Pilots Reject PAL Rehab Plan

Business World

Tueday, December 29, 1998

Maricris C. Carlos

It's now the turn of the pilots of Philippine Airlines, Inc. (PAL) to reject the rehabilitation plan submitted to the Securities and Exchange Commission (SEC).

In a motion filed with the SEC, the Airline Pilots Association of the Philip­pines (ALPAP) pointed to a number of "defects" in the plan which cast doubts on its feasibility.

In a related development, 10 local creditor-banks joined forces to ensure the payment of some P7.1 billion in loans they extended to PAL in 1496.

Led by the Philippine National Bank (PNB) the banks asked the SEC for a 30-day extension to file their comment on the proposed plan.

Aside from PNB, forming the syndicate are Allied Banking Corp., Banco de Oro, China Banking Corp., Equitable Banking Corp., International Ex­change Bank, Rizal Commercial Bank­ing Corp., Security Bank Corp., Union Bank of the Philippines, and Westmount Bank.

In particular, the banks asked that they be given until Jan. 24, 1999 to file their comment. They said they need additional time to carefully study the huge volume of information contained in the rehabilitation plan.

This was the same reason cited by two other creditors, Mobil Philippines, Inc., and Pratt and Whitney Canada, Inc.

So far, only a handful of creditors have filed their comments on PAL’s rehabilitation plan. These include European creditors and two local banks.

Earlier, PNB on its own expressed its objections to the plan, particularly the proposal to restructure PAL’s capital which involves the reducing of the par value of existing common shares to only P0.01 from the current P5 per share.

PNB said the capital restructuring will “substantially dilute” its stake in PAL. At the same time, holdings of PAL employees will be reduced to 5% from their existing 20% equity.

PNB also criticized the pricing used by PAL, saying the “valuation is too low.” It thus sought clarification how the interim rehabilitation receiver “arrived at the P0.01 valuation of the share.”

Another local bank which balked at certain components of the rehabilitation plan is the Philippine Commercial International Bank (PCI Bank).

PCI Bank’s objection concerns the 15-year extension of the maturity of loans. Instead, the bank proposed a maturity of only 10 years, inclusive of the grace and repayment periods.

PCI Bank also opposed the proposal for creditors to waive interest charges on all “post-petition” loans, including default interest.

“The suggestion is open-ended, hence, would be too onerous for acceptance,” the bank said at the motion filed at the SEC.

For its part, ALPAP objected to the absence of provisions relating to PAL employees.

“The plan is either deliberately silent or has really no clear program at all for its employees. This is quite odd for a rehabilitation plan because the employee work force is a major party in any PAL rehabilitation possibility,” the pilots union said.

The absence of such provisions is also suspect, ALPAP said, considering that based on the Labor Code, employees enjoy “first preference as regards their wages and other monetary claims.”

PAL’s silence “betray a vacuity in concrete ideas in making the plan actually work or a foreboding of a scheme that is even more sinister than the suspension of collective bargaining agreement (CBA).”

10-year Suspension

ALPAP was referring to the 10-year suspension of employees’ CBA rights as part of the compromise deal with the PAL management after the airline temporarily stopped flying.

Also a concern is PAL’s proposal to dispose of its “non-core” including its catering, ground-handling, and maintenance services.

“The move per se is not defective and may even constitute a sound business decision in other circumstances, but not so in PAL’s case, at least not at this time,” ALPAP said.

At a time when the company is incurring losses in all of its traditional business areas, “getting rid of the profit centers of catering, ground-handling, and maintenance is quite questionable.”

Another key concern is what ALPAP described as “the protectionist measures that PAL management wants the government to adopt” in conjunction with the airline’s rehabilitation.

ALPAP pointed to a proposal to exempt PAL from landing fees and other charges collected by the Air Traffic Office.

“If management cannot come up with a recommendation that can embrace PAL’s viability without hiding under the protective shield of the government, it should not stay on as a private concern any minute longer.

“If it will entail the taxpayers’ resources to salvage it from financial collapse, its nationalization is a better alternative.”