Cathay Deal With PAL Unlikely Despite Erap

Today

Monday, December 7, 1998

PRESIDENT Estrada is desperately trying to resurrect talks between Cathay Pacific Airways and troubled Philippine Airlines, but the differences between the two sides may be too great, analysis said.

Hong Kong-based Cathay pulled out of talks to take a stake in PAL on Wednesday, citing irreconcilable differences over management control and valuation of the debt-ridden carrier.

Estrada, who has campaigned personally to keep PAL in the air, appealed to both sides on Saturday to reconsider and said he was confident they would return to the negotiating table.

"I am not giving up easily," he said during a regular radio program.

But sources privy to the abandoned talks said that the differences were deep-rooted and there would be little point in resuming discussions.

One source said there appeared to be little trust between the two sides, despite Cathay 's conditional commitment to invest up to $100 million in return for a stake of around 40 percent in the airline and management control.

Another source, who was close to the Cathay team in the discussions, said the present shareholders of PAL presented the biggest stumbling block. Filipino-Chinese tycoon Lucio Tan is the largest shareholder of the beleaguered airline.

"The Philippines is a difficult place at the best of times, even if we had a cast-iron, rock-solid local partner," the source said. "The airline industry is very political, very high-profile and everybody is involved in it. The only way you can possibly do it here is with an absolutely, rock-solid partner, and I'm afraid these guys just don't qualify."

A source within PAL said the talks fell apart because Cathay wanted complete management control but no legal liability.

"Cathay was to have absolute authority on all decisions, does not want to have to consult existing management and wants immunity from all legal issues arising from the conduct of the business," the source said.

"It is unfair because other shareholders would be the only ones facing [possible] legal cases while Cathay is the one controlling management," the source added.

Despite Estrada's entreaties. Cathay officials have not responded favorably yet. Reuters