Monday, December 7, 1998
PRESIDENT Joseph Estrada is desperately trying to resurrect talks between Cathay Pacific Airways and troubled Philippine Airlines (PAL), but the divide between the two sides may be too great, analysts 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 last 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 told Reuters that the differences were deep-rooted and there would be little point in resuming discussions.
Little trust
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 it 40 percent in the airline and management control.
"The Philippines is a difficult place at the best of times, even if we had a cast-iron, rock-solid local part¬ner," 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 wants to have abso¬lute 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.
Unfair
"It is unfair because other shareholders would be the only ones facing (possible) legal cases while Cathay is the one control¬ling management," the source added.
Despite Estrada's entreaties, Cathay officials have not re¬sponded favorably yet.
“However we obviously have good contacts with the govern¬ment, including obviously the executive branch, and we will maintain the contact," he added.
PAL, for its part, is going ahead with a restructuring pro¬gram which is scheduled to be submitted to the Philippine Se¬curities and Exchange Commis¬sion today.
Airline executive Vice-Oresi¬dent Manolo Aquino told Reuters on Saturday that one part of the plan would seek debt forgiveness from creditors.
He added the rehabilitation plan would specify the terms and conditions of the debt forgiveness and restructuring, not how much of the loans would be there given.
Foreign partner
PAL, Asia's oldest airline, owes some $2.0 billion to 9,000 creditors, including suppliers, airline officials said earlier.
Aquino said PAL was seeking to find a foreign partner, but nothing had come to fruition yet.
'With a foreign partner. defi¬nitely it would give a wider spread of market reach in terms of customers, in terms of desti¬nation. And with that particular tie-up or synergies with the foreign partner, definitely the rehab plan can only be enhanced," Aquino said.
However, a foreign partner is not enough to shield PAL from the slump in the airline business due to the Asian financial crisis.
"The business environment has not changed, it's very com¬petitive out there... That's going to be difficult for us because un¬like the others who have a strong capital base, we are going through this rehabilitation," Aquino said.
"That's going to be the diffi¬culty for us over the next few years."
—Reuters
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