MANILA, Philippines -- President Gloria Arroyo on Thursday named Transportation Secretary Leandro Mendoza as concurrent Air Transportation Office (ATO) chief and gave him a "three-month deadline to take care or to address the administrative and technical issues" raised by the US Federal Aviation Administration (FAA).

Presidential spokesman Ignacio Bunye told reporters the president's actions should "remedy whatever technical deficiencies there are."

The FAA has downgraded the Philippines' rating to Category 2 from Category 1, saying the country's ATO failed to meet international safety standards.

Following the downgrade, Philippine Airlines, the country's flag carrier, said Wednesday it may lower its 2008 growth targets, effectively putting its expansion plans on hold. This is because the FAA decision prohibits PAL from increasing its flights to the US and from changing the type or number of aircraft used on these services.

"Our expansion plans, if this matter is not resolved soonest, are being put in peril. The only option that we want is for the country to go back to Category 1.

Boeing is even helping us with this, but hopefully the government will do its homework," said PAL president Jaime Bautista.

Bautista told Thomson Financial the airline will still take delivery of the planes it has purchased.

"We are committed to buy these planes and we have contractual obligations to pay for these planes."

PAL is to take delivery of five Airbus A320s this year, while six new Boeing 777-300ERs are to come in between 2009 and 2011. It is also considering leasing or buying outright another five A320s worth $300 million, Bautista said.

PAL is 84.7 percent owned by PAL Holdings Inc.