OPINION

Malaya
Wednesday, December 30, 1998
[Column]
By Jesus C. Sison

Finance Secretary Edgardo Espiritu said that the Philippine Airlines will shut down again if the government fails to obtain financial assistance for the flag carrier. If PAL shuts down again, chances are it may not be able to make another comeback. President Estrada knows the difficulties that will arise if PAL closes down for the second time. That’s why he is helping PAL as strongly as he can.

Seven More Banks Seek More Time to Comment on PAL Plan

Business World

Wednesday, December 30, 1998

Seven banks, led by Allied Banking Corp., have asked the Securities and Exchange Commission for five more weeks within which to submit their comments on the rehabilitation plan of Philippine Airlines, Inc. (PAL).

Allied Bank filed the motion on behalf of China Banking Corp., Philippine Commercial International Bank (PCIBank), International Exchange Bank (iBank), Rizal Commercial Banking Corp. (RCBC), Equitable Banking Corp. (EBC) and Philippine National Bank (PNB). They form the syndicate which extended a $60-million loan to PAL.

Allied Bank had only until Dec. 23 to file its comments on PAL’s rehabilitation plan. “Due, however, to the number of creditor banks which are members of the syndicate, there is a need for more time to convene and discuss the merits of the rehabilitation plan,” it said in its motion.

This is the second group of banks which asked for more time to file their comment on PAL’s rehabilitation plan.

The other day, 10 local banks, led by PNB, which extended a $182-million syndicated loan to PAL, made the same request. The group asked for a 30-day extension. Allied Bank is also part of the group along with China Bank, EBC, iBank and RCBC.

The other members of the PNB-led syndicate are Banco de Oro, Philippine International Exchange Bank, Security Bank Corp., Union Bank of the Philippines, and Westmont Bank.

The PNB-led syndicate asked for until Jan. 24, 1999 to file its comment, saying they need the added time to sift through “the huge volume of information contained in the rehabilitation plan which needs to be carefully studied.”

This was the same reason cited by two other PAL creditors – Mobil Philippines, Inc. and Pratt & Whitney Canada, Inc. – which also sought an extension of their deadline.

Thus far, only a handful of creditors has filed their comments on PAL’s rehabilitation plan.

On its own, PNB objected to key provisions of the plan, particularly the proposal to restructure PAL’s capital which involves reducing the par value of its existing common shares to only P0.01 from the current P5 per share, PNB said this “will substantially dilute” its stake in PAL.

In its proposed rehabilitation plan, PAL said the capital restructuring will reduce the holdings of PAL employees to 5% from the existing 20%.

PNB also criticized the pricing used by PAL, saying the “valuation is to low.”

To this end, the bank sought clarification how PAL’s interim rehabilitation receiver “arrived at the P0.01 valuation of the share.”

Another local bank which had balked at certain components of the rehabilitation plan is PCIBank.

PCIBank’s objection concerns the 15-year maturity period PAL wants to ask of its creditors concerning its loan. It instead proposed a maturity period of only 10 years, inclusive of the grace and repayment periods.

PCIBank also opposed PAL’s proposal for creditors to waive interest charges on all “post-petition” loans including default interest.

“The suggestion is open-ended, hence, would be too onerous for acceptance,” the bank said in a motion filed at the SEC. — Maricris C. Carlos

PAL Recovery Faces Delay as Creditors Seek More Time to Review Rehab Plan

Philippine Daily Inquirer

Wednesday, December 30, 1998

By TINA ARCEO-DUMLAO

Business

THE RECOVERY of Philippine Airlines Inc. may be delayed as more creditors have asked the Securities and Exchange Commission for more time to submit their comments on the government’s rehabilitation plan for the cash-strapped flag carrier.

A syndicate of creditor banks under a $182-million loan and security agreement, through counsel Sycip, Salazar, Hernandez and Gatmaitan, said it would carefully study the plan before it could submit its comment.

The creditors asked the SEC for an additional 30 days, or until Jan. 24 next year, to submit its comment.

This group of creditors include Allied Banking Corp., Banco de Oro, China Banking Corp., Equitable Banking Corp., International Exchange Bank, Philippine National Bank, Rizal Commercial Banking Corp., Security Bank Corp., Union Bank of the Philippines and Westmont Bank.

Allied Bank, which represents seven commercial banks on a $60-million domestic syndication, also asked for more time to discuss the merits of the rehabilitation plan.

