the PIAIL entered into loan agreement for Rs.5,882 million (US$ 96.641 million) theproceeds of which were used to satisfy the then existing mortgage loan for Rs.6,087 million (US$ 100 million)from Column Financial Inc. The loan will mature on November 09, 2008 and has the option for three one-yearextentions. The loan is secured by amongst other things, the PIAIL's property and equipment.

25.11 On September 08, 2006, the PIAIL entered into loan agreements for Rs.3,652 million (US$ 60 million, US $200,000 each). The loan will mature on November 09, 2008 and has option for three one-year extentions. Theloan is secured by amongst other things, the PIAIL's property and equipment.

25.12 Roosevelt Hotel Corporation, N.V. has entered into an interest rate cap agreement with the intent of managingits exposure to interest rate risk. This interest rate cap agreement, with a notional amount of US $ 166 millionexpires on September 08, 2006 and effectively caps the variable rate debt at a maximum rate of 7% per annum.The cost of interest rate cap was Rs.1.765 million (US$ 29,000). The company entered into this contract with alarge financial institution and considers the risk of non-performance to be remote. Management has determinedthe fair value of this derivative at December 31, 2006 approximates the carring value.

25.13 On March 20, 2002, the loan was obtained to finance the acquisition of Scribe Gestion and Canadian NationalFrance. The loan was initially granted for 18 months with quarterly principle repayment of Rs.24.025 million(Euro 300,000) plus interest and the balance as bullet payment on maturity. During the year 2004, the bulletpayment due on March 22, 2004 was extended for four years (i.e. March 22, 2008), with a condition for paymentof Rs.24.025 million (Euro 300,000) plus interest commencing from June 2004 and the balance on maturity. Theloan is secured by way of pledge of 99.99 percent shares of Minhal France SA.

25.14 Further during the year, the PIAIL obtained a fresh loan of EURO 12.00 million for renovation works and issecured by way of first-ranking mortgage on the building located at 2 rue Scribe in Paris.

25.15 All the aforementioned charges are un-registered.



TFCs - secured (non participatory) 14,003,940 14,760,910Less: current portion 756,970 756,970

13,246,970 14,003,940

During the year 2003, the Holding company through private placement, issued 151,400 fully paid scrips of TFCshaving a denomination of Rs.100,000 each. The salient features of the TFCs are as follows:

Installment payable Semi - annually in arrearsRepayment period 2003-2011Rate of profit 50 basis points above the base rate* with a floor of 8% and a cap of 12.50% per

annum. Average rate prevailed during the year is 9.75% (2005: 8.5%) per annum.

*Base rate is the State Bank of Pakistan (SBP) discount rate prevailing at twoworking days before the commencement of the period for which the profit rate isbeing computed.

The issue of TFCs is secured by a guarantee given by the GoP. In order to protect the interest of the TFCholders, United Bank Limited has been appointed as the Trustee under the trust deed. In case the Holdingcompany defaults on any of its obligations, the Trustee may enforce the Holding company’s obligations inaccordance with the terms of the trust deed. The proceeds of any such enforcements shall be distributed to theTFC holders at that time on a pari passu basis in proportion to the amounts owed to them pursuant to the TFCs.

The TFCs have an embedded call option for early redemption exercisable by the Holding company at 24 and48 months from the date of issue with a 60 days notice period. The TFCs will be redeemed at a premium, whichwill be calculated at a flat rate on 0.25% of the outstanding amount at the time of the exercise of call option.

The above TFCs have been obtained as part of financial package of Rs.20 billion approved by GoP and aresecured against guarantees issued by GoP. An amount equal to mark up on TFCs is provided by GoP as itsequity contribution.

27. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE

Present value of future rental obligations - aircraft fleet

A-310 (note 27.2) 5,665,539 5,782,248B-777 (note 27.3 - 27.5) 40,658,496 17,852,601

46,324,035 23,634,849Present value of future rental obligations - vehicles (note 27.6) 93,900 138,578

46,417,935 23,773,427Less: current portion 3,914,491 2,067,363

42,503,444 21,706,064

26. TERM FINANCE CERTIFICATES





27.1 The amount of future payments and the year in which they will become due are:

Not later than one year 6,223,436 2,308,945 3,914,491 2,553,748 486,385 2,067,363

Later than one year andnot later than five years 24,420,386 7,120,824 17,299,562 10,552,925 1,485,890 9,067,035

Later than five years 29,028,598 3,824,716 25,203,882 13,077,091 438,062 12,639,029

59,672,420 13,254,485 46,417,935 26,183,764 2,410,337 23,773,427

27.2 In 2003, the Holding company entered into aircraft lease agreement with Airbus Leasing Inc. USA, to acquiresix A310-300 aircraft. The salient features of the lease are as follows:

Discount rate 5.2% 5.2%Lease period 144 months 144 monthsSecurity deposit (Rupees in thousand) 197,219 193,914

27.3 In 2004, the Holding company has arranged an Ex-Im Bank guaranteed financing of US$ 345 million to acquirethree Boeing 777-200 aircraft and spare engines, from Taxila Limited, a special purpose entity incorporated inCayman Islands. The guaranteed lender is Citibank N.A. Salient features of the lease are as follows:

Discount rate - 2 aircraft 4.65% 4.65%

Discount rate - 1 aircraft and spare engines Three month Three monthLIBOR LIBOR

Lease period - aircraft 144 months 144 monthsLease period - spare engines 96 months 96 monthsSecurity deposit (Rupees in thousand) 577,315 567,641

27.4 During the year, the Holding company has arranged an Ex-Im Bank guaranteed financing of US$ 266 million toacquire two Boeing B 777-200 LR aircraft and one propulsor from Taxila - 2 Limited, a special purpose entityincorporated in Cayman Islands. The guaranteed lender is Citibank N.A. The salient features of the lease areas follows:

