PAL Fate Still Up In Air

Philippine Daily Inquirer

Saturday, December 26, 1998

Martin P. Marfil

Philippine Airlines is still holding talks with foreign investors other than Cathay Pacific Airlines and Northwest Airlines to revive the national carrier, Executive Secretary Ronaldo Zamora yesterday said.

“Singapore Airlines had been mentioned but there are other companies which have expressed interest. However, they want sensitive discussions kept secret for now, away from public view, to avoid side issues,” Zamora said in a Malacañang statement.

He disclosed that PAL was still holding negotiations, this time in secret, with both the Hong Kong-based Cathay and Northwest Airlines of the United States.

“The discussions are still going on, but these are not being made public for the moment to avoid snags. They are talking in private,” he said in Malacañang statement.

“That is shy PAL is still hopeful that at least one of its talks --- either with Cathay or Northwest --- would produce positive results,” Zamora added.

PAL, which closed down its 57-year-old operations for two weeks in September because of a $2.1-billion debt and labor problems, already slashed its labor force and its flights and cancelled deliveries of new planes to try to cut cost and keep flying.

It then opened negotiations with Cathay Pacific, but the Hong Kong carrier announced early December it was pulling out of the talks. Northwest also was reported to be out of contention early this month.

Zamora did not say how Cathay Pacific officials agreed to resume talks, although President Estrada, a close ally of Tan, said earlier this month that “at all cost we will save PAL because it is the flag carrier of the Philippines.”

Following the collapse of the talks, Zamora and Finance Secretary Edgardo Espiritu floated the idea of having PAL rehabilitation using the Miyazawa Fund, which Japan set up to combat the Asian economic crisis.

However, the proposal received flak from a financial expert who pointed out that tapping the $30-billion fund would send the “wrong signals” to the Japanese government as Tan was Mr. Estrada’s supporter.

The Miyazawa Fund was subject to numerous conditions like the approval of its rehabilitation plan by its creditors and entry of a new management team, according to Socioeconomic Planning Secretary Felipe Medalla.

Espiritu said PAL might have to close down again unless a new financing package is found.

He admitted that, despite his earlier suggestion, the airline was unlikely to get help from Miyazawa Fund.

“There will be no government bailout. If it has to close, it has to close,” Espiritu said.

He said the only solution was for Tan, chair of PAL, to get other investors to put new capital into the airline.

But Espiritu also admitted that PAL’s creditors had already said they wanted a strategic partner to take over management before they agree to a rehabilitation plan.

A competitor of PAL said it did not really want the flag carrier to close down.

“I don’t wish PAL any harm. In fact, it’s bad for the industry,” said Diego Garrido Jr., new executive vice president of Air Philippines.

“If PAL falls, all will fall,” Garrido said.

PAL has a hold on people traveling for business, while its competitors corner those traveling for leisure, according to the Air Philippines official.

“Their business traffic can be our leisure traffic,” he said. PAL has about five competitors in the domestic market. (With reports from Armand Nocum and Inquirer wires)