Allied Bank asked for an extension of five weeks from Dec. 23 or until the end of January next year to file its comment.

The SEC earlier directed the creditors to file their comments within 15 days from receipt of the order.

Only Credit Agricole IndosUez, Philippine Commercial International Bank and the Philippine National Bank were able to file their comments.

Pratt and Whitney Canada (SEA) Pte. Ltd. based in Singapore likewise asked for until Jan. 31 next year to submit its comment considering the huge volume of information contained in PAL’s rehabilitation plan.

PAL fuel supplier Mobil Philippines Inc., on the other hand, asked for 15 more days, or until Jan. 10, to file its comment.

The Airline Pilots Association of the Philippines, meanwhile, filed its comment on the rehabilitation plan. It expressed concern over a number of items, particularly on the fate of the airline’s employees.

Alpap said the plan was either “deliberately silent or no clear program at all for its employees.”

“The silence regarding their prospects betrays either a vacuity in concrete ideas in making the plan actually work or a foreboding of a scheme that is even more sinister than the suspension of the collective bargaining agreement,” Alpap said in its comment.

Alpap also raised concern over PAL’s plan to dispose of non-core assets such as catering, ground handling and maintenance.

“These departments may even be the ones that will ultimately make the differences between realized rehabilitation and eventual closure,” Alpap said.

Point of Order by Jose L. Guevara

Tempo

Tuesday, December 29, 1998

Point of Order

Jose L. Guevara

Erap was praised for skillfully negotiating the PAL crisis, for condemning human rights abuses in Malaysia, and making a good impression in his keynote address at the economic summit in Singapore.

Palace Upbeat on Happy Ending to Keep PAL Flying

The Journal

Tuesday, December 29, 1998

Negotiation to save Philippine Airlines will reach a happy conclu­sion next January, President Estrada predicted yesterday.

Mr. Estrada said he remains hope­ful that there will be a settlement with Hong Kong-based Cathay Pacific Air­ways, "hopefully by next month.”

"They're still negotiating and I hope they will settle it. Hopefully by next month,” he said when asked by reporters at the Ninoy Aquino International Airport (NAIA) about the progress of the negotiations.

The Chief Executive reiterated his administration's commitment to save PAL "at all costs," saying too much is at stake if the airline shuts down.

He explained that among the air­lines now operating in the Philippines, only PAL has the capability to fly to all domestic routes and carry passen­gers and cargoes to these destinations.

"We are trying our best to save PAL because if PAL closes, all busi­nesses will be affected," the President pointed out.

Mr. Estrada was at NAIA to lead government officials in welcoming overseas Filipino workers who came home for the holidays.

Last week, Executive Secretary Ronald Zamora disclosed that talks are still ongoing between PAL and possible strategic partners, including Cathay.

Zamora told in a radio interview that the parties are keeping the talks under wraps because they do not want any side issues to surface at this time.

However, he also reiterated the Estrada administration's position that the government will not take over PAL and assume its huge debts.

Earlier, Cathay announced it was pulling out of talks following specu­lations that a takeover of PAL man­agement may violate the 1987 Con­stitution.

Under the Constitution, foreign companies can own only up to 40 percent of any business fin in the Philippines.

Negotiation for a possible strate­gic partnership is one of two options to save PAL. The other is an infusion into the airline of part of the $30 billion Miyazawa Fund initiative for crisis-hit economies in East Asia.

The Philippines stands to get $3 billion in short-term loans and an­other $3 billion in long-term loans from the fund, according to Finance Secretary Edgardo Espiritu.

Espiritu also said the request to use the Miyazawa Funds must come from the government task force for the rehabilitation of PAL, the Securi­ties and Exchange Commission, and PAL management.

Pilots Reject PAL Rehab Plan

Business World

Tueday, December 29, 1998

Maricris C. Carlos

It's now the turn of the pilots of Philippine Airlines, Inc. (PAL) to reject the rehabilitation plan submitted to the Securities and Exchange Commission (SEC).

In a motion filed with the SEC, the Airline Pilots Association of the Philip­pines (ALPAP) pointed to a number of "defects" in the plan which cast doubts on its feasibility.

In a related development, 10 local creditor-banks joined forces to ensure the payment of some P7.1 billion in loans they extended to PAL in 1496.

Led by the Philippine National Bank (PNB) the banks asked the SEC for a 30-day extension to file their comment on the proposed plan.

