Business World
Wednesday, December 2, 1998
By Manolo A. Serapio
Reporter
The International Finance Corp. (IFC), the private investment arm of the World Bank will proceed with plans to invest in Philippine Airlines, Inc. (PAL) even if Hong Kong-based Cathay Pacific Airways Ltd. decides to jump ship, Finance Secretary Edgardo Espiritu said yesterday. "IFC is willing to invest whoever is the partner as long as there is a viable restructuring proposal," he said.
Mr. Espiritu said IFC is ready to invest 20% to 30% of whatever equity investment the strategic partner will pour in. So far, he said PAL needs $150 million in fresh capital. This amount will have to be "shared" by the new investor and existing shareholders led by PAL Chairman Lucio Tan. "IFC can invest 20% to30%of the $75 million off the new partner," he said. Mr. Espiritu said negotiations between Cathay and existing shareholders of PAL are continuing and a deal for the possible takeover of the foreign airline of the national carrier can still be finalized within the year.
"There are some sensitive labor issues that are still being discussed. We hope there will be an agreement before yearend," Mr. Espiritu said. At the crux of the issue is Cathay's plan to trim down PAL's work force to 5,000 from the current 8,500, a plan which does not sit well with the flag carrier's labor.
President Estrada and Mr. Tan have committed not to engage in massive layoffs during the ensuing 10-year rehabilitation program for the airline.
But Cathay officials said cutting the labor force is part of its major plans to turn around the cash-strapped PAL prompting Mr. Tan to woo other potential partners including US-based Northwest Airlines.
Cathay is positioning to gain 40% of PAL, enough to take management control of the company. Mr. Tan's shares which currently cover 70% of the total shareholdings will be reduced to 30% with the employees owning 20% and existing government and private shareholders diluted to 10%.
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