Tan to Keep PAL Flying, With Or Without Foreign Partner

Malaya

Friday, December 4, 1998

By REGINA BENGCO

Lucio Tan will keep Philippine Airlines flying, with or without a strategic foreign partner, PAL officials said yesterday.

President Estrada, however, said he has received a letter from Cathay Pacific Airways stating the Hong Kong-based airline is still available for negotiations.

“So let us not lose hope. I’m just awaiting for the return of Mr. (Lucio) Tan and (then I’ll) talk to him and maybe there’s still a chance for them to come into an agreement,” he said.

Estrada said he is not giving up on Cathay because of the management’s letter and because “we owe it also to Cathay” for responding to the government’s call for help when PAL closed down for two weeks last September.

But he said the negotiations “might take days, weeks, maybe months. I hope that PAL will have enough money to continue the flights and the operations.”

He said government will not shoulder PAL’s rehabilitation because it does not have the money.

Manolo Aquino, PAL Executive Vice-President for Administration, said PAL will file with the Securities and Exchange Commission on Monday a rehabilitation plan that does not markedly differ from plans involving Cathay Pacific or Northwest Pacific, the other potential strategic investors which had called off negotiations with PAL.

“We will submit the rehab time plan on time. Tan has already committed to the rehabilitation of the company and for the creditors to be satisfied,” Aquino said.

Creditors of PAL will have one month after the submission of the rehabilitation to decide whether to approve rehabilitation or seek liquidation.

Aquino said the creditors are understandably worried over PAL’s ability to service its $2-billion debts. He said the interim receiver committee has given creditors the assurance that Tan would make good on PAL’s obligations.

Aquino said Tan is willing to give up 40 percent ownership and a foreign partner is still a priority. The new investor, however, need not be airline companies.

Finance Secretary Edgardo Espiritu said Tan has several options in raising the estimated P6 billion needed to bring the airline back to financial health.

If the new investors fail to come up with P6 billion, Tan can fill the gap and keep control.

“PAL will submit a rehabilitation (program) without identifying its partners. But they will go on the basis that there will be new investors. That’s how they are going to do it,” Espiritu said.

Rep. Joey Salceda (Albay) said government should look at the possibility of bailing out PAL by guaranteeing its debts after the collapse of negotiations with Cathay and Northwest.

He said from the purely economic point of view, government should let PAL go bust. But national interest and the welfare of its 8,500 workforce demand continued survival of the airline.

He proposed that the national government – through government financial institutions – issue $450 million in dollar denominated bonds to PAL’s unsecured creditors.

The government would then take all the assets of PAL coupled with Tan’s assets in Allied Bank Fortune Tobacco and Asia Brewery as collateral.

Tan should infuse P4 billion in fresh capital and PAL raise P500 million in sales of non-strategic assets.

Unsecured creditors should take a 25 percent writedown on their exposures, Salceda said.

“A PAL bailout now is certainly not the first-best policy option, but it is the right thing to do,” he said.