Aside from PNB, forming the syndicate are Allied Banking Corp., Banco de Oro, China Banking Corp., Equitable Banking Corp., International Ex­change Bank, Rizal Commercial Bank­ing Corp., Security Bank Corp., Union Bank of the Philippines, and Westmount Bank.

In particular, the banks asked that they be given until Jan. 24, 1999 to file their comment. They said they need additional time to carefully study the huge volume of information contained in the rehabilitation plan.

This was the same reason cited by two other creditors, Mobil Philippines, Inc., and Pratt and Whitney Canada, Inc.

So far, only a handful of creditors have filed their comments on PAL’s rehabilitation plan. These include European creditors and two local banks.

Earlier, PNB on its own expressed its objections to the plan, particularly the proposal to restructure PAL’s capital which involves the reducing of the par value of existing common shares to only P0.01 from the current P5 per share.

PNB said the capital restructuring will “substantially dilute” its stake in PAL. At the same time, holdings of PAL employees will be reduced to 5% from their existing 20% equity.

PNB also criticized the pricing used by PAL, saying the “valuation is too low.” It thus sought clarification how the interim rehabilitation receiver “arrived at the P0.01 valuation of the share.”

Another local bank which balked at certain components of the rehabilitation plan is the Philippine Commercial International Bank (PCI Bank).

PCI Bank’s objection concerns the 15-year extension of the maturity of loans. Instead, the bank proposed a maturity of only 10 years, inclusive of the grace and repayment periods.

PCI Bank also opposed the proposal for creditors to waive interest charges on all “post-petition” loans, including default interest.

“The suggestion is open-ended, hence, would be too onerous for acceptance,” the bank said at the motion filed at the SEC.

For its part, ALPAP objected to the absence of provisions relating to PAL employees.

“The plan is either deliberately silent or has really no clear program at all for its employees. This is quite odd for a rehabilitation plan because the employee work force is a major party in any PAL rehabilitation possibility,” the pilots union said.

The absence of such provisions is also suspect, ALPAP said, considering that based on the Labor Code, employees enjoy “first preference as regards their wages and other monetary claims.”

PAL’s silence “betray a vacuity in concrete ideas in making the plan actually work or a foreboding of a scheme that is even more sinister than the suspension of collective bargaining agreement (CBA).”

10-year Suspension

ALPAP was referring to the 10-year suspension of employees’ CBA rights as part of the compromise deal with the PAL management after the airline temporarily stopped flying.

Also a concern is PAL’s proposal to dispose of its “non-core” including its catering, ground-handling, and maintenance services.

“The move per se is not defective and may even constitute a sound business decision in other circumstances, but not so in PAL’s case, at least not at this time,” ALPAP said.

At a time when the company is incurring losses in all of its traditional business areas, “getting rid of the profit centers of catering, ground-handling, and maintenance is quite questionable.”

Another key concern is what ALPAP described as “the protectionist measures that PAL management wants the government to adopt” in conjunction with the airline’s rehabilitation.

ALPAP pointed to a proposal to exempt PAL from landing fees and other charges collected by the Air Traffic Office.

“If management cannot come up with a recommendation that can embrace PAL’s viability without hiding under the protective shield of the government, it should not stay on as a private concern any minute longer.

“If it will entail the taxpayers’ resources to salvage it from financial collapse, its nationalization is a better alternative.”

Sketches

The Philippine Star

Tuesday, December 29, 1998

Sketches

Ana Marie Pamintuan

BUZZ. If you’re wondering about those conflicting statements on the negotiations between Philippine Airlines and Cathay Pacific Airways, blame it on two brothers who are pushing for the Cathay deal. Through an intermediary who is the brother of a former finance executive, the two have been trying to get taipan Lucio Tan to accept the Cathay deal.

Point of Order by Jose L. Guevara

Manila Bulletin

Tuesday, December 29, 1998

Point of Order

Jose L. Guevara

Erap was praised for skillfully negotiating the PAL crisis, for condemning human rights abuses in Malaysia, and making a good impression in his keynote address at the economic summit in Singapore.

Miyazawa Fund Eyed for PAL

Philippine Daily Inquirer

Tuesday, December 29, 1998

PRESIDENT Estrada said yesterday he was eyeing Japan's $30.-billion fund for ailing Asian economies to help rehabilitate the money-losing Philippine Airlines (PAL) and keep it flying.

Mr Estrada said tapping the fund, proposed by Japanese Finance Minister Kiichi Miyazawa in October, was "our alternative" to the search for a strategic partner for PAL. “We will try our best to see to it that PAL will continue its operations," he said.

