PAL spin-off is inevitable

Counterpoint – Alvin Capino
Manila Standard Today Wednesday, November 10, 2010

The apprehension of the 2,600 regular and rank-and-file employees of Philippine Airlines affected by the decision of the airline to spin-off three “non-core” departments is understandable.
If you’re in your 40s, as many of the affected PAL employees must be, the prospect of looking for a new job and then working for a new company is very intimidating.

However, the employees affected by the spin-off of the airline are luckier than other workers whose companies were forced to close down by the worldwide economic crisis in the past couple of years.
Some of those workers, particularly those in the electronics industries in the Calabarzon area who were laid off in the wake of the US economic downturn, got little or no retrenchment benefits at all.
In the case of the PAL employees to be affected by the spin-off of Airport Services, In-flight Catering and Call Center Reservation departments, Labor Secretary Rosalinda Baldoz made sure that they would get maximum benefits above those mandated by the Labor Code.

In her order affirming the earlier decision of Acting Labor Secretary Romeo Lagman that the closure of the three PAL departments and the outsourcing of the three operations to service providers are lawful and justified, Baldoz ordered an increase of the transition benefit package of for the affected employees.
The benefits include the assurance that the affected staff would be absorbed by the selected service providers and would have guaranteed payment by PAL for one year. This means that the employees will be employed by the service provider in their old functions subject to the usual probation period and of course under a new salary scheme.

Of course, some long-time employees would probably find it hard to accept and adjust to the new pay scheme. Some employees, for example, who have been with PAL for twenty years or more and are performing basic functions receive salaries of P40 thousand a month  because of their length of service. This has entitled them to mandatory increases under the periodic collective bargaining agreements.
Doing the same job at a much lower pay with the service provider would be hard for such employees to accept.

However, the veteran employees with high pay scales and longer service in the airline would be getting bigger separation benefits compared to the younger employees. Under the higher benefits ordered by Baldoz, the separation pay has been increased to 1.25 percent of a month’s salary for every year of service.

Under this scheme, some veteran employees will get as much as P2 million in separation benefits. The average separation pay is P1 million and the minimum for those with less years in service is estimated at P500,000.

Under the Baldoz order, other benefits for the employees affected by the spin-off are: additional gratuity of P50,000 per employee, payment of the cash equivalent of vacation leaves and sick leaves, continuation of “trip pass” benefits, and one year extension of medical and hospitalization insurance.
According to PAL, some of the members of the PAL Employees Association (PALEA) who are affected by the spin-off “have been discreetly calling or e-mailing HRD’s Employee Benefits & Services division to ask for an exact computation of their total separation pay based on the increased benefit package approved by DOLE.”

In some cases, it is the spouses who are making the inquiries on how much their husbands would be getting.

These inquiries from employees asking for computation of what their total separation pay would be is apparently the basis of the second Notice of Strike filed by PALEA with DOLE. The officials of the PAL employees union are saying that the alleged individual bargaining being done with union members is tantamount to interference with restraint and coercion of employees in the exercise of their right to self-organization. A second reason for the new strike notice PALEA said that since the majority of the union officers would be affected by the spin-off this amounts to union busting.

Newly appointed PAL vice president for corporate communications Joey de Guzman says the basis for the second Notice of Strike filed by PALEA last Friday, Nov. 5 is preposterous. He says there is no individual bargaining being done since PAL has already decided to accept and comply with the order of Baldoz.

De Guzman says he himself had been receiving text messages and calls from affected employees and their spouses asking for a computation of their total cash benefits.

PAL president and chief executive officer Jaime Bautista says while they have some reservations about the increased benefits ordered by DOLE particularly the 1.25 percent pay for every year of service and the P50,000 additional gratuity, they have decided not to dispute it and respect the ruling since it has the force of law.

He adds that the increased benefits ordered by Baldoz has increased the cost to about P2.5-billion from the P2-billion cost of the original decision.

Bautista says: “Given its recent losses and current financial position PAL would be hard put to raise P2.5 billion but this is a bitter pill we have to swallow. PAL believes that DOLE’s decision is just, reasonable and humane.”

For officials of PALEA, the spin-off and the separation from PAL is also a bitter pill to swallow.
However, they must realize by now that it is also inevitable. All of the major airlines in Asia have already done the same thing and have spun off their non-core units. PAL is the last to do so.
The pressure on PALEA would also be coming from their own members. Those who want to already accept the enhanced separation package ordered by DOLE would be ones asking PALEA to already agree and accept the spin-off.

Spin-offs of non-core business is the trend worldwide in the light of the continued threats to the viability of most international airlines.

The pressure is even greater on Philippine Airlines. As the airline’s officials have pointed  out, it is compelled to resort to spin-off three non-core units and focus on the core business of air transport in order to survive the many challenges facing PAL including a US$312-million loss 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; cutthroat competition from budget airlines; and the previous government’s liberal grant of air traffic rights to foreign carriers.

Bautista says the decision to spin-off is difficult but necessary. “At the end of the day, PAL wants to be remembered not for the 2,600 jobs it lost, but the more than 4,000 it saved.”