PAL to spin off catering, other services, Outsourcing to save P1.5B a year

By Paolo Montecillo
Philippine Daily Inquirer
First Posted 22:52:00 04/19/2010

Flag carrier Philippine Airlines (PAL) stands to save as much as P1.5 billion a year in a controversial plan to outsource its non-core operations to third-party service providers.

The airline said its plan to ask outside parties to provide catering, cargo handling and call center services for the airline was necessary to keep the company afloat. The move, however, is expected to affect close to 3,000 employees.

“This is for the survival of the company,” PAL president and chief executive officer Jaime J. Bautista said in a briefing. The spin-off takes effect on June 1.

This year, Bautista said the company stood to lose more money as the airline struggled against mounting problems facing the domestic and international travel industries.

“All airlines in the region are doing this. The air travel sector has been hit with so many problems over the last two years. We were hit by the financial crisis, we were hit by high oil prices and now, even this problem in Europe will affect the industry,” he said.

The airline said it was also affected by the outbreaks of diseases such as the Severe Acute Respiratory Syndrome (SARS), Avian Influenza and the recent A(H1N1) virus.

“Given this grim scenario, PAL has no choice but to restructure. It must also sell or cease operations of non-core businesses since no airline in Asia, or the world for that matter, continue to operate non-core businesses,” the airline said in a notice sent to the PAL Employees Association (Palea) last Friday.

Employees involved in the company’s core business, including pilots and flight attendants, would not be affected, Bautista said.

The streamlining of operations was also done as part of plans to attract investors who can infuse fresh capital into the airline. So far, even PAL owner Lucio Tan has refused to pour cash into the company.

“He’s already invested so much money in PAL,” Bautista said, referring to the PAL chair who controls about 84 percent of the company. “If we continue to operate the way we do right now, we’ll continue to lose money and that’s what investors are seeing.”

PAL posted a net loss of $40.2 million in the April-December period of 2009, which is the first three quarters of the company’s fiscal year. This was lower than the $330 million the firm lost in the same period a year earlier.