Why Doen'st Gov't Take Over PAL

Philippine Daily Inquirer

Sunday, December 13, 1998

Analysis

By AMANDO DORONILLA

THECOLLAPSE of talks about a merger between Philippine Airlines and Cathay Pacific has driven PAL to turn inward for options to rehabilitate the airline. It has submitted a 10-year rehabilitation plan. In my column of last Friday, I described the plan as a protectionist throwback. I will de­monstrate why. I will also raise the question of who is being bailed out in the rescue plan.

An examination of the elements of the reha­bilitation plan shows it is an onerous, one-sided deal that seeks government support for PAL and a failed management under Lucio Tan, without any assurance that it will turn PAL'S finances around. The plan does not require sacrifices from Tan but it spreads the risks among the Filipino people. After the collapse of the merger talks, PAL with Tan has become too hot to handle and foreign airlines which were previously interested in investing expertise, technology and money are avoiding it like the plague.

There's a real possibility that unless PAL gets a strategic partner, it will fold up. The rehabilita­tion plan is a move to dump the responsibility for rescuing PAL on the Philippine government even though it is just a minor stockholder of PAL. The rehabilitation is supposed to be financed by the Philippine National Bank, the Government Service Insurance System and Land Bank, even as it aims to keep Tan afloat.

To show how protectionist and one-sided is the plan, we have to consider its key elements. including: (1) restrictions on the grant of new frequencies or capacities to foreign earners; (2) cancellation of all temporary operating permits granted to other airlines to service the Middle East, Hong Kong, Taipei and Singapore; (3) au­thority from the Civil Aeronautics Board to increase fares, rates and charges while asking for deregulation of fares and charges; (4) making PAL the government's designated carrier on all routes subject to air services agreements to which the Philippines is and will be a party; (5) exemp­tion from landing fees and other charges by the Air Transportation Office, the Manila Interna­tional Airport Authority, the Mactan Cebu International Airport and other airport authorities in the Philippines; (6) continuation of tax privileges by the Bureau of Internal Revenue; (7) immedi­ate payment of receivables from the government and its agencies; (8) enforcement of equivalent safety standards for all domestic airline opera­tors; (9) investing overseas tourism promotional expenditure to the level of regional competitors in PAL’s core market; (10) mandating that all government and overseas workers use PAL in their overseas travel.

The above package, together with the "bridge financing" scheme tapping funds from the GSIS, Land Bank and PNB, is an inward-looking ap­proach. It is equivalent to turning into ourselves to devour our entrails in a cannibalistic orgy just so Tan can recover his investments. Nowhere is there an inkling of any commitment by Tan to lift its management's game. The plan shifts all respon­sibility for the rehabilitation of PAL, to the gov­ernment and government financial institutions.

If the government had majority stocks in PAL or was running it, there is justification to inter­vene with all its powers to subsidize PAL's re­covery and to give it advantages over other air­lines. Then, whatever resources the government will put into PAL and whatever losses it may in­cur could be considered as a social subsidy to the public.

In most countries, public transport and utili­ties such as railways, buses, electricity, water and airlines are operated by the state, often at a loss. Since these enterprises are large-scale and vital public services, the state considers it a so­cial responsibility to operate them, even at a loss.

The present management has not only sent PAL to its knee' through its incompetence and flawed management. It has also sought state sub­sidies, protection and concessions, even though it does not assume social responsibility. As I have already pointed out, PAL's management is the biggest stumbling block to benefiting from the viable option of inviting foreign airline anticipation in PAL. It has no expertise in running an airline and yet when given the chance to acquire professionalism in management and expertise, PAL has refused to give up management con­trol.

Cathay Pacific concluded that investing money in PAL was throwing good money after bad so long as the present management has a say in running it. And yet PAL has the effrontery to ask the government to subsidize it and to protect it from competition with its rehabilitation plan.

Prior to the talks with Cathay Pacific, the government's intervention faced two options: first, merger with foreign airlines, which is now in vogue in the international airline industry hurt by the Asian financial crisis and recession; and, second, put pressure on Tan to get out of PAL, similar to the pressure the government exerted on Antonio Cojuangco to give up control of PLDT to a new group favored by the adminis­tration.

The government blew the first option. The sec­ond option is still available. In fact, the rehabili­tation plan calls for a more activist intervention by the government in bailing out PAL, except that the intervention is intended primarily to benefit its management. So, since the government is already intervening, why not just take over PAL? Tan is superfluous in PAL.

If the PAL fiasco has a lesson to teach us, it is that government can't really leave strategic trans­port and utilities companies entirely in the hands of private operators. These companies have a public character and the government still has a responsibility to oversee and discipline inefficient, incompetent and exploitative operators—that is, if it is not protecting cronies.