PAL Reviving Talks With Cathay

Philippine Daily Inquirer

Wednesday, December 9, 1998

Business

ELEAGUERED Philippine Airlines is trying to revive talks with prospective investor Cathay Pacific Airways, which backed out of negotiations for a possible controlling stake in the Philippine flag carrier, a PAL official said yesterday

If Cathay Pacific is unwilling to restart talks, PAL will consider investment offers from other foreign airlines, PAL Executive Vice President Manolo Aquino said.

Cathay Pacific officials were not immediately available for comment.

PAL closed for nearly two weeks on Sept.23 following labor disputes and mourning losses worsened by Asia’s financial crisis. It then began negotiations with Cathay Pacific, but the Hong Kong carrier announced last week it was pulling out of the talks.

Finance Secretary Edgardo Espiritu said the companies disagreed over management control of PAL and the timing of Cathay Pacific’s capital infusion into the Philippine Carrier.

Cathay Pacific wanted full management of PAL but the companies were unable to agree on how much to deal with a constitutional prohibition of foreigners controlling key industries in the Philippines.

Cathay Pacific also refused to put its money into PAL until after a PAL rehabilitation plan is approved by creditors and the Securities and Exchange Commission. Espiritu said.

PAL submitted the plan to the SEC on Monday. It calls for an injection of $150 million in new capital, a work force reduction, fleet downsizing, and abandonment of unprofitable routes.

The plan must be approved by SEC and airline’s local and foreign creditors to whom it owes $2.1 billion.

If the proposed rehabilitation plan is approved, local investors, including PAL Chair and Chief Stockholder Lucio Tan, will invest $90 million of the $150 million needed by the airline, PAL said.

The rest would be provided within six months by a still undetermined “strategic partner,” the airline said.

The SEC said it would complete its evaluation of the rehabilitation plan submitted by cash-strapped flag carrier Philippine Airlines Inc. within 30 days.

In an order issued yesterday by the SEC hearing panel headed by SEC Chair Fe Eloisa Gloria, the SEC task force created last June 19 was directed to study, analyze the rehabilitation plan and submit the recommendation within 30 days from Dec. 7, or on Jan. 6.

The recommendation of the SEC task force would be the basis for the hearing panel’s decision whether to allow PAL management committee to implement the plan or to proceed with the liquidation of the airline.

Cathay Pacific yesterday said it continued to have informal contact with Manila despite the collapse of talks over the Hong Kong flag carrier taking a stake in ailing PAL.

Cathay also denied reports that it had snubbed President Estrada by failing to show up for a meeting.

“We were never called to a meeting last Sunday and we continue to maintain informal contact with the executive branch,” Cathay Pacific Regional Manager for Taiwan and the Philippines Peter Foster said in a statement.

Disagreement on management control and valuation issues forced Cathay Pacific to break off talks with PAL last week. The Hong Kong airline had expressed interest in acquiring up to 40 percent of loss-making Philippine national carrier.

Mr. Estrada on Monday said he had not given up on the proposed tie-up, announcing he had scheduled talks within the week between representatives of both airlines in a last-ditch attempt to clinch an alliance. With reports from Tina Arceo Dumlao, AP and AFP