Discount rate - aircraft and propulsor Three month -LIBOR - 0.02%

Lease period - aircraft 144 months -Lease period - propulsor 96 months -Security deposit (Rupees in thousand) 466,009 -

27.5 During the year, the Holding company has arranged an Ex-Im Bank guaranteed financing of US$ 472 millionto acquire three Boeing B 777-300 ER aircraft from White Crescent Limited, a special purpose entityincorporated in Amsterdam, Netherlands. The guaranteed lender is ABN Amro Bank. Salient features of thelease are as under:

2006 2005

2006 2005Minimum Present Minimum Present

lease Finance value of lease Finance value ofpayment cost minimum payment cost minimum

lease leasepayments payments




2006 2005

Discount rate - aircraft Three month -LIBOR - 0.04%

Lease period - aircraft 144 months -Lease period - engine 96 months -Security deposit (Rupees in thousand) 319,568 -

27.6 The salient features of other lease arrangements are as follows:

Discount rate 7.71% - 13.32% 7.71% - 13.32%Lease period 48 to 60 months 48 to 60 months

27.7 The ownership of all these assets will be transferred to the Holding company by the end of lease term.

28. LONG TERM MURABAHA - secured


National Bank of Pakistan Syndicated 70 2002-2007 Monthly One month 781,165 1,605,975Habib Bank Limited, Bahrain murabaha for LIBOR+ 2.70%United Bank Limited, UAE purchase of

(facility agent) six B747-300aircraft and spares

Less: current portion 781,165 837,900

- 768,075

The facility is secured by way of first ranking charge over present and future receivables of the Holding companyfrom passenger and cargo sales agents in UAE and lien over United Bank Limited collection account which isspecified for the related receipts. The facility is also secured by first ranking pari passu charge by way ofhypothecation of stores and spares. The aforementioned charges are un-registered.

29. LONG TERM DEPOSITS

Type and FacilityFinancier purpose of amount Repayment Installment Markup

facility in million period period %US Dollar

Deposits from agents 112,500 109,000Retention money 149,211 181,236Others 132 132

261,843 290,368

30. DEFERRED LIABILITIES

Deferred custom duties 178,588 249,690Deferred gratuity 38,560 37,406Deferred taxation (note 30.1) 5,191,522 -Obligation for compensated absences (note 30.2) 1,284,000 1,364,000Post retirement medical benefits (note 30.3) 1,353,000 1,211,000

8,045,670 2,862,096




30.1 Deferred taxation

Roosevelt Hotel Corporation, N.V (note 30.1.1) 1,808,612 -Minhal France, S.A (note 30.1.2) 3,382,910 -

5,191,522 -

30.1.1 Roosevelt Hotel Corporation, N.V

The components of the net deferred tax liability are as follows:

Excess of book over tax depreciation 281,592 - Allowance for doubtful accounts 2,496 - Alternative minimum tax credit 49,788 - Net operating loss carry forward 54,862 - Accrued vacation 56,755 -

445,493 -Valuation allowance - -

Deferred tax asset excluding affect of revaluation surplus 445,493 - Deferred tax liability relating to revaluation of land and building (2,254,105) -

Net deferred tax liability 1,808,612 -

At 31 December 2006, the Roosevelt Hotel Corporation, N.V. has approximately $3,100,000 ($1,395,000 net oftax effect) of net operating loss carry-forwards for income tax purposes which expire at various datesthrough 2014.

30.1.2 Minhal France, S.A

The net deferred tax liability as at 31 December was computed as follows:

Excess of fair value at acquisition over cost 1,851,205 - Revaluation of land and building 1,479,917 - Fiscal depreciation provisions 42,328 - Provision for major repairs 12,827 - Employees pension plan (3,367) -

Net deferred tax liability 3,382,910 -

During the year, the Group has recognized deferred tax liability on land owned by Minhal France S.A. andRoosevelt Hotel Corporation N.V. Previously this liability was not accounted for. Prior year figures have beenrestated.

30.2 Obligation for compensated absences

Liability recognized in the balance sheetBalance at beginning of the year 1,364,000 1,461,000 Charge for the year 11,915 (17,000)

1,375,915 1,444,000 Less: payments made during the year (91,915) (80,000)

Balance at end of the year 1,284,000 1,364,000




Liability recognized in the balance sheet

Present value of defined benefit obligation 1,353,000 1,211,000

Movement in liability during the year

Balance at the beginning of the year 1,211,000 925,000 Charge for the year 218,000 343,000 Less: payments made during the year (76,000) (57,000)


Expense recognized in profit and loss account

Current service cost 22,000 20,000 Interest cost 127,000 85,000 Settlement cost - 18,000 Net actuarial loss recognized 69,000 220,000

218,000 343,000

Number of employees of the Holding company covered by the scheme as at December 31, 2006 was 12,116(2005: 12,725).

