PAL Closure to Adversely Affect Domestic Trade

Malaya
Saturday, September 19, 1998

Trade Undersecretary Ernesto Ordoñez yesterday said the disruption resulting from the planned closure of Philippine Airlines next week will adversely affect domestic trade that could further stall the country's economic recovery.

Ordoñez told reporters the shut down of PAL will leave us in "a situation which is detrimental to trade and economic growth. Therefore all efforts should be taken to avoid this situation."

"Very critical to economic growth is infrastructure to move goods. PAL is a great contributor to this area," Ordoñez said.

Rep. Joey Salceda, however, downplayed the impact of PAL's closure to the overall economy.

"Despite its pervasive underlying weakness, the Philippine economy can easily absorb the impact of the closure of PAL reflecting the benefit of the recent structural reforms which included the liberalization of air transportation," Salceda said.

He added that PAL has a "minor direct contribution to gross domestic product and gross national product.”

He said domestic travel accounts for only 1/3 of 1 percent of 1997 GNP in current terms.

Although he supports Ordoñez' opinion that it may affect overall growth prospects, Salceda said this is only in terms of temporary supply aberrations in domestic trade and tourism.

However, he said, PAL's contribution can easily be made up for by other airlines and modes of transportation.

Ordoñez said the inter-agency economic mobilization group will try to formulate contingency plans to avoid unnecessarily hampering the operations of local traders.

He suggested that other carriers tap their full capacity to better serve not only the riding public but the cargo handling requirements of businesses.

There are no available statistics of the volume of goods being handled via air but most of our major export products which are time-sensitive tap the services of PAL.

He added that major routes should be immediately saved and other airlines should be allowed to lease the planes of PAL as well as of foreign airlines.

He said that when the PAL unions started holding strikes in the middle of the year, domestic trade suffered and started picking up only when the strikes were settled.

Domestic trade, he said, partly affects international trade as it enhances exports links by local companies.

Although other airlines, both domestic and foreign, have said they are ready to fill in the void to be left by PAL, this process takes time.

"Every    day, every transportation, every trade is critical. We don't want this temporary disturbance," Ordoñez said.

He said the intervention of President Estrada is crucial in preventing a closure although he does not support a bailout from the government.

"Bailout is not in the policy of government although theoretically possible," Ordoñez said.

These matters, he said, are better left with the private sector.

"With President Estrada's entry, I hope they will come up with a win-win solution," Ordoñez said.

He added that PAL management should also come up with a better package for the unions to reconsider.

He said if the closure is inevitable, there should be gradual transition and a concerted action of PAL to allow for smooth movement of people and goods.

Ordoñez also raised the greater impact of a domestic trade slowdown on the employment situation.

"Trade impacts employment to a much larger degree... these businesses are the ones that give thousands of jobs. That's the real impact," Ordoñez said.

Meanwhile, Salceda said it is the banking sector which will take the big hit in PAL's closure.

"Given its size, the PAL case can aggravate the systemic risks in the banking sector which is already averse to new lending due to accelerating non-performing loans.”

Over the long-term, however, Salceda said PAL's closure can heighten perception of risks on Philippine capital instruments (particularly debt). Creditors and investors could demand higher risk premium.

It will also give a negative effect on government's privatization efforts.

"PAL adds another bad name to the roll of lemons in Philippine privatization, after Petron and PNB. Meralco being the exception," Salceda said.

He said the principal concern now of Congress is saving the 9,000 jobs and their annual P1.2 billion wages particularly in an environment where jobs creation is difficult.

"Only then does saving PAL as a Filipino-owned enterprise and as a flag carrier becomes a secondary concern," Salceda said.

Salceda added that creditors should share the burden.

"What is clearly missing in the present scheme of discussions is a clear pronouncement on the proportional share of creditors in the burden for rescuing PAL. Mr. Tan is giving up a 20 percent stake. In exchange, the unions are being asked to give up CBA for ten years. Thus, the creditors, principally foreign bankers, should bring debt writedowns to the party. Certainly, a clear commitment of creditors to write down PAL debt would dramatically enhance the value of the 20 percent equity stake to the unions," Salceda said.