PAL Shuts Down on September 23

Today
Friday, September 18, 1998
By Erik dela Cruz and Recto Mercene
Reporters

Flag carrier Philippine Airlines (PAL) announced yesterday it is closing its operations effective midnight of September 23 after the workers’ union rejected an earlier agreement forged with management.

The impending closure of PAL, Asia’s first airline, follows a bitter and protracted labor row that led to a strike in June, grounding most of the airline’s aircraft. It also came amid mounting debts and losses that had nearly wiped out the investment of tobacco and beer magnate Lucio Tan and his partners.

President Estrada, in a last-ditch bid to save PAL, met for two hours with airline employees last night to convince them to work with the PAL management to keep the airline afloat.

“That’s why I’m intervening. I’m trying my best to settle this problem,” he said. The ground employees submitted some proposals, and Estrada said he will meet them again on Monday.

Estrada told reporters he was “hoping and praying” the talks would minimize the chance of PAL shutting down because of the labor impasse. Estrada, however, said he is opposed to any government bailout for the strike-bound company.

Members of the PAL Employees’ Association (Palea) rejected Tuesday the offer of Tan, the PAL Chairman, to transfer about 30 percent of his group’s holding (equal to 20 percent of PAL’s equity) to employees’ control.

Tan also agreed to cede three of the company’s 15-man board of directors to union representatives.

PAL had said it would continue to recognize the union and the 12 officers of Palea, which in return agreed to suspend their collective bargaining agreement for 10 years. The union leadership later changed its mind.

The 10-year suspension of the CBA appeared to be the main source of disagreement. Former Rep. Edcel Lagman, Palea consultant, said “we are looking for a middle ground. And I hope the investors will see through the need to observe the laws of the land, which would not sanction an abrogation suspension of the CBA.”

A Palace source who requested anonymity said, however, that chances of Tan changing his mind were slim, because he has “had it up to here” with PAL’s problems, especially since he is losing P45 million a day. “I am worried that they miscalculated Mr. Tan,” he added.

PAL said it had exhausted all efforts to keep the company operational.

“Unfortunately, the insurmountable burden of continued losses has become too heavy for the company to bear,” PAL spokesman Rolando Estabillo said.

“This is the only way to preserve the company’s assets to ensure their orderly liquidation and disposition to creditors and other claimants,” he added.

“It is not easy to preside over the demise of a great Filipino institution that has been a partner in nation-building for over a half a century,” PAL’s statement said.

Finance Secretary Edgardo Espiritu said yesterday the government saw no other alternative for tycoon Lucio Tan but to close down PAL after the union rejected the stock option plan offered by management.

“The way I see it, there is no other alternative. I don’t know of any solution (to PAL problems),” Espiritu said in an interview.

“It (Palea’s move) is very, very unfortunate,” said the Finance Chief, who heads a presidential interagency task force created only two weeks ago to come up with a solution to PAL problems.

Espiritu said he was surprised that the workers rejected the agreement without referring it to the majority for a referendum vote. “It would have been appropriate to refer it [so as to get] the consensus of the rank and file (employees),” he said.

The Finance Chief said the government is helpless to intervene.

“It’s no longer under government control. It’s privately owned (and) the government is just a minority stockholder. It’s not even the national government but the government financing institutions who are the investors,” Espiritu added.

Fifteen members of Palea’s 21-man executive board nullified Tuesday night a previous board decision to accept Tan’s stock option offer.

Each PAL employee under Tan’s offer would get 60,000 shares of stock with a par value of per share.

The same scheme was offered to the Flight Attendants and Stewards Association of the Philippines and the Airline Pilots Association of the Philippines. Espiritu ruled out the possibility of any further compromise at this time.

“There is already a study that PAL needs a 19-year rehabilitation program,” he said. “Such program has been supported by PAL creditors.”

Espiritu earlier said Tan had expressed willingness to forge an “amicable settlement” with PAL employees to settle once and for all the labor problems besetting the national flag carrier.

Estrada, invoking national interest, had ordered the task force to come up with “long-term solutions” to PAL problems which “require the full cooperation of all parties, the owners, employees and the government.”

PAL’s loss quadrupled to P2.2 billion ($50.2 million) in the April-June quarter as a pilots’ strike sapped revenue and financing charges soared.

The airline has stopped servicing about $2.1 billion in debt owed to foreign and local banks. It is also exploring terminating the contracts for the purchase of airplanes from Boeing Co. and Airbus Industrie Inc.  With Bloomberg News