PAL readies sale of assets; workers, banks still hopeful

Business World
Monday, September 21, 1998
 By Maricris C. Carlos
Senior Reporter
Patrisha Joan F. De Leon and Manolo A. Serapio, Jr.
Reporters

Today, Philippine Airlines, Inc. (PAL) is expected to submit to the Securities and Exchange Commission a "liquidation plan" outlining the mechanics of its closure within a two-month period.

In an interview, PAL Senior Vice-President for finance and Chief Financial Officer Jaime Bautista told Business World that management began formulating a two-month liquidation plan as early as last week.

Mr. Bautista said the priority of the liquidation plan would be the return of some 25 PAL aircraft under mortgage.

As it is, Business World sources at PAL said that the US Export-Import Bank has already asked for the "orderly (and) voluntary surrender" of four B-747 aircraft worth a total of $350 million.

Even as this developed, the Department of Labor and Employment last night held a last-minute bid to convince leaders of the PAL Employees’ Association and the Flight Attendants Stewards Association of the Philippines to agree to a referendum on whether to accept or reject the offer of PAL Chairman Lucio Tan.

As of press time, no middle ground has been reached.

But the PAL source said that even if the unions agreed to the referendum, management decided to submit the liquidation instead of a rehabilitation plan because there was no assurance Mr. Tan's offer will be accepted.

PAL is constrained to inform the commission of its plans as the deadline for the submission of its rehabilitation blueprint expires today.

Creditors of the beleaguered airline, on the other hand, are not about to throw in the towel just yet, still optimistic the bitter labor row besetting the flag carrier will be settled peacefully and avert a closure of the airline.

Likewise, PAL employees remain clear on what they want. Yesterday, hundreds of PAL employees with their families in tow held simultaneous "prayer gatherings” at the PAL Sports Complex in Pasay City and several of the airline's provincial stations to boost the "Save PAL Movement."

Although PAL announced last week it will end its flight operations after midnight of Sept. 23, it has yet to withdraw its debt relief petition. Thus, it has to meet the SEC-set deadline to reveal its plans.

Today's hearing was in fact set as a venue for PAL's interim rehabilitation receiver to submit to the rehabilitation plan. The hearing was set long before PAL closure announcement.

PAL, however, could instead file a new motion withdrawing its debt relief petition and stick to its board's decision to close down.

During a meeting last Friday, SEC Hearing Officer Ysobel Yasay-Murillo said PAL officials gave guarded answers to questions related to the firm’s debt relief petition. She said the meeting was meant to only inform the commission of the planned closure.

“(But) there was no mention of PAL withdrawing its petition for debt relief,” she said.

Under SEC rules, PAL is required to withdraw its debt relief petition and file a motion for liquidation or dissolution if that’s what it plans to do.

If PAL wants a voluntary dissolution, it will have to seek the approval of the majority of its board as well as its stockholders, representing two-thirds of the company’s authorized capital stock.

Last Friday, Banks said they are not about to foreclose on PAL’s assets, still hoping the airline’s management and labor will reach a compromise before midnight of Wednesday when PAL is scheduled to halt all its flight operations.

A motion filed by PAL last June with the SEC for the suspension f its debt payments also stands in the way of any foreclosure.

“How can we foreclose when there is suspension of (debt) payments?” (And besides) we want to give (PAL) time…Sayang kasi (It’s a pity) if the closure pushes through,” Peter Dee, President of China Banking Corp., told Business World in a telephone interview.

PAL owes China Bank some $17.48 million – based on data filed with the SEC as of end-April this year – in loans collateralized with two A300 and one B737 aircraft and spare engines.

Mr. Dee said most creditor banks are still digesting the decision last Thursday of PAL majority owner Lucio Tan to close after the ground crew’s union reconsidered and voted to reject an employee stock option plan (ESOP) in exchange for a 10-year moratorium on  the collective bargaining agreements.

“We don’t know what to do, these are really difficult times,” he said, adding he was personally aghast that PAL employees rejected Mr. Tan’s offer to own 20% of the airline.

Sources form Allied Banking Corp. admit most creditors are hoping “we will get though (the labor problem)” and proceed with the rehabilitation of the flag carrier.

“But there is still a glimmer of hope things will be settled before the 23rd (of September),” a bank official who declined to be named said.

Allied Bank, also owned by Mr. Tan, is among local banks with huge exposure in the airline although collateralized with assets.

Based on SEC data, PAL loans to 10 financial institutions including the Bureau of Treasury are undecured. Under the civil code on preference of credits, unsecured loans are accorded the least preference in case a borrower’s assets are liquidated.

“Their position (unsecured creditors) is diminished. They will be left with whatever is left after the assets are distributed among the secured institutions,” a banking source involved in legalese said.

PAL owes foreign and local creditors at least $2.1 billion.

Business World  sources from the government familiar with Mr. Tan are, however, convinced the billionaire is just using a “tried and tested” strategy to get things moving his way.

During his bout with the Ramos government on excise taxes for cigarettes and beer, Mr. Tan closed flagship Fortune Tobacco Corp. factories for months threatening to to render thousands of workers jobless.

“He wants to make the government bend on its knees,” a government official said.

Meanwhle, employees who were not able to attend yesterday’s gatherings wore blue ribbons on their uniforms as an expression of support.

Calling themselves the “silent majority,” the group hopes to make a last-minute appeal to all concerned to prevent the flag carrier’s demise.

Emma Salonga, a PAL operations employee for 19 years and a vocal member of the Save PAL Movement, told Business World  there is now a number of employees who believe union leaders “jumped the gun” in rejecting Mr. Tan’s offer.

Ms. Salonga said leaders of the PAL Employees’ Association (PALEA) chose to come out with a board resolution rather than hold a referendum because “they knew that not everyone was all for rejectin (Mr. Tan’s offer).”

She claimed officers of the ground crew’s union have been receiving a lot of flak form their membership because many felt they had been “robbed” of the chance to save the company.

“Each one has a choice…it’s also for us to decide. Now, their being officers does not entitle them to decide (without asking for the sentiment of) the membership. Unfortunately, they jumped the gun,” she said.