PAL to Close Down

Malaya
Friday, September 18, 1998

Philippine Airlines will close down next week after its ground personnel union turned around on a no-strike agreement that management said is needed to rehabilitate the financially strapped flag carrier.

"At midnight of Sept. 23, 1998, Philippine Airlines will close following the breakdown of negotiations between management and the labor unions," PAL said in a statement following an emergency board meeting yesterday.

The decision to close was a tragic end for an airline that started out in 1941 with one plane carrying a full load of five passengers on a 200-km flight from Manila to Baguio.

PAL lost P8.08 billion in the last fiscal year. Accumulated losses are placed at P20 billion.

President Joseph Estrada met with the directors of the PAL Employees’ Association early last night. The meeting was suspended after an hour because of an Estrada engagement. The dialog was expected to resume later in the night.

Estrada said he has invited PAL Chairman Lucio Tan to a meeting today to try to convince him to reconsider.

Sources said the PA LEA board appears to be wracked by an internal split. They said the PALEA board might hold a referendum among members on management's demand for a 10-year freeze on a collective bargaining agreement.

Presidential Spokesman Jerry Barican earlier said government will not bail out PAL.

PAL filed a notice of closure with the National Labor Conciliation and Mediation Board at 5:30 p.m. Labor officials said a notice of closure is usually followed by a detailed program on how a company proposes to meet its obligations to its workforce.

The decision to close PAL came after the PALEA board on Tuesday reversed an agreement reached last Friday for a CBA freeze in exchange for a promise by Tan to give employees 30 percent of his holdings and three seats in the 15-man board.

The agreement of the employees was a condition required by creditors and potential investors to ensure uninterrupted industrial peace while the airline tackled its various financial problems.

PAL is scheduled to submit a rehabilitation plan to the Securities and Exchange Commission by Sept. 21, which would restructure its $2 billion debt.

When it sought rehabilitation in June after a crippling 22-day pilots' strike, it declared total assets of P90.642 billion against total liabilities of P85.109 billion.

At the time PAL had a fleet of 54 aircraft, flying to 36 domestic destinations and 28 foreign cities.

PAL trimmed its manpower from 13,000 to 8,000 after the pilots' walkout.

Under the rehabilitation plan, PAL would have reduced its fleet to 21 aircraft.

Philippine National Bank and Chase Manhattan Bank N.A. are PAL's biggest creditors.

PAL said the closure was recommended by the interim receivership committee appointed by the SEC.

"Management exhausted all efforts to keep the company operational pending the outcome of negotiations with the unions. But the burden of cumulative losses over many years, running into billions of pesos, became too heavy for PAL to bear," it said.

Without fresh capital, prospects of recovering from its enormous losses and surviving the current harsh business environment are close to nil, PAL said.

Management's proposals were aimed at guaranteeing long-term industrial peace and harmony, which is a key requirement for any rehabilitation plan to succeed. The decision to close pushed through when it became clear that this was the only way to preserve the company's assets to insure their orderly liquidation and disposition to creditors and other claimants, PAL said.