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For the goad times

By Conrado R. Banal III
Philippine Daily Inquirer
First Posted 22:08:00 03/15/2010

Filed Under: Economy and Business and Finance, Company Information, Air Transport, Investments

MANILA, Philippines--Quietly, carefully, the country?s flag carrier Philippine Airlines is fighting for dear life.


But if it is any consolation to the guys down here in my barangay (village), PAL is not alone in its struggle.

All international airlines are losing heavily. In the past two years alone, based on figures from International Air Transport Association (IATA), airlines all over the world posted losses of almost $30 billion.

Here is some more bad news: Giovanni Bisignani, IATA?s director general and CEO, also says that the hardship in the industry was not a short-term shock.

In other words, the industry would take several years to recover from the past two years of heavy losses.

?Conserving cash, careful capacity management and cutting costs are the keys to survival,? said the IATA head. ?The crisis continues.?

True enough, in the past two years, PAL posted its worst ever losses. PAL thus has to do something. Or else, Asia?s oldest existing airline simply dies.

* * *

As everybody knows, the biggest stockholder of PAL is Lucio Tan, who was recently included in the Forbes magazine list of the richest men in the world.

Fine. But PAL may yet lead to the ruin of the entire Lucio Tan group, which already pumped $2 billion into the airline since the group bought it from the government some 15 years ago.

It is said that, having taken over an airline that was mismanaged to the ground by the government, Lucio Tan had to sell several assets to raise money to inject fresh capital into PAL, particularly during the crisis in 1999, when the airline almost closed down for good.

What did Lucio Tan get for his investments in PAL?

Well, as of last count, his $2 billion has been wiped out, burned by the past two years of heavy losses.

Thus, talk in business circles points at some reorganization in the Lucio Tan group. Its Fortune Tobacco for instance joined up with the US-based Philip Morris. Allied Bank also may soon be merged with the Philippine National Bank.

As for PAL, it is said that the group wants to attract new investors, hoping to raise additional capital.

The only question now is: Will anybody in his sound mind invest money in PAL?

* * *

OK, as things stand in PAL, getting new investors will be close to impossible. At one time, the Lucio Tan group was already willing to give back PAL to the government. Or to any taker, for that matter.

Nobody, not even the government, wanted it. The payroll of PAL alone amounts to something like $240 million a year.

That amount is already more than the monthly salaries of public school teachers all over the country amounting to P8.5 billion.

Anyway, it is clear that PAL can never hope to interest new investors due to its massive payroll.

Thus to lighten its payroll, the airline wants to spin off certain operations, such as catering and ground handling, hoping to get investors in the airline itself.

That will not make PAL any different from other international airlines. Most of them contracted out catering and ground handling, as part of the global ?downsizing? trend in the 1990s.

In its present set-up, PAL remains a losing proposition. The airline cannot attract new investments. Perhaps not even from its principal stockholder, the Lucio Tan group.

* * *

Recently, the labor union in PAL was talking tough. Reports said that a ?militant? group won in the union?s last election of officers.

It looks like goading time again! The new union leaders were already talking tough. They were attacking the planned streamlining of PAL operations, saying the airline could not spin off any operation, if the union would not agree.

Of course union leaders are only expected to call for ?job security? for the union members.

That is, well, under normal circumstances! Such as when the company is making a lot of money!

PAL nevertheless is about to collapse. As of last count, the airline had a negative net worth, meaning, it really needed new investments a long time ago.

Let us say that, indeed, PAL could not do something about the excess fat in its operations. Question: Up to when could it survive?

In other words, when the airline eventually collapses, which is where it is headed, the entire workforce of the airline would lose their jobs.

* * *

Given the breaks, PAL has already shown that it could recover from bad times like these. In 1999 for instance the airline had to submit itself to a receivership, following another labor crisis.

Remember: the airline closed down for 14 days at that time. The government (under the Erap administration) forced PAL to continue service. Running PAL operations then was the foreign airline Cathay Pacific.

Seven years later, after PAL was released from receivership, it already started to post profits. It was even named ?airline turnaround of the year.?

In other words, PAL was capable of managing itself to profitability. Its losses had very little, if any, to do with usual media suspicion of ?mismanagement.?

It is just that the bad times are back for PAL. Will the airline finally collapse?

Copyright 2015 Philippine Daily Inquirer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.




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