MANILA, Philippines -- Shares in PAL Holdings Inc. fell in early trade Wednesday after Philippine Airlines (PAL) said its expansion plans in the US will be jeopardized by the US aviation regulator's decision to downgrade Philippines' rating for compliance with international air safety standards.
PAL Holdings owns 84.7 percent of PAL, which said Tuesday that the move by the US Federal Aviation Administration (FAA) prevents it from expanding its US routes.
The FAA has downgraded the Philippines to Category 2 from Category 1, prohibiting PAL from increasing its flights to the US from 33 a week, and from changing the type or increasing the number of aircraft used on these services.
At 10:35 a.m. (0235 GMT), PAL Holdings was down 10 centavos or 1.7 percent at P5.70. Trading was thin, since the company's public float is less than 3.0 percent.
PAL Holdings is controlled by tycoon Lucio Tan, whose assets include banks, hotels, real estate properties, a cigarette manufacturing company and a brewery.
"The downgrade will be bad for the country's tourism industry and for the domestic economy as a whole," said Jose Vistan, research director at AB Capital Securities.
The downgrade may also "gravely affect" cargo traffic between the two countries and investment inflows into the Philippines, PAL said Tuesday.
PAL is particularly concerned about the downgrade's negative impact on its plans to start services to San Diego, Chicago, New York and Saipan.
"We cannot add capacity to the US routes which PAL currently services. We cannot also fly to new US routes which we plan to with the new Boeing aircraft.
We can still fly to the US routes but we have to use our existing airplanes," PAL president Jaime Bautista told reporters.
PAL has ordered six new Boeing 777-300ERs for delivery beginning 2009. The new aircraft are due to be deployed on its transpacific routes.
"Our US operation is 30 percent of our total revenue. The number was expected to go up by 10 percent with the new routes, but we are now re-computing our projections not only for the US but for our entire operations as well," Bautista said.
($1 = P40.73)