31. TRADE AND OTHER PAYABLES

Trade creditorsGoods 2,809,858 2,305,947 Services 2,170,524 1,459,791 Airport related charges 626,551 629,747 Other 408,591 29,789

6,015,524 4,425,274Accrued liabilities 2,864,686 2,033,791

Advance against transportation (unearned revenue)Normal 5,290,835 4,686,980Hajj 1,222,732 1,476,107

6,513,567 6,163,087 Advance from customers 268,192 390,521 Amount due to related party (note 31.1) 95,438 - Advances and deposits 141,973 - Earnest money 1,482 1,654 Payable to employees' provident fund 136,796 91,052 Unclaimed dividend - Preference shares 3,297 3,297 Collection on behalf of others 827,416 785,719 Custom and central excise duty 578,826 777,045 Capital value tax 51,855 47,225 Stamp duties 5 8,841 Income tax deducted at source 44,173 34,911 Sales tax payable 2,771 1,244 Bed tax 1,725 930 Payable to EOBI / SESSI 6,112 6,094 Provision for frequent flyer programme (note 31.2) 61,664 - Provision for construction of University Road, Karachi (note 31.3) 215,000 100,000 Short term deposit 166,044 137,229 Liabilities acquired from subsidiaries - net [(note 5.1(vi)] 18,690 18,690 Others 7,949 128

18,023,185 15,026,732


30.3 Post retirement medical benefits



Balance at the beginning of the year - - Charge for the year 61,664 -

61,664 -

Benefits utilized during the year - - Balance at the end of the year 61,664 -

31.3 Provision for construction of University Road, Karachi

Balance at the beginning of the year 100,000 - Charge for the year 200,000 100,000

300,000 100,000 Payments made during the year (85,000) -


32. ACCRUED INTEREST / MARK-UP / PROFIT

On long term financing 48,361 56,024 On term finance certificates 484,767 511,255 On murabaha 3,493 5,979 On short term borrowings 275,657 34,511

812,278 607,769

33. SHORT TERM BORROWINGS - secured

Short term loans (note 33.1) 10,580,640 362,075 Running finance under mark-up arrangements (note 33.2) 4,962,806 -

15,543,446 362,075


31.1 This includes Rs. 68,322 payable to Minhal Incorporated by PIAIL and is interest free.

31.2 Provision for frequent flyer programme

33.1 Short term loans - secured



United Bank Limited - Duba First pari passu charge 1 Year One month - 362,075over present and future LIBOR+2.00%

current assets

Citibank - Karachi * GoP Guarantee 3 months One month 2,000,000 -KIBOR+0.25%

United Bank Limited - Dubai UAE Receivables 1 Year One month 58,840 -LIBOR+2.00%

National Bank of Pakistan - BahrainGoP Guarantee 1 Year One month 4,260,900 -

Habib Bank Limited - Export Processing Zone LIBOR+0.60%

Standard Chartered Bank - Dubai GoP Guarantee 1 Year One month 3,043,500 -LIBOR+0.50%

Standard Chartered Bank - Dubai * GoP Guarantee 3 months Three months 1,217,400 -LIBOR+1.325%

10,580,640 362,075

* The Holding company intents to restructure these facilities as long term loans.

RepaymentFinancier Security period Markup



33.2 Running finance under mark-up arrangements - secured



United Bank Limited - Karachi First pari passu 1 Year One month 365,372 -hypothecation charge KIBOR+1.50%

over stock & trade debts

National Bank of Pakistan - Karachi First pari passu 1 Year One month 50,000 -hypothecation charge KIBOR+1.25%

over stock & trade debts

Habib Allied International Bank Limited Receivables in Europe 1 Year One month 547,830 -- London LIBOR+2.25%

Habib Bank Limited - Karachi Lien over US$ 20 6 months One month 1,000,000 -million deposited with KIBOR+0.50%

Habib Allied InternationalBank Limited - London

Standard Chartered Bank - Karachi GoP Guarantee 6 months Six months 2,999,604 -KIBOR+0.75%

4,962,806 -

The facilities for short term running finances from banks amounted to Rs.6,380 million (2005: nil). The re-purchase prices are repayable on various dates, during the year.

The rate of mark-up ranges between 5.50% and 11.50% (2005: nil) per annum, payable monthly, quarterly orsemi-annually.

Facilities amounting to Rs.1,417 million (2005: nil) remained un-utilized as of the balance sheet date.

34. CONTINGENCIES AND COMMITMENTS

34.1 Contingencies

a) Civil Aviation Authority (CAA), Pakistan has claimed additional amounts aggregating to Rs.4,135 million (2005:Rs.3,819 million) in respect of rent and allied charges, landing and housing charges, aviation security and baycharges, interest / surcharge etc. The matter has been referred to Ministry of Defence through which areconciliation and settlement exercise is currently in progress. The management considers that no additionalliability of material amount is likely to arise as a result of such exercise. Accordingly, no provision in this respecthas been made in these financial statements.

b) The Collector Central Excise had raised demand of Rs.1,046 million (2005: Rs.1,126 million) in respect of dutieslevied on tickets provided by the Holding company to its staff either free of charge or at concessional rates,repair / replacement of re-imported aircraft engines, non-availability of invoices, import related to miscellaneousconsignments, printed material sent at its various stations abroad for utilization, late / short payment of sales taxand central excise duty and excess baggage tickets. On protest by the Collector Central Excise, the Holdingcompany has already paid an amount of Rs.100 million (note 19) which is considered fully recoverable by themanagement. The Holding company has filed appeals with the Customs, Central Excise & Sales Tax Tribunalwhich are pending adjudication. Management is confident that the decision would be made in Holdingcompany's favour. Consequently, no provision has been made in these financial statements.

c) The Holding company is contesting litigations relating to suits filed against it on dispute over throughput chargesaggregating to Rs.125 million (2005: Rs.125 million) against which it has filed appeals with the Honourable HighCourt of Sindh, Karachi and District Court which are pending. The management is of the view that ultimateoutcome would be in favour of the Holding company. Accordingly, no provision in this respect has been madein these financial statements.

