Cathay Agrees to Resume PAL Talks; Rehab Plan Mulled

Malaya
Saturday, December 5, 1998

By PEARL O. BANTILLO and REGINA BENGCO

Cathay Pacific Airways (CX) has softened its stand on labor-related issues and has resumed acquisition negotiations with Philippine Airlines (PAL) provided that the transfer of management control is done immediately, a well-placed government official said yesterday.

PAL majority shareholder Lucio Tan has expressed willingness to give up management control as soon as possible to facilitate the flag carrier's recovery and rehabilitation, the source noted.

Even as this developed, Executive Secretary Ronaldo Zamora said Malañang and PAL management are looking into the possibility of PAL getting a P1.5-billion bridge financing loan program from government financing institutions.

The source said Cathay has agreed to recognize the conditions jointly drawn by PAL management and the labor union or PAL Employees' Association (PALEA) under which Tan guaranteed job security and board seats to employees in exchange for suspending collective bargaining for 10 years.

"Cathay will no longer push for (further) retrenchment of employees and for the guarantee on Investments. Cathay is willing to follow the referendum accord between PALEA and management. The only thing they are threshing out is the transfer of management," the source said.

The government source, who is privy to the ongoing PAL-CX talks, said that the Hong Kong- based airline company wants to assume management control prior to the actual infusion of the $100 million pledged investment into PAL.

"CX wants to see that the rehabilitation program of PAL is working before it infuses the capital."

The capital injection is slated for April next year to enable the potential strategic partner to assess the results of the designed rehabilitation program.

"What is definite is that PAL will not close down," the source said.

Zamora said PAL management appears confident it can do it alone because it will not be seeking an extension of the Monday deadline for it to submit its rehabilitation plan to the Securities and Exchange Commission.

"Over the last month, PAL has been flying without any foreign investor which is why the credibility of a stand-alone rehabilitation and investment plan may in fact be worthwhile," Zamora said.

He said if PAL cannot find any foreign investors, government will have to come to its aid in the interest not only of its 28 percent share but of the flying public. "You remember at one point, the President was considering the possibility of GFIs offering credit lines to PAL, provided there is sufficient collateral. I do not see why we cannot do that right now," he added.