Earlier this month Finance Secretary Edgardo Espiritu had proposed that the government seek $150 million for the rehabilitation of PAL from the Miyazawa fund.

The fund, proposed by Japanese Finance Minister Kiichi Miyazawa, is earnmarked for firms and governments hit by the Asian financial crisis.

PAL management had prepared a rehabilitation plan which calls for an infusion of $150 million in new money to keep PAL flying.

Some of this money was envisaged as coming from a strategic foreign investor but the failure of the talks with Cathay Pacific Airways and Northwest Airlines, has put the plan in peril, raising the possibility that PAL may have to close down if no new financing is found.

Estrada meanwhile said he was still hopeful PAL could still forge an agreement with Cathay Pacific despite the collapse of negotiations earlier. AFP

Estrada Says PAL Will Find Partner in January

The Manla Times

Tuesday, December 29, 1998

By Marc Crowe

Bloomberg

PRESIDENT Estrada said he expects Philip­pine Airlines (PAL) to find a new partner by next month that will pump cash into the debt-strapped flag-carrier.

PAL is still in talks with foreign airlines interested in buying a stake in the carrier, including Cathay Pacific Airways Ltd. of Hong Kong, Estrada said. Cathay has repeatedly said it broke off talks with PAL.

“They're still negotiating and I hope they will settle it, hopefully by next month.” Estrada said. “We are trying our best to save PAL.”

Last week, PAL’s European creditors rejected a rehabilitation plan proposed by the airline because it failed to include the entry of a new partner or $200 million in new capital.

The plan, submitted more than two weeks ago, called for an immediate capital infusion of $90 million from current stock­holders. It also proposed a longer repayment period for $2.2 billion in debt and slashing the PAL fleet to 22 aircraft from 52 at the start of the year.

“The presence of a strategic partner is of paramount im­portance for a viable rehabili­tation of PAL,” said Credit Agricole Indosuez, which repre­sents owners of 12 Airbus Industrie aircraft leased to PAL.

PAL is expecting a cash in­fusion of $90 million from local investors -- mostly from PAL chairman Lucio Tan – as soon as the plan is approved by regulators.

An additional $60 million would be pumped in within half a year after the plan takes effect. PAL is still seeking a foreign airline to cover that investment.

Social Security System admi­nistrator Carlos Arellano said the state pension fund would be willing to invest up to P1 billion in PAL if the airline can find a partner, according to news reports.

Talks with Cathay and Northwest Airlines Inc. of the US collapsed amid disagreements over management control of the carrier, future job cuts and constitutional limits on foreign ownership of an airline.

Without a capital infusion, PAL’s future appears grim. PAL’s net loss surged to P3.9 billion in the three months to Sept. 30. The flag carrier halted payments on its debts in June after a pilots’ strike pushed the airline to the brink of collapse.

About half of PAL's debts are owed to export credit agencies and their insurers, such as the Export-Import Bank of the US Hermes of Germany, Coface of France and UK-based Export Credits Guarantee Dept.

Creditors of PAL Seek Extension

The Manila Times

Tuesday, December 29, 1998

By CARMINA E. REYES

SEVERAL creditors of Philippine Airlines (PAL) have asked the Securities and Exchange Commission (SEC) for more time to submit their comments on the proposed rehabilitation plan for the beleaguered airline.

A syndicate of local banks composed of Allied Banking Corp., Banco de Oro, China Banking Corp., Equitable Banking Corp., International Exchange Bank, Philippine National Bank, RCBC, Security Bank, Unionbank, and Westmont Bank, sought an extension until Jan. 24, 1999 to submit their comments.

The Sycip Salazar Hernandez & Gatmaitan law office which represents Pratt and Whitney Canada Inc., Pratt and Whitney Canada (SEA) Pte. Ltd. of Singapore, and the syndicate of creditor banks under the $182 million loan and security arrangement likewise sued for more time to file their comment.

"Due to the large volume of information in the rehabilitation plan which need to be carefully studied by the syndicate of creditor banks in order for it to submit its comment, the group is seeking a 30-day extension," the law office said.

General Electric Capital Corp. and Mobil Philippines Inc., which are represented by Poblador Bautista & Reyes law office, also want the deadline extended until Jan. 24.

The SEC earlier gave creditors until Dec. 22, 1998 to file their comments on PAL's rehabilitation plan, or 15 days after the airlines company submitted the plan on Dec. 7.