RepaymentFinancier Security period Markup



d) The Holding company is contesting several litigations mainly relating to suits filed against it for unlawfultermination of contracts, breach of contractual rights and obligations, non-performance of servicing stipulationsdue to negligence or otherwise. The Holding company's management is of the view that these cases have nosound legal footing and it does not expect these contingencies to materialize. Accordingly no provision has beenmade in these financial statements against these claims amounting to Rs.2,549 million (2005: Rs.1,392 million).

e) Various ex-employees of the Holding company have lodged claims against the Holding company for their duesspecifically relating to their re-instatements. However, the liability that may arise in these cases cannot bedetermined and consequently, no provision has been made in these financial statements.

f) Contingencies relating to income tax matters are referred in note 42.

g) Contingencies in respect of the tax matters relating to the Holding company’s subsidiaries, PIA Holdings(Private) Limited and PIA Shaver Poultry Breeding Farms (Private) Limited amounted to Rs.11.2 million (2005:Rs.11.2 million).

h) A number of lawsuits which arose in the normal course of business are pending against the Roosevelt HotelCorporation, N.V. The eventual disposition of these legal actions, in the opinion of management based uponavailable insurance coverage and assessment of the merits of such actions by counsel, will not have a materialeffect on the financial position of the hotel.

i) The management of the SRL is contesting demand raised by Civil Aviation Authority against the SRL, which thecontender is claiming with retrospective effects for the past several years. The aggregate claim works out toabout Rs. 50 million. The management is in the process of settlement and is confident that based on theprogress of the negotiation the outcome will be in favour of the SRL.

j) A suit has been filed by Travel Automation (Private) Limited (the claimant) against Abacus Distribution SystemsPakistan (Private) Limited (Abacus), Abacus International (Pte) Ltd. (Abacus's parent) and the Holding companyin the Honourable High Court of Sindh. The case relates to the termination of a distributorship agreement by theparent company, where under the claimant was the distributor of the parent company in Pakistan. The claimanthas sought an injunction to the effect that distributorship agreement cannot be revoked due to the distributorshiphaving been coupled with interest and has also sought injunction to restrain the parent company from enteringinto any further distributorship agreement with other parties. The claimant seeks a declaration, permanent andmandatory injunction and damages in the sum of Rs. 350 million upto 10th November, 2004 and US$ 25,000per month thereafter.

The defendants pleaded that the matter was required to be referred to arbitration as per the Arbitration Clausecontained in the Distribution Agreement and has wrongly been instituted in the court of Pakistan. Accordinglythe parent company has obtained stay order against the proceedings of the suit. However, the claimant has filedan appeal to the High Court of Pakistan on interpretation of certain provisions of the Constitution of Pakistan,1973. Hence, preadmission notice has been issued in the matter and defendants have to file objections /parawise comments. If the said appeal is granted, the suit proceeding will be reactivated in Pakistan. However,if the said appeal is dismissed, suit proceeding will be stayed and matter referred to arbitration in Singapore.

It is further contended that the termination was accepted by the claimant who is now seeking to belatedlychallenge the same and is estopped from doing so. Further, there are various other legal objections raised bythe company in respect of the above mentioned suit. The company and its legal advisor are confident that, onthe merit of the case, the outcome of the case will be in the company's favour and hence no provision in respectof this matter is required in these financial statement.

34.2 Commitments

a) Commitments for purchase of aircraft amounted to Rs.23,842 million (2005: Rs.60,613 million).

b) Commitments for capital expenditure amounted to Rs.10.6 million (2005: Rs.1.1 million).

c) Outstanding letters of credit amounted to Rs.141 million (2005: Rs.127 million).




2006 - 159,102 2007 132,676 136,490 2008 131,591 118,757 2009 130,452 114,354 2010 102,475 83,549 2011 84,047 221,187

Thereafter 251,027 -

832,268 833,439

35. TURNOVER - net

Passenger 60,901,468 55,019,895 Cargo 5,741,014 4,914,588 Excess baggage 808,259 833,173 Charter 388,272 664,064 Engineering services 1,043,635 845,515 Handling and related services 634,143 635,034 Mail and telephone 350,706 302,785 Rooms sales 4,329,631 89,881 Food and beverages 1,330,330 1,615 Shop and other rentals 155,435 1,165 Others 752,296 859,555

76,435,189 64,167,270

d) Outstanding letters of guarantee amounted to Rs.141 million (2005: Rs.145 million).

e) Rentals under operating lease commitments amounted to Rs.962.7 million (2005: Rs.758.89 million).

f) Outstanding letters of guarantee of Minhal France SA amounted to Rs.0.183 million (2005: Rs.0.161 million).

g) Commitments in respect of staff retirement indemnities of Minhal France S.A. amounts to Rs.9.989 million(2005: Rs.8.092 million).

h) The Abacus has entered into various lease agreements in respect of vehicles. Rentals are payable in equalmonthly installments whereas repairs and insurance cost are borne by the lessor. The amount of future leasepayments and the period during which they fall due are as follows:

Year 2006 2005(Rupees in thousand)

Not later than one year 2,625 2,389 Later than one year but not later than five years 2,618 5,212

5,243 7,601

i) The Roosevelt Hotel, as lessor under the various net leases at the Hotel, will receive rental income over thenext five years, and thereafter as follows:



Salaries, wages and allowances 5,839,712 5,394,777 Welfare and social security costs 78,848 68,613 Retirement benefits 331,545 299,569 Compensated absences 7,149 (8,030)Mandatory retirement (note 38.4) 30,988 234,624 Legal and professional charges 10,378 9,105 Stores and spares consumed 2,196,152 2,413,024 Maintenance and overhaul 6,403,941 4,833,757 Flight equipment rental 3,431,059 2,530,872 Landing and handling 8,343,403 7,249,119 Passenger services 2,803,712 2,227,185 Crew layover 2,011,703 1,730,719 Hotel running expenses 4,131,885 - Staff training 87,157 80,784 Food cost 25,411 15,836 Utilities 21,197 19,441 Communication 63,501 60,156 Insurance 1,039,418 1,240,735 Rent, rates and taxes 308,747 320,932 Printing and stationery 109,397 99,102 Amortization 2,568 3,061 Depreciation (note 7.1.4) 3,852,103 3,623,543 Others 223,190 109,019

