Bridge Financing For PAL

Filipino Monitor

December 10 – 23, 1998

MANILA, Dec. 8 – The government has set four conditions before it resorts to a possible “bridge-financing” plan to keep Philippine Airlines (PAL) on air, a move that would tap private banks and “strategic partners” in PAL’s rehabilitation.

Finance Secretary Edgardo Espiritu said that private banks and government financing institutions (GFIs) would provide loans to PAL only after certain conditions are met.

Espiritu said this bridge-financing scheme will depend on the following factors: PA L's continued operation is commercially viable, PAL will be subjected to the usual credit evaluation, the financing package will involve a consortium of private banks and strategic partners and this package will form part of a rehabilitation plan approved by PAL creditors and the Securities and Exchange Commission.

Espiritu stressed that any financing plan for PAL involving GFIs and private banks would have to be in the form of loans, and not capital.

Espiritu said PAL can borrow from these commercial institutions while waiting for fresh investments to be infused into the airline.

Meanwhile, Espiritu has maintained that Hongkong-based Cathay Pacific Airways is still in the thick of negotiations for a stake in PAL.

He said the remaining major concern is the constitutional limitation of Cathay's participation in the policy- and decision-making in PAL.

Last Dec. 7, PAL submitted to a government receivership committee its program to rehabilitate the airline.

The government, Espiritu said, expects the committee to decide within this week whether to approve this PAL rehabilitation plan.

He said that while Cathay remains concerned about the constitutional limitation, it has shown willingness to accept the conditions of a management-proposed "industrial peace" pact, whose approval in a referendum last September allowed PAL to fly again.

The conditions, he said, include retaining most of PAL's employees, with a package of benefits for employees and officers who are willing to retire now.