PAL Studying Stand-Alone Plan

Philippine Daily Inquirer

Saturday, December 5,1998

By JULIET LABOG-JAVELLANA AND DORIS C. DUMLAO

Executive Secretary RonaIdo Zamora yesterday said the management of Philippine Airlines was seriously considering a "stand-alone rehabilitation plan in light of the failed negotiations with Cathay Pacific Airways and Northwest Airlines.

President Estrada, however, is yet unaware of the plan.

"I have not talked to the management of PAL. I will have a meeting with [PAL majority owner Lucio Tan] on Sunday. That's the only time I will know [the long and short of it].''

But well-placed government sources said the Hong Kong-based Cathay Pacific had resumed talks with PAL upon Mr. Estrada's urging.

The sources said Cathay had agreed to withdraw its demand for a retrenchment program beyond what was agreed upon between Tan and the PAL employees.

During a luncheon held for his birthday. Zamora noted that PAL had had discussions with the two foreign airlines. "Unfortunately, these talks have not succeeded, so the management of PAL is now looking toward the possibility of presenting a stand-alone rehabilitation plan," he said.

Zamora said PAL management was so confident about the plan that it did not even ask for an extension of the Dec. 7 deadline creditors had set for the airline to submit a rehabilitation proposal to the Securities and Exchange Commission.

He said that during a meeting between PAL creditors and government and PAL representatives Thursday night, the creditors did not say that the airline's debts would become due if it failed to secure a foreign partner.

"So it is possible that in the end, PAL will be rehabilitated by a stand-alone all-Filipino investor group," he said.

The stand-alone plan calls for government financial institutions to open a credit line for PAL to keep it flying.

"You remember at one point, the President was considering the possibility of (GFIs) opening a credit line to PAL, provided there is sufficient collateral. I don't see why we cannot do this right now," Zamora said.

He said the plan was "worth considering" because PAL had managed to keep flying without the help of any foreign investor.

“There is no doubt that PAL is in the red,” Zamora said. "It is in the red by tens of billions of pesos, but in the end, discussions with foreign investors require a certain amount of give and take.

"And I think what has happened here is that the management fears there is not enough giving on the part of foreign investors."

Zamora said he was not aware of the letter which Mr. Estrada claimed to have received from Cathay management.

The President said the airline had expressed readiness to enter into another round of negotiations with PAL.

"I don't know of any particular letter, but clearly the President was referring to many instances when Cathay expressed its interest in rehabilitating PAL,” Zamora said.

But the sources said talks had resumed between PAL and Cathay "because the labor issue has been resolved."

The only thing they're threshing out now is the transfer of management control," the sources said. "Hopefully they'll arrive at something over the weekend."

The government is a minority shareholder in the national flag carrier which is controlled by Tan. PAL shut down operations for 13 days in September under the weight of a $2.1-billion debt. It apparently flew into new turbulence when Cathay said Wednesday it had broken off negotiations over disagreement on management control and valuation issues.

The airline had earlier been interested to acquire up to 40 percent of PAL. With an AFP report.