RP To Use Miyaza Funds to Bail Out PAL

Malaya

Tuesday, December 15, 1998

By PEARL O. BANTILLO

Finance Secretary Edgardo Espiritu yesterday said that some $150 million from the Miyazawa Initiative is being eyed to bail out the Philippine Airlines.

The Finance Secretary said that the Miyazawa financing allows private corporate restructuring and the government can borrow for PAL under that category.

“This is in line with the public clamor to save PAL at all cost,” Espiritu said. He noted that a lot of Filipino investors have approached Malacañang signifying their intention to invest in PAL but he first wants to see "the color of their money.”

"The President does not want to close PAL," the Finance Chief noted but added that the $150 million being eyed is but a fraction of the $2 billion sought from the Miyazawa package.

"We will give It only $150 million to make it viable. I will talk with Japan Export and Import Bank (Jexim) and Overseas Economic Cooperation Fund (OECF) to include it in the package,” Espiritu said.

He remained apprehensive, on the other hand, on how the Japanese government will react on the proposal.

Nonetheless, even with this initiative from the government, Espiritu said PAL must continue to look for investors, as much as possible a strategic one, to effect the transfer of management to a new entity and relieve Lucio Tan, majority stockholder of PAL, of the airline control.

International Finance Corp. (IFC), the investment banking arm of the World Bank. is still willing to invest in PAL even without Cathay.

"If IFC invests sooner or later there will be a public offering.”

In another development, an investment analyst said PAL will continue to attract foreign investors given its relatively young fleet and experience.

What the airline needs, the analysts said, is for the government to help level the playing field in the Airline industry.

He said investors would readily put in money when and if the airline could exercise all its worldwide landing rights.

As it is, he explained. PAL would remain a high-risk investment, despite government's intervention in its labor problems. A releeting program three years back required about US $2.1 billion loans but the Asian financial crisis last year devalued the peso more than 50 percent, pushing the airline to borrow more money or pay its debts. PAL claimed the recent series of strikes this year, until its close on September 23, bled the company more than P2.2 billion in losses.

Reeling from a P8 billion loss in the previous fiscal year, the airline continues to lose potential foreign revenues for failing to generate its anticipated income from most of its entitlements, he said.

This is not PAL's fault. If the Estrada Administration had the political will to solve the airlines labor problems then it should re-examine, this time, how previous administrations gave away PAL's landing rights to the competition," he stressed.

Citing how government aviation policy failed to acquire reciprocal landing rights for the national flag carrier, he claimed certain Civil Aeronautics (CAB) officials indiscriminately granted Temporary Operating Permit (TOP) to the competition, noting that CAB allowed Saudia Airlines in Jan. 1994 to unilaterally cancel the PAL-Saudia commercial agreement, with seeming disregard to PAL's interest.

The analyst explained the PAL-Saudia commercial agreement aimed to cure the imbalance in the bilateral landing rights brought about by the enforcement of the Royal Decree 199, an order by the King of Saudi Arabia that gave more rights for Saudia to nearly monopolize the Filipino overseas workers market. The agreement, he added, served as the equalizer and compensated PAL for its losses.

“CAB not only allowed Saudia to unilaterally cancel the commercial agreement, but continuously granted extensions to TOP beneficiaries, he said, include Saudia, Emirates, Kuwait Airways, Gulf Air, Qatar Airways, Continental Air Micronesia, Korean Air, Asian Airlines, China Airlines, EVA Airways, Singapore Airlines and Federal Express that enjoyed CAB's partially and seeming disregard for national interest.

PAL, he said, loses about US$7 million per year from uneven playing field with Saudia, US$1.7 million with Kuwait Airways, and US$1.2 million with Korean Air. The national flag carrier is also incurring opportunity loss of about 150,000 passengers per year from the imbalanced deal with Saudia. Landing rights are governed by air services agreements negotiated bilaterally.

In contrast, foreign governments like that of Canada. Japan, Saudi Arabia, Taiwan, Australia, Indonesia, Malaysia, Vietnam. Italy, Spain and Russia, among others, strongly support their carrier and deny any attempt by other airlines to jeopardize and overtake their landing rights.

One of the country's top dollar earners, PAL is also Asia's first airlines. After a series of crippling strikes, the company continues to give employment to about 9,700 personnel, providing domestic air transportation to passenger and cargo services in the archipelago. "Wherever PAL flies, we should all rally behind our national flag carrier and support it because the pride of the Filipino nation is at stake," he stressed.