Some of PAL's European creditors have already rejected the proposed rehabilitation plan.

According to the creditors, the capital infusion and the entry of a strategic partner are crucial elements that were not included in the rehab plan.

The rehab plan and the comments of PAL's creditors will be used by the SEC as basis in its decision whether to rehabilitate or liquidate the airline.

Under the rehab plan submitted by PAL to the SEC last Dec. 7, its creditors will be required to reschedule payments of its $2.2 billion debts, investors will have to infuse $150 million in fresh capital, and its fleet downsized to reverse its losses and stay competitive.

Meanwhile, the Airlines Pilots Association of the Philippines (Alpap) said the proposed rehabilitation plan is "full of flaws."

In a five-page comment submitted to the SEC's securities investigation and clearing division (SICD). Alpap said the plan depended on the pre-requisite of securing a strategic partner in the form of a foreign airline.

“The plan goes about its projection as if the flag carriers' woes were simply the unwanted consequences of vain attempts to contain an unwieldy corporate behemoth and not something more fundamental," the associations said.

Alpap was represented by Josabeth Alonso Antonio of the Alonso-Antonio & Partners.

According to Alpap, the rehab plan was understood to be for securing not only financial aid but also competent managers for PAL.

"Undeniably, one of the major flaws of the existing system of management, is the incompetence of its present managers...can we expect a rehabilitation plan to sincerely rectify such flaw when the proponents of the plan are themselves the flaw," Alpap stressed.

The group also criticized the interim rehabilitation receiver, saying the plan has no clear program for its employees.

“The plan is either deliberately silent or has really no clear program at all for its employees. This is quite odd for a rehabilitation plan because the workforce is a major party in any rehabilitation to be possible," Alpap said.

Aside from these, Alpap said the rehabilitation plan was full of "protectionist" measures which betrays the fact that the company can compete with other domestic airlines.

Reform Cab Policies; Support SSS Move

The Journal

Tuesday, December 29, 1998

Opinion – Die Hard

By BOBBY TUAZON

In our Sunday column last week, we raised the issue of the Ramos’ regimes deliberate demolition of the Philippine flag carrier PAL. It was made in connection with our exposé of the West’s mercenary economist Bernardo Villegas of the Center of Research and Communication. Villegas in a disguised warning on “cronyism,” is trying to use that black propaganda line against any attempt of the State to revive the national flag carrier PAL.

Today we focus on this effort during the Ramos administration to scuttle the national flag carrier, through the policy of “liberalization” of the Philippine Airline industry. This liberalization consisted of indiscriminate granting of temporary operating permits, passenger capacity entitlements and “fifth freedom” rights to foreign carriers. The demolition job was carried out by the previous Civil Aeronautics Board, particularly Board member Vic Limlingan (who is still campaigning in behalf of foreign airlines for “open skies” for the Philippines).

Foreign Affairs Assistant Secretary Franklin Ebdalin, a current member of the CAB has this to say about former CAB policies: “The previous CAB administration gave away our air traffic rights to foreign carriers without regard for our own interests… That was wrong. Philippines air rights are national assets. We should not be giving them away for nothing in return. Why should we side with foreign interests in the name of liberalization.” Obviously, Ramos and the globalist clique (including Villegas, of course) that ruled the country during the last administration thought differently, and gave foreign interests greater and greater free rein of our skies.

An alarming evidence of this pro-foreign attitude of Ramos and the clique was the 500,000 seats per year in “fifth freedom” rights, or the right to pick up passengers in intermediate points (away from the carriers’ home country) to bring them to Manila. This diverted Filipino OCWs, businessmen, tourists, and “balikbayans” that should have gone to the Philippine carriers. A list of the T.O.P.s, temporary operating permits, issued by the previous CAB also shows the great disadvantage Philippine carriers have been put to due to increased operating frequencies of foreign airlines. These airlines getting T.O.P.s range from Saudia to Air Nauru, from Nippon Cargo to Fedex, from Silk air to KLM Royal Dutch, the list goes on and on.

Speaking of Philippine carriers, we take this opportunity to assess the wisdom of allowing the proliferation of domestic airline companies. Has it been beneficial? There are lower rates, in fact, cut throat rates, but at what cost.This past week, operational disruptions caused Grand Air passengers to be stranded in Manila for days. Months ago, Grand Air planes were impounded in Hong Kong and Taipei for failure to pay its obligations. Cebu Pacific suffered a tragic crash that raised the question of deteriorating safety standards due to cut throat competition. Air Philippines seems to be flying well due to infusions of sale of other assets, but can it keep it up? Has the policy of promoting proliferation of local airline companies been a success? We have always expressed doubt about it. Airlines need economies of scale, and the recent consolidation of international airlines attest to this.

