GFIs, Tan to Infuse New Equity in PAL

The Manila Times

Friday, December 4, 1998

Jun Ebias, Sandra Aguinaldo, Carmina Reyes, Reuters

Five government financial institutions (GFIs) might try to save Philippine Airlines, by helping it raise a part of the needed capital to rehabilitate the airline and avert its closure following the collapse of talks with its prospective strategic partners.

The information which Finance Secretary Edgardo Espiritu hinted yesterday coincided with PAL's announcement that it will pursue a stalled down rehabilitation plan even without Northwest Airlines of the US or Hong Kong's Cathay Pacific Airways.

The two other airlines announced the other day that they have dropped separate negotiations to acquire a 40 percent stake in PAL because of fundamental differences with Lucio Tan, the airlines chairman.

Espiritu's disclosure coincided with admission made by PAL Executive Vice President Manolo Aquino, that Tan, a close ally of President Estrada, belongs to a local group that plans to infuse $90-million fresh capital to PAL. PAL's earlier rehabilitation plan called for $150 million in fresh capital.

“The $90 million, that is initially required under the rehabilitation plan, will come in as soon as the plan is approved by the Securities and Exchange Commission (SEC),” Aquino told a hastily called news conference.

For his part, Espiritu said, "There are interested investors coming in. However, they will no longer be a strategic partner.”

As it turned out, the interested investors included present stockholders of PAL. Five GFI’s, including the Retirement and Separation Benefit System (RSBS), the equally ailing military pension fund, are PAL stockholders.

“Present stockholders are preparing to infuse additional capital to PAL,” Espiritu said. He did not say if the GFIs will take a bigger stake or just maintain their combined 19 percent holdings in PAL.

Espiritu added the Estrada administration will reactivate an inter-agency task force that will study other options to keep PAL operating. Espiritu, however, did not say what other options the task force will consider.

Talks with PAL's prospective strategic partners ended just two months after PAL closed down its operations due to differences with its militant labor union. The closure triggered a transport crisis that stranded thousands of travelers.

PAL reopened after the workers, upon prodding of the President, agreed to observe a 10-year moratorium on strikes, a precondition from Tan demanded.

Espiritu's statement also coincided with calls from the militant labor group Kilusang Mayo Uno for the government to “buy out" Tan in PAL and stop the airline industry's privatization.

“The government should save itself the trouble of looking for a buyer for PAL. It should infuse money into the national flag carrier and be the main shareholder in the company,” the KAM said in a statement.

Aquino said PAL has kept the “stand alone” rehabilitation plan even while it held negotiations with Cathay and Northwest.

"lt (the rehabilitation plan) does not provide for a foreign airline partner, but if there is one in the future, that will be an enhancement,” he said in a statement.

“The plan, which will be submitted next week to the SEC, includes the retention of 22 aircraft in the PAL fleet and the restructuring of its outstanding obligations,” Aquino said.

But in Malacañang, it appears Estrada has not given up hope in persuading Cathay to get back to the negotiating table.

“Let us not lose hope. Maybe there's still a chance for them to come to an agreement,” Estrada told reporters in a press conference in his Greenhills residence. According to the President, Cathay is willing to return to the negotiating table to find ways to come to an agreement with Tan.

President Estrada said Cathay Pacific wrote to him a letter to express their willingness to reopen the negotiations. Cathay said forging such partnership between the Hong Kong firm and PAL may take some time.

But from Hong Kong, Cathay denied Estrada's claim.

"We have not taken the decision to withdraw from the negotiations lightly," said Cathay spokeswoman Katherine Wang. “The decision was made after serious consideration. We wouldn't revisit it unless there is a fundamental change in the situation.”

She declined to comment on what fundamental changes could make Cathay revisit its decision to abandon talks. The Hong Kong flag carrier on Wednesday confirmed it had abandoned negotiations for a stake in PAL and said talks had broken down because of differences on issues such as management control and valuation.