PAL pushes sale of 3 non-core units after DoLE decision

By EMMIE V. ABADILLA
November 2, 2010, 7:36pm
Manila Bulletin

MANILA, Philippines – With the go-ahead of the Department of Labor and Employment (DoLE), Philippine Airlines (PAL) is pushing through with the sale of its non-core units – In-Flight Catering, Airport Services and Call Center – that will trim off 2,600 people from its workforce.

The other day, Labor and Employment Secretary Rosalinda Baldoz affirmed the DoLE ruling 5 months ago that recognized the flag carrier’s prerogative to spin off the three units despite the appeal of the PAL Employees Association (PALEA). However, DoLE decreed that PAL has to give additional separation pay and other benefits to the affected PAL workers.

“If there is no spin off, PAL will close down and 7,500 workers will be displaced without separation pay,” Labor Secretary Rosalinda Baldoz pointed out in her decision.

The flag carrier welcomed DoLE’s latest decision but it has yet to compute the financial impact of modifying the compensation package of each employee to be laid off, stated PAL spokesperson Cielo Villaluna.

The spin-off, which had been planned twelve years ago, is vital for PAL’s viability, she stressed. Since 1998, the PAL union had been aware of the spin-off, but it was deferred as PAL Chairman Dr. Lucio Tan tried to make the carrier profitable in the difficult operating environment. So far, only PAL’s Maintenance and Engineering department had been spun off and bought by Lufthansa Technik Philippines in 2000.

“Most airlines in the world and almost all carriers in Asia, are now using third parties to supply and render non-core services. In PAL’s case, it is implementing the spin-off to cut costs and ensure the airline’s continued survival,” the spokesperson reiterated.

After PAL incurred US$312-million losses in the last two years due to the global recession, volatile fuel prices, the US Federal Aviation Administration’s downgrade of the Philippines’ aviation safety rating to Category 2 in addition to cut throat competition with low cost carriers and other issues, the flag carrier has to resort to ‘radical ways to survive.’

“Despite the implementation of major cost control strategies and cash generation initiatives, PAL was still way short of its goal to keep the company afloat’ Villanuna went on. “Hence, PAL crafted a comprehensive plan which includes restructuring and spin off as key initiatives.”

Unlike state-owned airlines that enjoy subsidies and bailouts in times of difficulty, PAL is entirely on its own. “As a purely private enterprise, PAL receives no financial assistance not even concessional loans -- from the Philippine government,” she pointed out.

With the DoLE’s favorable decision, PAL must now focus on the challenge of implementing the restructuring program and returning to profitability.

The affected workers will receive separation pay and other benefits apart from the opportunity to work with the new service providers if they so desire, according to Villaluna. “Workers in other industries are not as lucky.”