Business World
Monday, December 7, 1998
By Patrisha F. de Leon
Reporter
Philippine Airlines, Inc. (PAL) is taking its first shaky step towards recovery as it submits a proposed rehabilitation plan to the Securities and Exchange Commission today.
PAL is making its move amid speculation on whether or not Cathay Pacific Airways Ltd, would return to the negotiating table. Over the weekend, President Estrada said he will do everything to convince the two parties to resume their talks, while a member of his official family claimed the two have indeed resumed negotiations.
Business World sources said the rehabilitation plan outlines the flag carrier's business program for the next five years with the goal of generating revenues of about $855 million by year 2003.
The sources said the proposal has two major sections: a ''business plan" and a "financial restructuring which includes the flags carrier’s latest unaudited financial statements as of September 1998. PAL., it was learned, wants the rehabilitation plan to be in effect by next April.
Under the proposed rehabilitation plan, PAL hopes to reach its target revenue with a fleet of 22 aircraft and manpower complement of around 7,500 employees, 500 less than its current 8,000-strong work force.
A PAL official, requesting anonymity, said the workers whose services are no longer required are already being covered by the airline's voluntary separation program (VSP). "We are confident that the number of people who would avail of the VSP would be sufficient to cover needed reductions in our work force,” the official said.
PAL implemented its VSP last Nov. 23 under the Sept. 27 agreement between PAL Chairman and Chief Executive Officer Lucio Tan and the 6,700 strong PAL Employees’ Association (PALEA).
The rehabilitation plan also provides for the improvement of PAL's international route network as well as how to take better advantage of the flag carrier's current 63% share of the Philippine aviation market.
By the end of its fiscal year this March, the sources said PAL will have serviced some 7.4 million passengers but its total revenues are expected to reach only $379 million.
Among the international routes, PAL will be relying heavily on its US and Japan routes to make itself profitable again.
The sources said PAL plans to turn things around by the year 2000 when it hopes to raise its revenues to some $60 million.
It also made provisions for the $90-million capital infusion by Mr. Tan, which was described in the rehabilitation plan as coming certain investors "to include the Lucio Tan group.”
But the amount represents only 60% of the total $150 million needed to finance the flag carrier's five-year rehabilitation.
Earlier yesterday, President Estrada was reputedly set to meet with PAL and Cathay Pacific representatives at his San Juan residence yesterday. But he denied there was such a meeting scheduled as Business World sources said PAL and Cathay "have not been talking (to each other) directly'' since they left the negotiating table last week.
The sources even claimed PAL has begun talking to an unidentified local group which may put up the remaining $60 million needed to finance the airline's rehabilitation.
LITTLE POINT
But sources privy to the abandoned talks told Reuters the differences were deep-rooted and there would be little point in resuming discussions.
One source said there appeared to be little trust between the two sides, despite Cathay's conditional commitments to invest up to $100 million in return for a stake of around 40% in the airline and management control, Reuters reported.
Another Reuter’s source, who was close to the Cathay team in the discussions, said the present shareholders of PAL presented the biggest stumbling block.
"The Philippines is a difficult place at the best of times, even if we had a cast-iron, rock-solid local partner,” 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,” the Reuters source said.
Both PAL and Cathay admitted the main cause of the failure in negotiations was the issue of management control.
But Mr. Tan, who has a 70% stake in PAL, is "willing to let Cathay take over the management of PAL even before the Hong Kong-based airline infuses fresh funds by April,” the Cabinet official, who requested anonymity, said.
"What is definite is that PAL will not close,” the official said.
Meanwhile, the government official also said the government financial institutions (OFIs) will no longer be allowed to increase their equity in PAL to prevent an increase in the state's exposure.
"The GFls, particularly the Social Security System (SSS) and Government Service Insurance System (GSIS) will not be allowed to come in unless they are holding preferred shares, “ he said. With Dymphna R. Calica
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