Tan Said Willing to Infuse Additional Funds Into PAL

Business World

Friday-Saturday, December 4-5, 1998

By PATRISHA JOAN F. DE LEON, MANOLO A. SERAPIO, JR., YASMIN LEE G. ARPON Reporters with LEOTES MARIE T. LUGO AND MARICRIS C. CARLOS Senior Reporters

Hong Kong-based Cathay Pacific Airways Ltd. is not returning to the negotiating table unless certain changes were made in the “current form” of Philippine Airlines, Inc. (PAL).

Still, President Estrada has not given up on a possible PAL-Cathay merger, even if the two parties are no longer keen on pursuing their negotiations.

But if worse comes to worst, Lucio Tan might end up saying – and retaining control of – PAL.

Finance Secretary Edgardo Espiritu yesterday said Mr. Tan, who controls a 70% interest in the airline, is willing to infuse fresh funds should a strategic partner is not found.

Mr. Estrada, in an interview at his North Greenhills residence in San Juan yesterday morning, said Cathay wrote him a letter “expressing an interest to reopen talks.”

But in a telephone interview with BusinessWorld, Cathay regional manager for Taiwan and the Philippines Peter Foster said the Hong Kong-based carrier is “not prepared” to reopen talks with PAL.

“Cathay will not negotiate with PAL in its current form. This is our bottom line and there’s nothing anybody can say or do to change that,” he said, Mr. Foster, however, refused to elaborate on the specific problems in PAL’s “form” that turned off Cathay.

Both sides have admitted that the main cause of the talk’s failure was the issue of management control.

Mr. Foster would neither confirm nor deny the letter to Mr. Estrada. He would only say that Cathay management is willing to meet with Mr. Estrada but only to discuss other forms of participation in Philippine air transport.

“If the (Estrada) government wants us to get involved in Philippine aviation or even in Philippine Airlines, it would have to be in some form or another,” he said.

Mr. Foster declined to discuss specifics, saying the Cathay management would rather meet with Mr. Estrada first before going public with anything.

“The Cathay management wrote me a letter (informing me) that they are still available for another negotiation. So let us not lose hope,” Mr. Estrada said.

He said he will arrange a meeting between Cathay officials and Mr. Tan who, he said, is in still in Guam.

“I’m just waiting for the return of Mr. Tan. I’ll talk to him if there are still a chance for them (PAL and Cathay) to come into an agreement. So, I’m not giving up because the management of Cathay said they are willing to renegotiate,” he added.

DEBT OF GRATITUDE

Mr. Estrada, who feels the government is indebted to Cathay after it agreed under a “wet lease” agreement to service domestic routes left open when PAL shut down operations last Sept. 23, said he will try to convince Mr. Tan to reconsider.

“We owe it to Cathay. When I asked for their help during the strike, they responded. In one way or another, it solved the problem of the businesses that were affected (by the PAL shut-down). So I think I will talk it over with them (Mr. Tan and Cathay),” he added.

The President, however, could not say when he will set a meeting between the two parties. “That I cannot answer you. I think days, weeks, maybe months. But I hope PAL will have enough money to continue their flights, their operations (even without a new partner),” he said.

A PAL board member, speaking on condition of anonymity, did say the flag carrier can stand on its own.

The PAL official said this, in fact, was the finding of the two foreign consultants hired by PAL to assess its financial status and prepare its rehabilitation plan.

The official said Mr. Tan, on his own, could easily raise the needed $150 million to finance PAL’s rehabilitation.

To prove his point, the PAL board member said the flag carrier will submit on Monday, Dec. 7, a stand-alone rehabilitation plan to the Securities and Exchange Commission. The plan, however, will have a provision for a possible entry of a strategic partner just in case.

“(PAL) will submit a rehabilitation plan with or without Cathay… but they will go on the basis that there will be new investors, not necessarily strategic,” Mr. Espiritu told reporters in an ambush interview.

Later in the day, PAL Executive Vice-President for Administration and Services Manolo E. Aquino said the “stand-alone” plan “does not provide for a foreign airline-partner, but if there is one in the future, that will be an enhancement.”

PAL counsel Estelito Mendoza, former Solicitor General, said PAL’s interim rehabilitation receiver is ready to submit the plan. Even without partners, he said it would still be feasible for PAL to get back on its feet. “It will be harder, but not impossible,” he told