Few people are aware of these adverse policy antecedents of the current situation of PAL. They constitute one horn of the PAL dilemma.The Erap administration, being unhampered by globalist vested interests, can take steps to help PAL through reform of these anti-PAL policies.It will be an even more fundamental factor in the rehabilitation of PAL, something the SEC’s task force administering the airline should consider seriously.

Reform of these policies will immediately brighten the national flag carrier’s prospects. The other horn, the severe overstaffing, is apparent even to the PAL labor unions by now and should not pose further problems – streamlining must and will be imposed. With these two horns firmly taken into hand, nothing can hinder PAL from spreading its wings again anymore.

With these moves, PAL can and will become a profitable business enterprise again. It is, therefore, imperative that we start viewing the rehabilitation plan from a position of growing strength. It is treasonous for any Filipino to preach or commit any act that will weaken the country and PAL’s bargaining position – as Bernie Villegas has been doing. The correct position to take now, especially for the Philippine government, is to support PAL. It must dare to do the right thing for once – start infusing new money for the airline that is soon to be on its flight back to profitability. On this score, the SSS under Administrator “Chucky” Arellano is doing a signal service to the country, the government and the national flag carrier by being the first to raise the new ante for new PAL.

Yesterday, newspapers reported that the SSS is willing to invest P1 billion in PAL. Administrator Arellano is making a very wise business decision. Knowing what PAL has gone through, the sober attitude of labor after the wrenching strikes, the review of adverse CAB policies and reorganization of PAL, and the thousand eyes watching its every twist and turn, the revival of PAL’s viability and profitability is assured.

The other government GFIs who have already invested in the past should pick up the cue from SSS, this is the moment to redeem themselves. It is the only chance left to recoup from past losses. With the GFIs committed to resorting PAL again, the foreign investors and probably “strategic partners” will be put in their place. We can save ourselves from a “raw” deal.

PAL Still the Airline for Filipinos—Erap

Philippine Daily Inquirer 

Tuesday, December 29, 1998

By Armand Nocum

PHILIPPINE Airlines continues to be President Estrada’s pet airline.

“PAL is still the airline that is looked up to by the majority of the (Filipino) public,” the President told reporters during a hastily called press conference at the Ninoy Aquino International Airport.

In light of criticisms that his administration was biased toward PAL., Mr. Estrada said only the flag carrier had the resources to fly people and cargo all over the Philippines.

The "other airlines are just small and they cannot cover the whole Philippine archipelago," he said during a program at Naia where he welcomed the three returning overseas Filipino workers.

Mr. Estrada said this even in the presence of Air Philippines majority owner William Gatchalian, the President's adviser on OFW affairs.

Gatchalian earlier slammed the government for its plan to use part of the Miyazawa Fund to rehabilitate PAL, which is owned by Lucio Tan, one of biggest contributors to the Estrada presidential campaign.

The $30 billion fund was proposed by Japanese Finance Minister Kiichi Miyazawa in October to help Asian countries combat the economic crisis.

"We also deserve an incentive. If PAL is given part of the Miya­zawa Fund, we should have part of it," Gatchalian earlier told Naia reporters.

Financial experts have also hit the plan, saying it would send the "wrong signals” to the Japanese government because Tan was Mr. Estrada’s supporter.

The President said that the plan had not been set aside as it remained an "alternative" to the search for a strategic partner for PAL.

"We will fly our best to see to it that PAL will continue its opera­tion,” he said.

Earlier this month Finance Secretary Edgardo Espiritu had proposed that Manila seek $I50 million for the rehabilitation of PAL from the Miyazawa Fund.

PAL management had prepared a rehabilitation plan which called for an infusion of $150 million in new money to keep PAL flying.

Some of this money was ex­pected to come from a strategic foreign investor but the failure of the talks with Cathay Pacific Airways and Northwest Airlines, has put the plan in peril, raising the possibility that PAL may have to close down if no new financing is found.

The President meanwhile, said he was still hopeful PAL could still forge an agreement with Cathay Pacific despite the collapse of negotiations.

