PAL Told to Prove Financial Viability

Today

Wednesday, December 9, 1998

By R. MERCENE

MALACAÑANG officials yesterday set the requirements for beleaguered Philippine Airlines to avail itself of bridge financing from government financial institutions.

Presidential spokesman Jerry Barican said the government institutions would be open to extending PAL loans to tide it over at least until April provided that, among other things, it can prove its commercial viability, and it will be subject to the usual credit evaluation. At the same time, Barican said, any financing package for PAL will have to involve a consortium of private banks and strategic partners. Finally, that same financing package will have to be incorporated into a rehabilitation plan to be approved by PAL creditors and the Securities and Exchange Commission.

Barican laid down the rules for PAL's availment of government loans even as he stressed that "bridge financing" does not necessarily translate into a government bailout. He added that the President remains confident that PAL can easily meet all the requirements set for its availing of loans.

Finance Secretary Edgardo Espiritu last Monday said government financial institutions may provide PAL with bridge financing until it can find a strategic partner.

“The worst-case scenario is that the GFIs, as a last resort, would extend bridge financing to PAL between now and April [1999] since it needs to [pay] different leasing companies,” Espiritu said.

Yesterday, he added that the only major concern for Cathay now is the possibility that its participation in the management of PAL may be limited by the Constitution.

"The basic issue now is the constitutional limitation on foreign participation in policy- and decision-making," Espiritu said. “They want to have a final say over the board in running PAL." Giving in to such demands, however, may run in conflict with the Philippine Charter, which limits foreign participation in any Philippine company to 40 percent.

Espiritu insists that PAL's "temporarily stalled" negotiations with Cathay may yet bear fruit. "We will know in two or three days' time if the Cathay deal will push through."

Last Monday, however, he reminded that although Cathay wants to take over management of PAL immediately, it can only infuse fresh capital in April, hence the option for government financial institutions to offer bridge financing until then.