PAL Mulls Sale of Non-Core Business

The Manila Times

Monday, December 21, 1998

By CARMINA E. REYES

Reporter

PHILIPPINE Airline (PAL) plans to sell its non-core business as part of its rehabilitation program. PAL said in its rehabilitation plan submitted to Securities and Exchanged Commission (SEC) that a number of its non-core businesses have the potential to be sold off.

“Some businesses could be of more value to external operators as well as offering performance improvement to PAL and short-term cash if sold,” PAL said.

PAL’s non-core activities which provide support services and extra revenues to the airline including catering, ground handling, maintenance and engineering, cargo, information systems, and training.

In March this year, PAL began divesting from its non-core businesses when it sold its stake in MacroAsia Corp. through a special block sale of the Philippine Stock Exchange (PSE) to an affiliate company for P699 million. Publicly-held MacroAsia previously handled PAL’s in-flight catering services.

PAL also expects that its ongoing voluntary separation program, which runs from Nov. 25 until the end of 1998, will reduce its current workforce estimated at 8,500.

The airline has already reduced its overhead cost as a result of the retrenchment of staff in June 1998 and other cost reduction efforts.

“Additionally, there is a need for a further reduction in non-staff costs and headcount. Productivity improvements will result from changes to major operation and management

decision making process,” PAL said.

Meanwhile, the SEC expects to receive tomorrow the comments of PAL’s creditors on the proposed rehabilitation program which PAL submitted to the Commission last Dec. 7, 1998.

Under the rehabilitation plan, PAL will need at least $150 million in fresh equity  infusion and a comprehensive debt restructuring program to make It viable.

The Department of Finance (DOF) is eyeing any of the state-owned LandBank of the Philippines, Development Bank of the Philippines and the National Development Company as a possible investor of the $150 million which PAL needs to sustain operations.

Finance secretary Eduardo Espiritu said either LandBank or the Development Bank of the Philippines  may borrow from the Miyazawa fund and relend the proceeds to PAL.

“These are all temporarily measures. These are just options that we are looking at since we don’t want the government to come in,” Espiritu said.

The Mizayawa fund, named after its proponent Japanese Finance Minister Kiichi Miyazawa, provides funds to private enterprises in countries hit by the currency crisis. However, the financing will be available only to financial institutions such as commercial banks.

LandBank, a government bank which provides to credit needs of farmers, has a loan exposure to PAL. It also has 2.5 percent direct stake in the airline.

Another option being eyed by the government is for the state-owned National Development Co. to invest in PAL since it could draw from the Japanese Export-Import Bank (Jeximbank), the main proponent of the Miyazawa plan.