41,353,164 32,555,943

37. DISTRIBUTION COSTS

Salaries, wages and allowances 1,370,247 1,321,765Welfare and social security costs 167,512 155,829 Retirement benefits 170,092 111,918 Compensated absences 2,264 (3,122)Mandatory retirement (note 38.4) 9,813 57,669 Distribution and advertising expenses 1,738,570 1,310,649 Legal and professional charges 19,632 16,467 Repairs and maintenance 51,586 41,299 Insurance 12,279 13,543 Printing and stationery 28,820 36,058 Communication 356,137 309,535 Staff training 45,693 35,448 Rent, rates and taxes 258,191 244,319 Utilities 25,737 23,037 Amortization 2,203 1,470 Depreciation (note 7.1.4) 55,884 44,234 Others 81,174 89,747

4,395,834 3,809,865


36. COST OF SERVICES - others



Salaries, wages and allowances 1,518,815 1,461,818 Welfare and social security costs 661,136 597,913 Retirement benefits 335,223 206,832 Compensated absences 2,502 (5,848)Mandatory retirement (note 38.4) 10,846 194,396 Legal and professional charges 382,174 204,155 Repairs and maintenance 224,954 142,112 Insurance 16,071 58,330 Printing and stationery 66,027 41,923 Staff training 64,933 39,807 Rent, rates and taxes 315,545 264,796 Utilities 381,010 351,526 Auditors' remuneration (note 38.1 & 38.2) 20,480 8,276 Communication 430,533 447,793 Amortization 26,234 28,815 Depreciation (note 7.1.4) 141,770 98,705 Donations (note 38.3) 3,825 14,954 Others 308,650 184,768

4,910,728 4,341,071

38.1 Auditors' remuneration

Holding company

Audit fee (holding company’s auditors) 6,726 5,850Remuneration of subsidiaries’ auditors 8,041 60Half yearly review (holding company’s auditors) 2,016 1,754 Audit of consolidated financial statements 1,000 -Other certifications (holding company’s auditors) 2,000 300 Out of pocket expenses 697 312

20,480 8,276

38.2 Auditors' remuneration related to holding company is equally shared by the two firms of auditors.

38.3 Directors including Chairman / CEO and their spouse do not have any interest in the donee.

38.4 The Holding company implemented a mandatory retirement scheme for certain category of employees. Theseemployees are entitled to all the benefits as per Holding company's rules.


38. ADMINISTRATIVE EXPENSES



Mark-up on long term financing 979,838 312,918 Profit on term finance certificate 1,357,869 1,284,118 Interest on liabilities against assets subject to finance lease 1,942,027 947,187 Mark-up on long term murabaha 117,067 121,662 Mark-up on short-term borrowings 780,058 3,199 Interest to pension / provident funds - 659 Arrangement, agency and commitment fee 56,341 80,163 Bank charges, guarantee commission and other related charges 42,160 37,515

5,275,360 2,787,421

40. OTHER PROVISIONS AND ADJUSTMENTS - net

Provision / (reversal) for slow moving stores and spares (note 15.1) 100,000 (218,501)Provision / (reversal) of provision for doubtful debts (note 16.1) 47,310 (166,353)Deficit on revaluation of aircraft fleet - net - 36,908 Change in accounting estimate (1,933) -Amortization of goodwill (note 8.1) 102,350 -Provision for the construction of University Road, Karachi (note 31.3) 200,000 100,000 Provision for doubtful advances (note 17.3) 3,937 4,271 Exchange loss - net 504,300 110,070 Reversal of liabilities no longer payable (56,974) -

898,990 (33,605)

41. OTHER OPERATING INCOME

Income from financial assets

Profit on bank deposits 213,579 182,723Interest income on advance to pension and provident funds 13,568 10,445

Income from investment

Interest income on held to maturity investment 3,708 6,288 Gain on disposal of short term investments - 1,946

Income from assets other than financial assets

Interest income on loans and advances 103,928 220,427 Gain on disposal of fixed assets 257,006 601,077 Insurance claims 255,674 146,444 Loss on disposal of associate (50,717) -Others 1,994 481

798,740 1,169,831

42. TAXATION

Current (note 42.1) 382,743 321,052Prior (note 42.2) (295,700) -Deferred (649,498) (421,951)

(562,455) (100,899)

39. FINANCE COSTS




42.1 Current

Holding company

In view of available tax losses for the year, provision for minimum taxation has been made at 0.5% of turnoverunder section 113 of the Income Tax Ordinance, 2001. No numeric tax rate reconciliation is given as the Holdingcompany is liable for turnover tax.

Assessments of the Holding company have been finalized up to tax year 2006. Assessments for the tax years2003 to 2006 are also deemed to be assessed as there has been no issue raised by the department on thereturns filed for these tax years.

The minimum tax liability under section 80(d) of the repealed ordinance has been assessed by the departmentup to the assessment years 2002-03 after adding 10% of net turnover on estimated basis. The Holdingcompany had filed appeals against the above orders for the assessment years 1991-92, 1992-93 and 1997-1998 to 2002-2003. CIT (Appeal) has deleted this enhancement vide Orders No. 4 to 8 dated October 10, 2006for tax years 1991-92, 1992-93 and 1997-98 to 1999-2000, while appeals for remaining assessment years arepending adjudication. The Holding company had also made a representation to Secretary - Ministry of Law, GoPand to Chairman Central Board of Revenue under Section 134(a) of Income Tax Ordinance, 2001 by AlternateDispute Resolution (ADR) Committee for resolving the issue of addition made in net turnover by 10% onestimated basis for levy of minimum tax under section 80(d) of the repealed ordinance, whose decision will beconsidered as final.

