Home' Asian Aviation : AAV May 2010 Contents Philippine Airlines (PAL) owner PAL Holdings,
which belongs to tycoon Lucio Tan, is ready to
sell the carrier for the right price.
According to PAL President and Chief
Executive Officer Jaime Bautista, if this effort
fails, the carrier plans to offload a stake of 25-
40 percent to a strategic investor. The airline's
assets are valued at US$1.1 billion.
Bautista says the airline previously
approached several investors, but none
expressed interest. "This was probably due to
the global economic downturn, which had a
crippling effect on the civil aviation industry,"
PAL also approached the Philippines
government for financial assistance, but was
turned down. This was the second time PAL
had turned to the government for financial
aid. The first was in 1998 when the airline was
grounded for two weeks.
"Given the bleak scenario, PAL is left with
no choice but to embark on a restructuring
exercise to adjust to the harsh operating
environment [and] to meet huge outstanding
obligations ... to prevent creditors from taking
over the business," Bautista says.
The restructuring will see the workforce
reduced by 3,500 to 4,000. The carrier will
also sell its catering, ground handling, and
reservations call centre operations. PAL expects
to achieve savings of about US$750 million
a year from spinning-off these non-core
businesses. PAL has now appointed ePLDT
Ventus, one of the leading business process
outsourcing companies in the Philippines, to
handle all its contact service requirements and
Bautista says the airline is also considering
farming out its medical and information
technology operations, as well as some human
resources and administration functions to
further trim costs.
PAL plans to reduce international services by
7 percent, which will affect routes to the US,
Canada and Australia. The domestic network
will be reviewed and action taken where
Bautista says the carrier's decision comes at
a very difficult time, as the airline was hurt by
the global financial crisis, which weakened
demand for air travel. "On the home front, the
carrier has been affected by stiff competition
from low-cost airlines on domestic and
regional routes," Bautista added.
Budget carrier Cebu Pacific Air has overtaken
PAL on domestic services, taking a 51 percent
share of the market. PAL retains 33 percent,
while Southeast Asian Airlines, Zest Airways
and PAL Express a wholly-owned low-cost
subsidiary of PAL set up in June 2009, shares
Compensation for the affected 3,500 staff
is expected to cost the airline 2.5 billion pesos
(US$56.8 million). The workforce reduction will
be the carrier's second since September 2009,
when 400 executives and administrative staff
were asked to go after the airline reported a
loss of US$301.4 million for the year ended
31 March. PAL had posted a profit of US$30.6
million the previous year.
To improve its cash flow, PAL last year sold its
maintenance and engineering arm to Manila-
based maintenance repair and overhaul service
provider Lufthansa Technik Philippines (LTP).
PAL is LTP's main customer.
The airline says the downgrade of the
Philippines from civil aviation Category I
to Category II by the US Federal Aviation
Administration (FAA) in November 2007 also
took its toll on the airline, as it is unable to
deploy its two newly acquired Boeing 777-
300ER aircraft on US routes. To rub salt into
the wound, Philippine carriers have been
banned from flying to the European Union.
PAL had been planning to resume flights to
Europe when the ban was announced in April.
The carrier stopped flying to Europe in 1999
as part its restructuring exercise in the wake
of the 1997 Asian financial crisis. PAL was
placed in receivership in 1998, with debts of
US$2.2 billion, and the Philippines Securities
and Exchange Commission (SEC) approved its
early exit from receivership in 2007, after three
consecutive years of profits.
PAL Chairman Lucio Tan holds 91.3 percent
stake of PAL Holdings, with several other
investors holding the remaining 8.7 per cent.
Officials of the Civil Aviation Authority of the
Philippines are non-committal when asked
whether the agency would allow a foreign
airline to take over PAL.
PAL operates a fleet of five Boeing 747-400s
and two 777-300ERs, alongside four Airbus
A340-300s, eight A330-300s, 16 A320-200s
and four A319s. -- William Dennis
Lucio Tan ready to sell
NEWS IN BRIEF
MALAYSIAN CARRIER FireFly hopes to operate
regional flights from Kuala Lumpur International
Airport (KLIA) starting in November. It may use the
airport's Low Cost Carriers' Terminal (LLCT). The
carrier will initially lease three Boeing 737-400s
from Penerbangan Malaysia Berhad (PMB), the
parent of Malaysia Airlines (MAS). MAS operates
35 of the aircraft, 17 of which are owned by
PMB with the rest on lease. The three single-aisle
twinjets will be released from the MAS fleet in
October, after the airline takes delivery of the
first three of 35 737-800s ordered in 2008. Five
more 737-400s will be added to the FireFly fleet in
2011, when MAS receives another five 737-800s.
The US downgrade of the Philippines to civil aviation Category II has
prevented PAL from deploying Boeing 777-300ERs on US routes.
AsianAviation | MAY 2010
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