Breaktime: No plane, no gain

Indeed, the Lucio Tan group is exploring the idea of a complete divestment from our national flag carrier Philippine Airlines, selling its remaining 51-percent holding to its current partner in the airline, the country’s biggest conglomerate, San Miguel.

But I am willing to bet half of my neighbor’s mother-in-law’s inheritance that San Miguel intends to turn around and sell that 51 percent to new investors, preferably to some loaded foreign groups.


Word goes around in business that Ramon S. Ang (aka RSA), vice chair and COO of publicly listed San Miguel, who also serves as PAL president ever since San Miguel acquired 49 percent of the airline last year, would take the same investment approach in PAL as the Lucio Tan group did just recently.

That is, San Miguel will most likely try to minimize the hefty weight of PAL on its consolidated financial statements, primarily because investors in the stock market—both here and abroad— do not look kindly on the airline industry at present.


When RSA became PAL president, he said San Miguel was expecting PAL to make a little money in 2014. In private, RSA nevertheless also told media people that PAL would not likely see some windfall profits in the next few years.

That was precisely the reason why the Lucio Tan group did not fold its interest in PAL into its holding company, the publicly listed LT Group (formerly Tanduay Holdings), which recently succeeded in raising about P38 billion in an international IPO. Its PAL holdings, considering the troubles in the airline, would only weigh down on the LT Group financial statements.

LT Group president Michael Tan, son of taipan Lucio Tan, went on record that the finances of PAL discouraged the group from pursuing its original plan to include it as one of the companies in the LT Group.

Like it or not, despite its recovery of sorts in the past three years, the airline industry worldwide today is still not an exciting business.

Data from the IATA, the International Air Transport Association, an organization of the world’s leading airlines, showed that gross sales were expected to hit $700 billion in 2014, but profits would likely amount to only $13 billion, not even a 2 percent of sales.

It means the world airline industry would make a margin of only $4 per passenger which, according to IATA officials, was even less than the price of an ordinary sandwich.

Look, the world airline industry posted huge losses in seven of the past 12 years, having recovered only in 2006 and 2007, and then in the past three years. Still, its prospects remained dismal at least to investors.


In other words, the airline business would still have a long way to go before it could make its stockholders happy, which remained a worldwide industry trend that surely was not lost to both San Miguel and the LT Group.

In the past 15 years or so, Lucio Tan himself personally injected about $2 billion into the flag carrier in the hope of keeping it alive and, yet, the man received nothing but flak for all his group’s efforts to revive the ailing flag carrier.

By selling the family’s remaining 49 percent interest in PAL, at least the taipan could still salvage some $500 million of his original investments, since San Miguel as the buyer would be paying the reported price of $500 million mostly for the company’s goodwill—meaning, its status as the country’s flag carrier.

On the part of San Miguel, the street-smart RSA never tried to hide the intention of the conglomerate to buy into PAL, which was really just to save the flag carrier from imminent demise.

This country needs its own flag carrier, according to the thinking of RSA, who noted that some years ago, for instance, when PAL stopped operations due to a strike called by its pilots, foreign airlines (such as Singapore Airline) immediately jacked up their rates for their Manila route by as much as 100 percent.

And PAL must suffer from some other problems not of its own, particularly the downgrading of the government’s air transport safety rating by the US Federal Aviation Authority, from Category I to Category II, with the downgrade already running in its seventh year, four years under the cute administration of Gloriaetta, and three years under the Aquino (Part II) administration.

The downgrade meant PAL could not use new airplanes on its flights to the United States, although PAL already took delivery of seven aircraft of the latest model of Boeing, the fuel-efficient “777” series, apparently in an effort by PAL to please the US government, which could probably help in the removal of the Category II stigma. You know— no new airplane acquisition, no gain for PAL.

Here is the math: If PAL could only use the new Boeing 777 series on its US routes, it could save roughly $20 per aircraft per year, and as I said, PAL already has seven of those new models.

There is a double whammy for PAL in that it must use the Boeing 777 aircraft on regional flights, and the model was never designed for such short routes, which would make PAL incur additional costs.

There—while PAL already foregoes the savings, it even must incur additional costs. It is a lot of money that can mean the difference between life and death for the flag carrier. And what is our government doing about it?

*  *  *

Did you hear—the PCSO, the much-derided Philippine Charity Sweepstakes Office, just got an “excellent” rating from the Civil Service Commission for its compliance with the Anti-Red Tape Act, or the Arta, which is RA 9485, enacted by Congress in 2007, supposedly as a measure to re-engineer the government bureaucracy.

The PCSO received the CSC excellent rating, while the commission recently revealed that some 150 government offices failed the test for the Arta compliance—and miserably so.

In the past, anyway, the PCSO has always been the milking cow of those in power, also serving as the dumping ground for the nephews and nieces of politicos, plus the nephews and nieces of their mistresses. Thus, the PCSO has been a target of media attacks for its inefficiency, since who would suffer from it if not the poor who rely on the PCSO for medical assistance.

It seems that PCSO chair Margie Juico has reasons to take pride in her organization with the CSC rating, because it should prove that the PCSO has shown improvements in its services.

I know for a fact that PCSO set up centralized desk for public service, entertaining those in need of assistance and even those who have complaints. It also created an air-conditioned waiting area, equipped with TV sets and dispenser for free “cold” water.

The last I heard was that Juico is pushing for the plan to open PCSO satellite offices in the provinces. At present, the poor must borrow money for the fare to come to Manila to try their luck on getting—or not getting—PCSO assistance.

Anyway, our leader Benigno Simeon (aka BS) also cited the PCSO for being one of the top taxpayers in the country, as it remitted to the BIR almost P15 billion in the past three years, or an average of P5 billion a year, including the back taxes that the PCSO under the cute administration of Gloriaetta forgot to remit to the BIR.

For its cost-cutting measures, the PCSO also wrangled from its biggest contractor, Malaysian firm PGMC or Philippine Gaming and Management Corp., a substantial cut in its service rate from 10 percent of gross to 7.5 percent.

I heard that the PCSO has plans to introduce new products to bring up its income, particularly the Bingo Milyonaryo. About time, too!

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TAGS: Business, Lucio Tan, Philippine Airlines, Philippine Charity Sweepstakes Office, San Miguel
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