Philippine Daily Inquirer
Saturday, September 19, 1998
By Anthony O. Alcantara, Cathy Cañares and Gil Cabacungan Jr.
THE IMPENDING closure of Philippine Airlines will hurt trade, tourism, the banking system, as well as the country's international image, officials and analysts said yesterday.
But PAL, chaired by tycoon Lucio Tan, appears bent on pushing through with its plans to close down the country's flag carrier after the PAL Employees’ Association (Palea) rejected management's last offer to end the protracted negotiations with dissenting unions.
"The process of closure has been put in place. We are not negotiating with the unions anymore," Manolo Aquino, PAL Executive Vice President for Administration and Services, told a press conference yesterday.
Trade and Industry Undersecretary Ernesto Ordoñez warned that with the closure, "we will face a situation which will be detrimental to trade and economic growth."
He did not quantify the impact of the closure, but said "at this point, every day, every transaction and every trade event is critical" considering the regional financial crisis.
But Albay Rep. Jose Salceda said the banking system, "which is already averse to new lending because of systemic accelerating non-performing liabilities," would be hardest hit.
He noted that the Philippine National Bank and Tan's Allied Bank were PAL's biggest creditors.
Salceda also said the airline's closure would lead to a higher risk profile for the Philippines and make it more expensive for the government to borrow funds from abroad.
Aquino said PAL had organized a team for the return of the airline's 52 planes.
PAL plans to spin off its departments—such as catering, ground handling, cargo and engineering and maintenance—into separate companies.
"The fact of the matter is that we continue to lose about P45 to P60 million a day at this particular stage," he said.
"We have to cut the losses already to preserve the assets in order that the creditors will have something if the liquidation does come."
No referendum
Last night Executive Secretary Ronaldo Zamora said Palea refused to entertain a proposal on a referendum and instead offered to renegotiate the whole collective bargaining agreement with PAL.
Asked if there was a deadlock, Zamora replied: "No. I don't think there's anything more to discuss. We are doing everything extraordinary. We're trying to talk to them to get back (to the negotiating table), but nobody wants to come back.
"It's not a question of the government giving up. This is an industrial dispute. You do not drag unwilling individuals or groups to sit down at the table.
"The union has turned down the proposal of the President to submit this to a referendum. We have to look for alternatives.
"We have to start tapping the smaller airlines."
Earlier yesterday. President Estrada said he was set to resume talks with the two camps last night after attending to other official duties.
He vowed to "do everything" to prevent a closure of PAL.
However, the President told reporters that while Palea was already willing to reconsider the management's proposal to impose a moratorium on any CBA, he had not yet convinced Tan to rethink his position about closing the airline.
Also earlier yesterday, Finance Secretary Edgardo Espiritu said Malacañang would not dictate the final outcome of negotiations between the two camps despite its efforts to reconcile their conflicting positions.
Espiritu, chair of the interagency task force assigned to mediate between the PAL union and management, said much depended on the outcome of the referendum among Palea members which he hoped would be finished "in two to three days."
Palea officers and board members had decided to hold a referendum to determine whether the union would now accept a compromise agreement presented by Tan.
Tan earlier offered 20-percent ownership of the airline to employees along with shares of stock worth P300,000 for each of them in exchange for a 10-year moratorium on any CBA between union and management.
The Palea board initially accepted this offer Friday last week, but the majority of the union officers, in a meeting Tuesday night, decided to reject Tan's compromise offer.
"Mr. Tan has laid down his cards on the table," Aquino said. "He was even willing to infuse additional capital into the airline (if Palea had accepted the proposal)."
But there could still be hope. Aquino said the point of no return would be if the creditors start attaching PAL’s assets.
Asked if a rehabilitation plan would be submitted on Monday, he said: "We'll see what happens between now and Monday."
In an interview Thursday night, the President said he was "not worried about Mr. Tan"
"Anyway, he will not go hungry (if future negotiations fail)," the President said. "My worry is the thousands of PAL workers who will be affected."
Contingency measures
The Estrada administration is drawing up contingency measures aimed at minimizing the economic impact of the airline's closure.
Ordoñez said the government's No. 1 priority was to ensure that the transportation routes served by PAL would be adequately served by the remaining players.
He said the contingency measures would include implementing a smooth phaseout of PAL and boosting operations of domestic airlines by helping them expand their fleet.
PAL's Aquino said the total assets of the airline were now about the same as its total liabilities of $2.1 billion.
"About $1.5 billion of this is with collateral. $300 million is unsecured, and another $300 million is in the form of reserves and accruals,'' he said.
Aquino said the biggest liability was for the aircraft, the value of which amounted to $1 billion.
"We are going to save as much jobs as we can through the spin-offs of our units. Our catering (operations) has about 700, and ground handling, 1,400," he said.
"Payment of separation benefits to employees will depend on funds available. In cases like these, it is the employees who get the first priority," Aquino said.
Of PAL's 9,000 employees, 6,000 will be left after the spin-offs. Ten percent of the number will stay to oversee the airline's closure.
PAL Chief Finance Officer Jaime Bautista said the government would have to appoint someone soon to facilitate the liquidation of assets.
Unsecured creditors would have to wait for their turn after secured creditors had gotten their share of what's left of PAL.
"The Securities and Exchange Commission currently has an order preventing creditors from attaching PAL's assets," said Bautista. "However, once PAL ceases operating, the SEC may decide to stop the suspension."
Tourism
Malou Neri, a professor of tourism development at the University of the Philippines, warned that the other smaller airlines flying domestic routes did not have the fleet size, time flexibility and routing to replace PAL.
She also noted that it took three to six months for an airline to get permission to fly a new route.
Antonio Legarda of Pryce Securities Inc. commented that "the fact that it's our flag carrier closing . . . it has that sort of negative impact on the Philippine economy."
"Our international image will definitely be dampened," he said.
Aquino said that apart from exports and the transport of goods within the country, the transport of semi-conductors, tuna, mango, food, medicine, newspapers, etc. would be adversely affected. With an AFP report
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