Subsidiaries

The Sky Rooms (Private) Limited assessments stand finalised upto and including the tax year 2006. During theyear the assessments for the years 1993-1994 to 1999-2000 were finalized by CIT ( Appeals) and for theassessment years 2000-2001 to 2002-2003 were finalized by the learned ITAT whereby deleting certainadditions made by the taxation officer in respect of room charges, doubtful debts / advances, food and beveragerevenue and provision for gratuity / interest free loan to employees. The net shortfall of provision for income taxliability for the assessment years 1993-1994 to 2002-2003 amounting to Rs. 10.18 million has been recognizedduring the year. Return for tax years 2003, 2004 and 2006 have been deemed to be finalized under theprovisions of the Income Tax Ordinance, 2001. For tax year 2005, the SRL case has been selected for tax auditu/s 177 of Income Tax Ordinance, 2001 and audit proceeding are still in progress.

42.2 The Holding company has received assessment orders for the tax years 2003 and 2004 where assessmentshave been finalized without any addition in the loss declared in the returns, accordingly an amount of Rs. 305.89million has been refunded.

43. LOSS PER SHARE

Loss for the year (Rupees in thousand) 12,422,816 4,258,696

Weighted average number of ordinary shares outstanding 1,877,566,277 1,730,658,315

Loss per share

‘A’ class ordinary share (Rupees) 6.62 2.46

‘B’ class ordinary share (Rupees) 3.31 1.23

43.1 Loss per share have no dilution effect.

2006 2005



Loss before tax (12,985,271) (4,359,595)

Adjustments for:Depreciation 4,049,757 3,766,482 Deficit on revaluation of aircraft fleet - 136,908 Gain on disposal of fixed assets (257,006) (601,077)Amortization 31,006 33,346 Amortization of goodwill 102,350 - Provision / (reversal) for slow moving stores and spares 100,000 (218,501)Provision / (reversal) for doubtful debts 47,112 (166,353)Provision for doubtful advances and other receivable 11,122 4,271 Provision for the construction of University Road, Karachi 200,000 100,000 Provision for employees' benefits 848,775 614,098 Finance costs 5,275,360 2,787,399 Share of loss / (profit) from associates 15,023 (226,720)Interest income on advances to an associated company (103,928) (220,427)Profit on bank deposits (213,579) (182,723)Interest income on advance to pension and provident funds (13,568) (10,445)Interest income on held to maturity investment (3,708) (6,288)Reversal of liabilities no longer payable (56,974) -

(2,953,529) 1,450,375

Working capital changes

Increase in stores and spares (679,680) (155,401)Increase in trade debts (1,330,254) (1,065,639)(Increase) / decrease in advances (90,823) 159,495 Increase in trade deposits and prepayments (894,970) (31,380)Decrease in other receivables 75,456 130,522 Increase in trade and other payables 2,003,964 1,232,550

(916,307) 270,147

Cash (used in) / generated from operations (3,869,836) 1,720,522

45. REMUNERATION OF CHAIRMAN / CEO AND EXECUTIVES

44. CASH (USED IN) / GENERATED FROM OPERATIONS


Managerial remuneration 7,896 4,615 949,953 86,624

Holding company's contribution toprovident fund 396 223 37,777 4,608

Other perquisites 282 219 390,855 70,419

8,574 5,057 1,378,585 161,651

Number 1 1 643 104

Directors other than Chairman / CEO are non-executive directors. Aggregate amount charged in the financialstatements for fee to directors was Rs.0.18 million (2005: Rs.0.21 million). Chairman / CEO, Directors andcertain executives are also provided with the group maintained cars and facilities as per the group rules.

Chairman / CEO Executives

2006 2005 2006 2005




46. SEGMENT INFORMATION

The primary segment reporting format is determined to be business segments as the Group’s risks and rates ofreturn are affected predominantly by differences in the services provided. Secondary information is reportedgeographically. The operating businesses are organized and managed separately accordingly to the nature ofservices provided, with each segment representing a strategic business unit that serves different markets.

The airlines operation segment provides air transport and other allied services.

Hotel operation segment provides accommodation and related services in Pakistan, United States and Europe.

Transaction between business segments, other than services provided by Sky Rooms (Private) Limited to theHolding company’s transit passengers, are set on arm’s length basis at price determined under “ComparableUncontrolled Price Method.” Segment revenue, segment expenses and segment results include transactionbetween business segments. Those transactions are eliminated in consolidation.

The Group’s geographical segments are based on the location of the Group’s assets. Sales to externalcustomers disclosed in geographical segments are based on the geographical location of its customers.

46.1 Primary reporting format - business segments

Airlines Operations Hotel Operations Elimination Consolidated

2006 2005 2006 2005 2006 2005 2006 2005


Revenue

External sales 70,587,146 64,074,470 5,848,043 92,800

Inter segmentsales 13,055 43,434 (13,055) (43,434)

Total revenue 70,587,146 64,074,470 5,861,098 136,234 (13,055) (43,434) 76,435,189 64,167,270

Results

Segment results (8,863,113) (2,218,039) 839,970 20,979 (6,528) (21,717) (8,029,671) (2,218,777)

Interest expense (5,275,360) (2,787,421)

Interest income 334,783 419,883

Share of associates'(loss) / profit (15,023) 226,720 (15,023) 226,720

Income taxes 562,455 100,899

Loss (12,422,816) (4,258,696)



Airlines Operations Hotel Operations Elimination Consolidated

2006 2005 2006 2005 2006 2005 2006 2005


Other Information

Segment assets 106,891,373 72,683,205 24,537,262 139,600 (65,924) (52,049) 131,362,711 72,770,756

