World Bank Arm Remains Keep on Investing in PAL

Philippine Daily Inquirer
Wednesday, December 2, 1998
BUSINESS

FINANCE Secretary Edgardo Espiritu yesterday said the International Finance Corp., the investment arm of the World Bank, would still invest in Philippine Airlines whether it was Cathay Pacific Airways or Northwest Airlines which would come out as its strategic partner.

"They (IFC) are willing to put up 20 to 30 percent of the 40 percent (PAL) stake to be given to a strategic partner," Espiritu said.

"What is important for IFC is that there is a strategic partner which will come in and efficiently implement PAL's restructuring program." he said.

IFC is willing to put up 20 percent of the $100-million commitment given by the Hong Kong-based airline.

The Lucio Tan-led management has estimated that PAL would need $150 million to kick start a rehabilitation program.

This developed amid reports that PAL had already reopened negotiations with Minnesota-based Northwest Airlines following some disagreement with Cathay over retrenchment plans for the national flag carrier.

Cathay was a shoo-in to take over management control of PAL until the labor issue came out. The emerging deal was delayed by disagreement on how many airline employees would be laid off when Cathay takes over.

But Espiritu said Cathay and PAL still had until Dec. 7 to flesh out a viable rehabilitation plan for the distressed airline.

The finance chief said he believed that IFC's entry into PAL with any foreign strategic partner would strengthen the confidence level in the flag carrier, which almost folded up under the weight of labor problems and $2 billion worth of debts.

Northwest was the first airline to express interest in buying out 40 percent of PAL last year prior to the pilots' strike. The US-based airline was turned off, however, by the labor disputes in PAL.

Should any deal push through, the new foreign partner, along with IFC, will take up 40 percent of PAL while the Lucio Tan group's control will be reduced to 30 percent at the most even if it will match the $100-million fresh equity infusion by the new investors.

On the other hand, 20 percent of PAL, as promised by Tan, will be turned over to the employees under a stock offering plan while the remaining 10 percent will be left to the diluted minority shareholders, including the government financial institutions