Asked about earlier statements that he would meet with Tan and Cathay Pacific executives to revive the stalled talks between them Mr. Estrada told reporters "it (the meeting) hasn't happened yet but they're still negotiating.”

"I hope they will settle it…next month," the President added without giving details.

In Hong Kong, a spokesperson for Cathay Pacific said: "We are not involved in any negotiations with PAL."

PAL, which closed down its 57-year-old operations for two weeks in September because of a $2.1-billion debt and labor problems, has already slashed its labor force and its flights and cancelled deliveries of new planes to try to cut cost. With a report from AFP.

Erap Vow to Save PAL Firm

People’s Journal

Tuesday, December 29, 1998

President Estrada is confident that negotiations to save Philippine Airlines would reach a happy conclusion by January next year.

The President yesterday said he remains hopeful that there would be a settlement with Hong Kong-based Cathay Pacific Airways, ”hopefully by next month.”

“They’re still negotiating, and I hope they will settle it, hopefully by next month,” Mr. Estrada said when asked by reporters at the Ninoy Aquino International Airport about the progress of the negotiations.

He reiterated his administration’s commitment to save PAL “at all costs,” saying too much is at stake if the airline shuts down.

He explained that among the airlines now operating in the Philippines, only PAL has the capability to fly to all domestic routes and carry passengers and cargoes to these destinations.

“We are trying our best to save PAL because if PAL closes, all businesses will be affected,” the President pointed out.

Mr. Estrada was at NAIA yesterday morning to lead government officials in welcoming overseas Filipino workers who came home for the holidays.

Last week, Executive Secretary Ronaldo Zamora said talks are still ongoing between PAL and possible strategic partners, including Cathay.

Zamora said in a radio interview that the parties are keeping the talks under wraps because they do not want any side issues to surface at this time.

However, he reiterated the Estrada administration’s position that the government would not take over PAL and assume its huge debts.

Earlier, Cathay announced it was pulling out of talks following speculations that a takeover of PAL management may violate the 1987 constitution.

Under the Constitution, foreign companies can own only up to 40 percent of any business firm in the Philippines.

Negotiations for a possible strategic partnership is one of two options to save PAL, the other being an infusion into the airline of part of the $30-billion Miyazawa Fund initiative for crisis-hit economies in East Asia.

The Philippines stands to get $3 billion in short-term loans and another $3 billion in long-term loans from the fund, according to Finance Secretary Edgardo Espiritu.

Espiritu also said the request to use Miyazawa Funds must come from the government task force for its rehabilitation of PAL, the Securities and Exchange Commission and PAL management.

Column by Jesus C. Sison

Malaya

Tuesday, December 29, 1998

By JESUS C. SISON

‘By the end of 1998, some 34 million people in the world will have been afflicted by the deadly AIDS virus.’

In the past few weeks, the Philippine Airlines issue has been quiet. That’s better so that the PAL management can concentrate on options in case no foreign airline is willing to tie up with PAL.

The Philippine government cannot just allow PAL to float aimlessly. The underlying philosophy behind having a national flag carrier is national interest. The government fully realizes that a healthy national carrier is indispensable to the company and to the country’s sense of identity and pride. The Filipinos have felt very strongly for PAL since 52 years ago.

President Estrada recently reaffirmed the importance of having an “official flag carrier” of the Republic of the Philippines. He did this by issuing an administrative order to that effect. It is also national interest for the government to help strengthen the Philippine carrier for global aviation competition.

National honor and integrity are involved in the search for a Philippine Airlines co-investor. It now appears that PAL is shopping for investors. If it has to be done, the PAL officials should always remember to protect and maintain the honor and integrity of the Philippines in the negotiating table.

Air Ticket Sales via Internet

Manila Bulletin

Monday, December 28, 1998

SINGAPORE (Reuters) — German airline Lufthansa AG said on Monday it was launching novel live Internet auctions in Asia for the sale of its air tickets. The auctions would be held in Singapore, Bangkok and Kuala Lumpur on January 15, 1999 at its InfoFlyway website located at http://www.lufthansa.com.sg, it said in a statement. The bidding for each new pair of return air tickets would start from as little as Singapore $10 with incoming bids at increments of S$5, S$10 and S$20. It said the tickets needed to be used between March and May next year, depending on the destination. Lufthansa said the concept was new to Asia but had been introduced in Germany in May 1997, drawing more than 100,000 Internet users. The subsequent success of such auctions in Germany, England, Ireland and the Czech Republic, prompted the airline to introduce the service in Asia, it added.