Investment inassociates 44,135 2,278,189 44,135 2,278,189

Consolidated total assets 131,406,846 75,048,945

Segment liabilities 106,753,481 62,451,205 18,688,588 132,398 (65,924) (52,049) 125,376,145 62,531,554

Capital expenditure 33,398,915 1,303,992 1,294,383 1,478

Depreciation 3,449,601 3,764,110 600,156 2,372

Amortisation 31,006 33,346

46.2 Secondary reporting format - geographical segments

2006

UnitedPakistan States Europe Others Total


Segment revenue 33,288,381 12,457,645 16,400,370 14,288,793 76,435,189

Carrying amount of assets 104,728,342 14,223,428 12,105,868 346,208 131,403,846

Capital expenditure andintangible assets 3,356,347 136,661 1,155,648 1,502 4,650,158

Segment revenue 29,522,912 6,755,682 14,543,885 13,344,791 64,167,270

Carrying amount of assets 75,048,945 - - - 75,048,945

Capital expenditure andintangible assets 1,376,984 - - - 1,376,984

The major revenue earning assets comprise the aircraft fleet, all of which are registered in Pakistan. Since thefleet of the Holding company is employed flexibly across its worldwide route network, there is no suitable basisof allocating such assets and related liabilities to geographical segments.

2005

UnitedPakistan States Europe Others Total




2006Interest / mark-up bearing Non-Interest / mark-up bearing

Maturity Maturity Maturity Maturity Maturity MaturityUp to one One year to Five years Sub Total Up to one One year to Five years Sub Total Total

year five years and above year five years and above


47. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

47.1 Financial assets and liabilities

Financial AssetsInvestments 13,690 64,224 - 77,914 363,855 - 31,493 395,348 473,262Advances and other receivables 224,098 6,636,037 - 6,860,135 164,129 - - 164,129 7,024,264Deposits - - - - 37,640 - 1,127,621 1,165,261 1,165,261Trade debts - - - - 5,238,444 - - 5,238,444 5,238,444Accrued interest - - - - 39,708 - - 39,708 39,708Cash and bank balances 1,516,970 - - 1,516,970 1,105,051 - - 1,105,051 2,622,021

1,754,758 6,700,261 - 8,455,019 6,948,827 - 1,159,114 8,107,941 16,562,960

Financial LiabilitiesLong term financing 1,621,103 1,621,099 - 3,242,202 - - - - 3,242,202Term finance certificates 756,970 11,859,192 2,144,748 14,760,910 - - - - 14,760,910

Liabilities against assetssubject to finance lease 2,067,363 9,067,035 12,639,029 23,773,427 - - - - 23,773,427

Murabaha 837,900 768,075 - 1,605,975 - - - - 1,605,975Deposits - - - - - 290,368 - 290,368 290,368Deferred liabilities - 2,575,000 - 2,575,000 - - - - 2,575,000Trade and other payables - - - - 6,811,115 - - 6,811,115 6,811,115Accrued interest / markup - - - - 607,769 - - 607,769 607,769Borrowings 362,075 - - 362,075 - - - - 362,075

5,645,411 25,890,401 14,783,777 46,319,589 7,418,884 290,368 - 7,709,252 54,028,841

Net financial (liabilities) / assets (3,890,653) (19,190,140) (14,783,777) (37,864,570) (470,057) (290,368) 1,159,114 398,689 (37,465,881)

2005Interest / mark-up bearing Non-Interest / mark-up bearing

Maturity Maturity Maturity Maturity Maturity MaturityUp to one One year to Five years Sub Total Up to one One year to Five years Sub Total Total

year five years and above year five years and above


Financial AssetsInvestments 17,839 43,731 - 61,570 589,029 - 68,358 657,387 718,957 Loans, advances and other receivables 169,786 1,694,077 - 1,863,863 1,143,081 - - 1,143,081 3,006,944 Deposits - - 1,564,544 1,564,544 280,954 771,192 3,222 1,055,368 2,619,912Trade debts - - - - 6,521,586 - - 6,521,586 6,521,586Accrued interest - - - - 51,010 - - 51,010 51,010Cash and bank balances 3,045,494 - - 3,045,494 4,016,766 - - 4,016,766 7,062,260

3,233,119 1,737,808 1,564,544 6,535,471 12,602,426 771,192 71,580 13,445,198 19,980,669

Financial LiabilitiesLong term financing 2,714,555 12,583,535 6,099,294 21,397,384 - - - - 21,397,384Term finance certificates 756,970 13,246,970 - 14,003,940 - - - - 14,003,940

Liabilities against assetssubject to finance lease 3,914,491 17,299,562 25,203,882 46,417,935 - - - - 46,417,935

Murabaha 781,165 - - 781,165 - - - - 781,165Deposits - - - - - 261,843 - 261,843 261,843Deferred liabilities - - - - - 2,637,000 - 2,637,000 2,637,000Trade and other payables - - - - 9,756,879 - - 9,756,879 9,756,879Accrued interest / markup 812,278 - - 812,278 - - - - 812,278Borrowings 15,543,446 - - 15,543,446 - - - - 15,543,446

24,522,905 43,130,067 31,303,176 98,956,148 9,756,879 2,898,843 - 12,655,722 111,611,870

Net financial (liabilities) / assets (21,289,786) (41,392,259) (29,738,632) (92,420,677) 2,845,547 (2,127,651) 71,580 789,476 (91,631,201)

Effective interest rates (a) Percentage Effective interest rates (b) PercentageInvestments 5.20 Long term financing 5.28 - 11.33Advances 2.78 -11.00 Term finance certificates 9.75 - 10.00Deposits 4.00 - 5.00 Murabaha 7.06 - 8.02Cash and bank balances 1.75 - 4.00 Liabilities against assets subject to finance lease 5.25 - 11.00

