Gov't Lets PAL Close

Business World

Thursday, September 24, 1998

As far as Finance Secretary Edgardo Espiritu is concerned, the government had no choice but allow majority owner Lucio Tan to close Philippine Airlines, Inc. (PAL) after its labor union rejected the tycoon's offer of an employee stock option plan.

After meeting with members of the PAL interagency task force late Tuesday night, Mr. Espiritu said the government will not bail out the flag carrier. Instead, the government will require two of the four medium-sized domestic airlines — Cebu Pacific and Air Philippines to expand their fleet to be able to service 14 key cities.

He said the government will carry out only public services such as mails and necessary cash transfer through planes of the Philippine Air Force (APF).

"For the meantime, our priority will be on domestic routes ... there will be no international flights." he said.

The Finance chief said another interagency task force was created to coordinate the transition period and allow the capacity buildup of the other airlines. The nine-member team includes Mr. Espiritu, Senators Sergio Osmeña and Francisco Tatad. Quezon City Rep. Feliciano Belmonte and Quezon Rep. Danilo Suarez, Executive Secretary Ronaldo Zamora, Transportation and Communications Secretary Vicente Rivera, Labor and Employment Secretary Bienvenido Laguesma and Socioeconomic Planning Secretary Felipe Medalla.

Mr. Espiritu said the government's earlier offer to loan out P1.5 billion through state-held financial institutions will no longer be necessary since PAL will start liquidating its assets to pay off creditors and suppliers.

"The President is upset. Everybody's upset. But what can we do? The (PAL) union made their decisions and they decided to lose their jobs," he told reporters.

Virtually defending Mr. Tan from accusations that mismanagement caused PAL's substantial losses, Mr. Espiritu said the Ramos government's liberalization plan "discriminated (against) PAL."

"For example, the weekly passenger demand for the Hong Kong-Manila route was only 2,000 but they (Ramos government) allowed a 16,000 capacity."

To sweeten the pot for the remaining airlines, he said the government could allow them to charge higher rates for the mandatory missionary routes.

In an interview at the Senate, Mr. Espiritu said Cebu Pacific, Air Philippines and Grand Air have been preparing to upgrade their facilities since last month.

At the same time, the PAF may fly some service routes and PAL aircraft while the company's problems are being settled, added PAF chief William Hotchkiss.

In an interview before appearing at a hearing of the House of Representatives' subcommittee on appropriations, Mr. Hotchkiss said the PAF is just waiting for a directive from Malacañang.

However, he said the PAF will likely focus on the delivery of mail and postal services and does the currency rounds of the Bangko Sentral.

According to Mr. Espiritu, the government "(has) been talking to the other airlines to immediately do something to upgrade their capability... I am very confident that they will be able to cover (the) vacuum (left by PAL) within a month."

"What we are going to watch very carefully is the day-to-day requirement of servicing the vital aspect of air transport system (such as) the transfer of cash, clearing checks, mails and other vital services," he added.