PAL to spin off three non-core units

INQUIRER.net
First Posted 10:30:00 04/19/2010

MANILA, Philippines—Effective at the close of business hours of May 31 this year, Philippine Airlines (PAL) will implement the next phase of its restructuring program, starting with the spin-off of three non-core units, the national carrier said in a news release.
The affected units are Inflight Catering Services; Airport Services (including ground handling, cargo terminal/cargo handling and ramp handling); and Call Center Reservations
The spin-off is being pursued in accordance with labor laws and the collective bargaining agreement between PAL and the Philippine Airlines Employees Association (Palea), the airline said.
PAL assures its customers that there will be no disruptions to its operations during the implementation of the restructuring measures.
“All domestic and international flights are being operated according to published departure and arrival times. All PAL offices and facilities in the Philippines and overseas remain open to serve customers. And all accredited travel agents continue to sell and honor PAL tickets,” it said.
PAL said it is constrained to pursue the restructuring plan due to several factors beyond its control that include, among others:
* unabated liberalization of the commercial aviation industry to the detriment of local players like PAL;
* the worldwide economic recession that led to a crippling slowdown in passenger traffic;
* record-high oil prices in 2008-2009 and the continuing increase in the price of aviation fuel, which account for nearly half of PAL’s operating expenses;
* downgrade of the Philippine aviation sector to Category II by the United States that prevents PAL from using brand new long-range aircraft or increasing flights to the United States; and
* the subsequent blacklisting of Philippine carriers by the European Union, ruining the reputation of even those airlines with outstanding safety records like PAL.
“PAL did its best to adjust to the harsh operating environment. It implemented a series of cost-cutting initiatives, including a manpower rationalization program in September 2009 that affected more than 400 executives and administrative employees. In 2000, PAL restructured its organization and spun-off/sold its Maintenance and Engineering Department to Lufthansa Technik Philippines (LTP),” PAL said.

Apart from a series of cost-cutting initiatives, PAL said it approached several investors but none were interested given the fact that in 2009 alone, more than 20 airlines went bankrupt. “We approached government for help but it, too, was in dire financial straits,” it added.
Meanwhile, PAL’s financial situation continued to deteriorate, with the company sustaining over $350 million (or more than P15 billion) in losses during the last two fiscal years. Its equity has also dropped precipitously to a little over $1.1 million as of February 2010.

To stave off failure and protect company assets, PAL said it had to act quickly. “Given this grim scenario, PAL has no choice but to restructure. It must also sell and/or cease operations of non-core businesses since no airline in Asia, or the world for that matter, continue to operate non-core businesses. Moreover, PAL has to meet its huge outstanding obligations as they fall due to prevent creditors from taking over the business,” it stressed.
Difficult as the restructuring program may be, PAL asked its stakeholders—unions, partners in the travel trade, government, and especially the flying public—to support the flag carrier as it reorganizes into a leaner, more efficient company.