Markup / interest accrued on loans 5.28 - 11.33



47.2 Risk management

a) Concentration of credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause theother party to incur a financial loss. All financial assets except cash in hand are subject to credit risk. The Holdingcompany minimizes the credit risk by diversifying business with (IATA) approved agents and by obtaining bankguarantees from other agents.

b) Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchangerates. Foreign currency risk arises on receivable and payable transactions at foreign stations and on foreigncurrency loans. The Holding company manages its currency risk by effectively utilizing its foreign currencyreceipts to satisfy its foreign currency obligations.

c) Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interestrates. The Holding company is exposed to interest rate risk in respect of borrowings and bank balances.

d) Liquidity risk

Liquidity risk, also referred to as funding risk, is the risk that an enterprise will encounter difficulty in raising fundsto meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell afinancial asset quickly at close to its fair value. The Holding company manages its liquidity risk by maintainingsufficient cash and cash equivalents and through support of GoP to meet its liabilities when due, through afinancial package, whereby GoP has issued guarantees to secure long-term finances and TFCs. Further, GoPhas agreed to provide equity contribution as mentioned in note 1.2.

e) Fuel price risk

Fuel price risk is the risk attributable to fluctuation in the international oil prices arising from external factors.The Holding company plans to manage this issue to the extent possible by taking certain measures includinghedging of fuel prices.

47.3 Fair value of financial instruments

The carrying values of all financial assets and liabilities reflected in the financial statements approximate to theirfair value except for investment held to maturity which is carried at amortized cost.

48. LIST OF SUBSIDIARIES

Country ofName of subsidiary Group holding incorporation Auditors

Skyrooms (Private) Limited 100% Pakistan Grant Thornton

Midway House (Private) Limited (under winding-up) 100% Pakistan -

PIA Investments Limited 99% Sharjah - United KPMGArab Emirates



Retirement funds

Contribution 689,590 3 2 3 , 0 3 6Interest on advances 24,013 10,445

The Holding company's sales of transportation services to subsidiaries and associates are not determinable.

50. RELATED PARTY RELATIONSHIP

The Holding company has related party relationships with the following undertakings:

- Abacus Distribution Systems Pakistan (Pvt) Ltd. Joint Venture -

- Minhal Incorporated - Sharjah Associate Associate

- Duty Free Shops (Private) Limited - Associate

51. CORRESPONDING FIGURES

Prior year's figure has been reclassified for better presentation.

Balance sheet Held to maturity Long term Short term 13,690investment investments investments

52. AUTHORIZATION OF FINANCIAL STATEMENTS

These financial statements were authorized for issue in the Board of Directors meeting held on March 29, 2007.

53. GENERAL

53.1 The information as to the available capacity and utilization thereof during the year has been disclosed in thestatistics on six year summary page no. 40.

53.2 The US$ amounts in balance sheet, profit and loss account and cash flow statement have been translated intoUS$ at the rate of Rs.60.87 = US$1 solely for convenience purposes.

53.3 Number of the Holding company's employees as at December 31, 2006 were 18,282 (2005: 18,647).

53.4 Figures have been rounded off to the nearest thousand rupee.

49. TRANSACTIONS WITH RELATED PARTY

The transactions with related parties, other than those relating to issuance of tickets at concessional rates toemployees and directors according to terms of employment / regulations and those not mentioned elsewhere inthese financial statements are as follows:


Reclassification ReclassificationStatement Components from to 2005



Kamal AfsarDirector

I/We of Being Shareholder(s) of PAKISTAN INTERNATIONAL

AIRLINES CORPORATION, and holder of Ordinary ‘A’ Class Shares and

Ordinary ‘B’ Class Shares as per Registered Folio No PARTICIPANT ID

No ACCOUNT No hereby appoint Mr/Mrs/Miss of

or failing him/her of who is/are also Shareholder(s)

of PAKISTAN INTERNATIONAL AIRLINES CORPORATION vide Registered Folio No PARTICIPANT

ID No ACCOUNT No as my/our Proxy in my /our absence to attend and vote

for me/us and on my / our behalf at the 50th Annual General Meeting of the Corporation to be held on 25th April, 2007

and at any adjournment thereof.

As witness my/our hand/ seal this day of 2007

Signed by the said in the

presence of 1

2

Signature onRevenue Stamp of appropriate value

NOTES:-

(1) This Proxy Form, duly completed and signed, must be received at the Registered Office of the Corporation notless than 48 hours before the time of holding the Meeting.

(2) No person shall act as Proxy unless he/she himself / herself is a Shareholder of the Corporation except that acorporation may appoint a person who is not a Shareholder.

(3) Proxies without Folio No. Account No. and Participant ID No. will not be entertained.

(4) Signature of the appointer Shareholder should agree with his/her specimen signature registered with theCorporation.

For CDC Account Holders/Corporate Entities:- In addition to the above the following requirement have to be met:-

(i) Two persons whose names, addresses and CNIC numbers shall be mentioned on the form shall witness theProxy Form.

(ii) Attested copies of CNIC or the passport of the Beneficial Owner and the proxy shall be furnished with the ProxyForm.

(iii) The Proxy holder shall produce his/her original CNIC or original Passport at the time of the Meeting.

(iv) In case of corporate entity , the Board of Directors’ Resolution / Power of Attorney with specimen signature shallbe submitted (unless it has been provided earlier ) along with Proxy Form to the Corporation.

FORM OF PROXY

Secretary - PIAC

PIA Building

Jinnah International Airport

Karachi-75200 Pakistan

Tel: 457-2011 Fax: 457-2225

Website: www.piac.com.pk

group consolidated financial statements€¦ · 87 annual report 2006 ii) note 1.3 (i) to the...

Documents