MANILA - Philippine Airlines (PAL), Asia's oldest commercial carrier, faces
disruption as hundreds of flight attendants and stewards prepare to strike on
the heels of an abrupt exodus of 25 pilots in protest against the airline's
alleged anti-labor policies.
The planned strike, which could cripple the country's loss-making flag carrier,
follows on the collapse of negotiations this week between labor and management
and despite the government's mediation efforts on President Benigno Aquino's
instructions.
Aquino had issued statements berating both PAL management and labor for
"disrupting" air travel that will have an adverse impact on tourism and trade.
He reminded PAL that it incurred
obligations to the public when it secured the franchise from the government to
operate.
"There has been disruption to our tourism efforts and to other aspects of the
economy. If this management and labor conflict is not resolved, they will lay
themselves open to appropriate charges," Aquino said.
The looming unrest, the likes of which have plagued PAL for years, has raised
questions about whether majority owner Lucio Tan, known locally as "Kapitan"
(Captain), will bail out his corporate flagship from its labor and financial
woes. The tycoon also owns the Philippines' fourth-largest bank following the
merger of the previously government-owned Philippine National Bank and Allied
Bank. Both banks have extensive operations in China.
Tan, whose business empire spans beer, tobacco, hotel, banking and related
ventures, was listed last year by US magazine Forbes as the Philippines' second
richest person, with a net worth of US$1.7 billion - up $200 million from 2008.
Senior aides say Tan is not inclined to spare more money for PAL after recent
financial losses. He has preferred instead to allow in new investors, diluting
his 85% majority stake. The government holds about 5% of the airline, while
individual investors account for the remaining shares. Aquino had ruled out a
government takeover of PAL, saying the state was also in financial
difficulties. But, officials say, the government is keeping its options open.
PAL president Jaime Bautista confirmed that talks with prospective investors
had taken place, but refused to name who he had spoken with. However, they are
known to include foreign investment banks, apparently fronting for those keen
to acquire PAL from Tan.
Two airlines - Cathay Pacific and United Arab Airlines - are reportedly among
those on PAL's list of suitors. Market rumors also linked Hong Kong-based First
Pacific Co Ltd and Manila conglomerate San Miguel Corp (SMC) to the list of
potential buyers.
Awash with cash, First Pacific and SMC have recently competed to acquire
financially ailing firms, the latest of which was Meralco, the crown jewel of
the Philippines' power industry. Analysts suggest another possible buyer is
John Gokongwei, whose conglomerate JG Summit Holdings runs Cebu Pacific, PAL's
major local competitor.
"Mr Gokongwei has been on the lookout for new investments and PAL may just be
the right opportunity for him," said an analyst who tracks airline stocks.
Market talk of a possible entry of new investors has sparked a rise in PAL's
share price - from a low of three pesos to a recent high of 5.40 pesos. The
stock is currently trading around four pesos per share.
To entice new investors, PAL hopes to weather adverse conditions in the travel
industry worldwide, worsened by the continued rise in fuel costs. In addition,
the airline has to reckon with the cut-throat competition posed by domestic and
foreign carriers.
PAL's passenger and cargo traffic, including flights to 33 cities, seven of
them under joint service/code share arrangements with other international
carriers in 17 countries, slumped after the recent downgrade of the country's
aviation safety rating to Category II by the US Federal Aviation Administration
(FAA).
The FAA's downgrade, which prompted the European Union to blacklist Philippine
carriers on safety concerns, prevents PAL from using its new long-range
aircraft or increasing flights to the United States. There are similar concerns
about the airline's lack of pilots trained to fly its Airbus A320s and other
wide-bodied jets, say analysts.
However, talks with potential investors are centered on how they can help PAL's
depressed financial situation. The company sustained over $350 million in
losses during the past two fiscal years. Any capital infusion may be via equity
or debt, or a combination of both, analysts say.
Under the constitution, foreign equity in a public utility such as PAL is
limited to 40%; Filipino investors must own the remaining 60%. In its latest
disclosure to the Securities and Exchange Commission, PAL cited the lingering
effects of the global financial crunch as the reason for its weak revenues,
forcing it to cut costs by downsizing personnel.
Founded in 1941, PAL has 38 aircraft and flies to 46 domestic and international
destinations. It has incurred losses in the past few years because of rising
fuel costs and low passenger loads. It reported a $14.3 million loss for its
fiscal year ending last March, narrowing from a $297.8 million loss a year
earlier.
"Capacity cuts by global airlines did not match the decline in passenger
traffic, thus exerting pressure on yields," PAL said in a statement. "Lower
fares also contributed to the reduction of PAL's revenues to US$1.36 billion
compared to US$1.6 billion the year before."
With the entry of new airlines like Cebu Pacific, PAL's market share of
domestic air travel shrunk to 41% of the total 14.7 million passengers in 2009.
PAL controlled almost 100% of the domestic market before the entry of Cebu
Pacific in 1996.
"Investors are looking for profitability, growth and competency. Aside from
being profitable, there should be growth. We also should ..... have the
capability to compete with other airlines," Bautista said.
He said PAL needed to pursue its restructuring plan, which calls for the
spinoff of in-flight catering, airport and ground handling services and
reservations. This will entail the firing of an estimated 3,500 of PAL's 7,500
workforce to reduce costs and losses.
Manpower accounts for 18% of PAL's total expenses, a percentage PAL says it
wants to reduce to the single-digit level. The PAL Employees Association and
some militant labor groups oppose the proposed retrenchments, threatening to
ground the airline in protest.
"PAL's claim of losses is highly questionable, given the increase in Lucio
Tan's net worth to US$1.7 billion," noted Kilusang Mayo Uno (May 1 Movement)
chairman Elmer Labog. "We don't buy the lie that PAL is incurring losses, as
its owner Lucio Tan has just firmed up his position as the second wealthiest
man in the country today," he said.
Al Labita is a Manila-based journalist.
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