'PAL May be First in Line to Leave Bleeding Industry'

The Philippine Star
Sunday, September 20, 1998
Manila Bulletin
Monday, September 21, 1998
By Kristina Zetterland

HONG KONG ( Reuters) — Philippine Airlines (PAL) maybe the first in a line of debt-ridden Asian carriers heading for the exits or at least for some serious restructuring, aviation analysts said here the other day.

PAL, Asia's oldest national airline with 57 years of operation, said on Thursday it was closing down on Sept. 23 after a breakdown in talks between management and a union.

But analysts said PAL might not be dead yet. The airline's management is still willing to cooperate with the government which is searching for ways to keep PAL, in the air.

Currency depreciations around the region have left Asian carriers struggling to cope with their increased US dollar-based costs and a slump in regional travel.

"There is a possibility that we could see more airlines going under," said one analyst at a US investment bank.

Asia's economic turmoil has dealt a blow to regional travel and carriers are trying to cushion the impact by cutting costs, restructuring their fleets and trimming flight schedules.

Indonesian flag carrier Garuda Indonesia and South Korean airline Asiana Inc. are bleeding badly, analysts said.

Garuda has been hit particularly hard as the rupia has lost more than 75 percent of its value since July last year.

The Indonesian government has said Garuda expects a net loss of two trillion rupiah ($178 million) for 1998. The carrier has appointed Germany's Lufthansa Consulting to turn it turnaround.

"Garuda is not a particularly large airline and it has not got the backing to continue to support that scale of loss," said Ian Wild, aviation analyst at SG Securities.

Timothy Ross, analyst at Warburg Dillon Road, said Garuda's new management seemed to follow the right path in cutting costs.

“But you are not going to see any massive rapid turnaround there because of the economic situation," said Ross.

With most major Asian carriers hacked by government, they would probably be able to survive for a while, analysts said.

But Asia's financial crisis has burnt holes in governments' pockets as well, with some having limited financial resources to support their crippled national carriers.

PAL's exit was not expected to have a large impact on the regional aviation market because the carrier already had scaled down its operations substantially in the last few months.

"It's largely disappeared off the radar screen anyway. They were operating 54 aircraft and they are now down to around 15," said Wild.

Airlines which operate on the same routes as PAL may benefit from the demise of their competitor.

That could have a positive effect on our revenue earnings," said Japan Airlines Co. Ltd. spokesman Geoffrey Tudor.

"We are quite prepared to put on more flights to meet demand as a result of PAL's closure because there may be a need."

Japan Airlines already planned to increase the frequency of its nights between Tokyo and Manila to 12 each week from 10, with the introduction of its 1998 winter schedule.

PAL said it offered daily nights between Manila and Tokyo.

Singapore Airlines (SlA), which operates three flights daily to Manila, said traffic might receive a boost if PAL closed down, PAL offers daily flights to Singapore.

"There will be a spillover but it's too early to say what the extent of the spillover will be," a SIA spokesman said.

Cathay Pacific Airways Ltd. said it expected cargo volume to pick up if PAL closed down.

“If it did occur we certainly would expect to see some increase in our loads between the Philippines and Hong Kong," Cathay cargo manager Raymond Jewell said.

Cathay said it operated four to five passenger nights daily between Manila and Hong Kong, each with a cargo capacity of about 15 tons. PAL flies twice daily between Hong Kong and Manila.