PAL looking to trim staff, operations

Business World
August 28, 2009

PHILIPPINE AIRLINES, Inc. (PAL), which over a decade ago was forced into receivership by the Asian crisis, is once again facing a fight for survival, its president yesterday said.

Burdened with debt and ballooning costs, the company is now looking at various options, including selling aircraft, reducing flights, and letting go of employees. It is also on lookout for potential white knights who can ease its financial woes, PAL President and CEO Jaime J. Bautista said.

"We will take decisive steps like rationalizing [our] workforce, realigning operations to match demand and other cost-cutting measures to survive the crisis currently plaguing airlines worldwide," he said.

In a statement, PAL quoted Mr. Bautista as saying, "Extraordinary times call for extraordinary measures."

PAL lost $301.4 million for its fiscal year ending March 2009 as a result of higher expenses brought about by the cost of operating more flights and last year’s record-high fuel prices. Fuel accounts for 44% of the airline’s expenses.

The carrier earned $30.6 million a year earlier.

Revenues went up slightly to P1.6 billion but were not enough to cover operating expenses of $1.9 billion, up from $1.539 billion the previous year. Total liabilities also went up by almost a fifth to $869 million, while total assets decreased by $60.6 million to $1.971 billion.

Mr. Bautista told BusinessWorld the company was considering offering early retirement packages, executive pay cuts, and giving workers "breaks for a few days."

"There is still no definite program how to address this. Normally, when you make decisions to reduce manpower, you look at other possible measures first. [Reducing our employees] is the last recourse," he said.

The airline currently has more than 8,000 employees.

Mr. Bautista said PAL had adopted various measures to cut operating expenses, including the reduction of international flights.

Flights to Los Angeles, for instance, are now down to seven per week from nine, while those for San Francisco have been cut to seven from eight per week.

Next month, PAL will reduce its Vancouver flights to just five per week from daily.

While the number of domestic passengers rose by 17% during the first quarter, the number of international passengers slipped by 8%, mostly because of slowing demand from the US.

The airline will also sell a Boeing 737 to raise some $8-10 million. While it will push through with the delivery of Boeing 777-300ERs this year, Mr. Bautista said plane purchases were on hold.

PAL shareholders yesterday approved a quasi-reorganization plan, reducing the par value of the firm’s shares to P0.20 from P0.80 per share. It will also increase its authorized capital stock to P20 billion from P16 billion, divided into 100 billion shares at P0.20 per share.

"The airline reduced its par value to attract investors to invest in PAL. Hopefully the present shareholders will put in equity," Mr. Bautista said.

Outsiders may be invited to buy new shares, he said.

Tobacco tycoon Lucio Tan owns 86% of PAL.

"There is still no definite figure as to how much [in new shares will be] sold. We are also closely working with our financial advisers to tap the debt market but credit is quite tight right now. There is no definite plan how much we might borrow," he said.

PAL in 1998 was forced to file for receivership, citing the impact of a the Asian financial crisis. It returned to profit in 2000 and was declared in financial health two years ago.

"Hopefully the 1998 incident will not happen again but right now the company is working on a rationalizing program. We have tightened our belt in PAL [because] we really need to [cut costs]. This is another challenging year and hopefully the market rebounds and we will able to generate the cash," Mr. Bautista said. — K. J. R. Liu with JF