Gov’t Should Not Take PAL Back

Filipino Monitor

December 10-23, 1998

Jake Macasaet

The collapse of talks between Philippine Airlines and Cathay Pacific gave Sen. Raul Roco, defeated presidential candidate in the May 11, 1998 elections, one more opportunity to grandstand on his demand for the government to take control of the national flag carrier. Radio reports last week quoted the Bicol lawmaker as saying that the charter of PAL allows the state to take it back and that its obligations, under the same charter, are guaranteed by the national government.

The government became a minority stockholder in PAL after the airline was privatized in 1993. The government's seats in the airline’s board of directors were reduced to one when President Ramos ordered government agencies to waive their preemptive rights to the new capital of PAL.

But the state cannot and should not place itself in a situation where an enterprise it has privatized will be taken back if it gets into trouble. If a precedent is established, if it is possible, theoretically at least, to see some of the privatized agencies ending back in the hands of the state because they are beginning to go under.

Under what terms in the Roco proposal will the state take back control of PAL? Will the government refund Lucio Tan, the majority owner, the billions of pesos that he has spent trying to turn the airline around but whose efforts were effectively stymied by labor troubles? Another bad precedent will be created if the government pays Lucio Tan for the takeover. It would be worse if the government resumes control and forgets the investments of Tan. Nothing could be more arbitrary. The labor problems became so bad it reached a breaking point where Tan had to part with 30 percent of his own equity to labor in exchange for 10 years of industrial peace. If that offer had not been accepted, the airline would have been closed immediately.

President Estrada himself said that his administration has no intentions of taking hack the national flag carrier. This means that the rantings or grandstanding of Roco will, as it should, end up in the garbage heap. But just the same, the fallacy, if not stupidity, of his ideas must be exposed if only to avoid the possibility of the less informed giving him support.

There is no information about Roco's claim, broadcast over radio, that the government is the guarantor of the foreign obligation of PAL. What we know is that the suppliers were satisfied with the personal guarantee of Tan through his many companies, principally Fortune Tobacco. It must be recalled that when Tan was implementing a $3-billion refleeting program, the Export-Import Bank of the United States demanded that while its guarantees are outstanding, Tan's management in PAL may not be disturbed.

As a corporate lawyer who was for some years corporate secretary of San Miguel Corp., Roco should have learned enough lessons from the experience of government running an enterprise. There is hardly any government-owned or controlled corporation that is making money because it is efficiently run. This, plus the need for money, are the main reasons President Ramos pursued privatization. President Estrada is even more in a hurry to privatize all government corporations. And now comes Roco demanding the privatization of Philippine Airlines.

There are factors other than labor problem that helped sink PAL. The Civil Aeronautics Administration under President Ramos gave PAL competitors additional frequencies to Manila without demanding anything in return. In fact, the CAB passed a resolution in August 1993 saying that “henceforth, the CAB will be less protective of the private interest in PAL.” How does one discriminate against a specific stockholder — Lucio Tan in this ease — and protect another in the same corporation? As a corporate lawyer presumably well-versed with the evils that government presence in a privatized enterprise creates, it should have been the duty of Roco to denounce the anomaly of PAL being discriminated against by its own government in favor of competitors. No politician ever said one word about this.

Roco, it seems, has completely forgotten or has ignored his reputation as a brilliant corporate lawyer. He now finds much pleasure being a politician and presidential timber. He has to comment on all issues of the day although deep in his heart and mind, he might be fully aware that he is wrong. But between being right and getting the votes, a politician would -- by and large -- rather be wrong but popular. If I know politicians, this is the only reason Roco wants the government to take back control of PAL. He simply wants to be heard and read. He does not seem to worry about the senselessness of his pronouncements. Maybe, he is gunning for the presidency one more time in 2004.

As it is, PAL is already in very deep financial trouble. Going by its own experience of more than 50 years under government ownership and control, its return to the state can only succeed in resurrecting the anomaly of making it an employment agency for politicians. With a fleet about half that of Singapore Airlines, PAL has twice as many employees although the number has already been reduced. A takeover by the state as suggested by Roco will give the politicians one more opportunity to destroy PAL through unreasonable demands. The whole point is that it is not in the national interest for the government to get back PAL.