'Migratory Planes' Giving PAL Unfair Competition

The Journal

Monday, December 28, 1998

Hector Lawas

One of the causes of Philippine Airline's financial losses was the alleged greediness of the so-called "migratory planes”.

These migratory planes are actually foreign airliners that briefly stop in Manila to pick up passengers, consequently “stealing" the potential revenues of PAL, the country's flag carrier.

Consider this analogy.

An Asian airline — or any other airline outside the Philippines — was allowed by the local air transport to briefly stop in Manila.

This is not unusual because there are hundreds of foreign commercial aircraft making stopovers daily at the airport.

But the problem is they are allowed to “pick up more passengers” while on a stopover en route to their final destination.

Worse, these "migrating birds” would charge passengers less airfare, compared to the normal airfare PAL would be charging for a direct flight.

As a crippling consequence, this present setup of unfair competition, which incidentally was approved during the Ramos government, would definitely “kill” PAL because passengers already battered by the financial crisis would definitely choose the cheaper fare.

"If an airline was allowed to stop in Manila and was further allowed to pick up passengers, they will be charging less compared lo the fares PAL will be charging for direct flights,” a source said.

For example, the air rate of PAL for the Manila-Saudi direct flight is $500, the other plane would charge only $350-$450.”

To correct this injustice and to level the “flying field” between the local and the foreign carriers, the Civil Aeronautics Board (CAB) is currently reviewing the country’s air service covenants with international airlines.

This stemmed after the present set of CAB officials has finally uncovered this serious irregularity involving foreign airlines and air transport officials during the Ramos administration.

The new officials of CAB, according to sources, are dead serious in rectifying what they deemed a grave mistake during their stay in government.

“They (the new CAB officials) are not against open skies. All they want is to balance the playing field by limiting the approval of foreign airlines’ applications to increase flights to and from the country,” the source continued.

The former CAB officials have indiscriminately allowed international carriers more flights using Manila as a stopover.

The present set of CAB officials, however, has already denied the applications of two foreign airlines to increase their frequencies to Manila, the Korean and Singapore Airlines.

“They (foreign airlines) are like birds who escaped the harsh weather condition of their country only to feast on the vegetation of another country,” the source said.

SEC Task Force Seen to APrrove PAL Rehab Plan

Today

Monday, December 28, 1998

Lawrence Agcaoili

The task force commissioned by the Securities and Exchange Commission (SEC) is expected to give financially hammered Philippine Airlines Inc. (PAL) the green light to pursue its rehabilitation plan that will bring Asia's oldest airline back to its feet.

The task force composed of lawyers Manolito Soller, and Rosita Guerrero and Jesus Ulanday of the SEC Examiners and Appraisers Department met with the five-man interim rehabilitation receiver last to clear out some issues in PAL's rehabilitation plan.

The task force, activated by SEC officer-in-charge Fe Eloisa Gloria, is given until January 7 to evaluate and study the rehabilitation plan submitted on December 7.

Soller said that the task force was satisfied with the structure of the rehabilitation plan except for the company's capital infusion plans and the timetable for capital restructuring.

But he said that the rehabilitation plan was viable especially with the $150 million that will be infused by a new group of investors.

The receiver also expects to reach a compromise agreement with PAL’s creditors despite outright rejection of the submitted rehabilitation plan.

PAL chief finance officer Jaime Bautista, in an interview with reporters, said that they expected the company creditors “not to accept the plan as it will require a restructuring plan that will reduce their shareholding in the company.”

But despite the objections raised, Bautista said the company receiver is confident of the eventual approval of the rehabilitation plan.

Last week the semi-privatized Philippine National Bank said that it opposes the rehabilitation plan since it will dilute its PAL equity holdings.

Under the planned capital restructuring, PAL will reduce the par value of its existing common shares to P0.01 per share from the current P5 per share.

Recommendation for PAL Rehab Ready by Jan. 7

Malaya

Monday, December 28, 1998

Vic S. Lopez

The three-member task force created by the Securities and Exchange Commission (SEC) for the rehabilitation of Philippine Airlines (PAL) will submit its recommendation by Jan. 7.

Jaime Bautista, senior vice president and chief finance officer of PAL said the recommendation of the task force will be the basis of the three-member panel hearing the suspension of payments petition of PAL.

The panel is headed by acting chairman Fe Eloisa-Gloria, and lawyers Ysobel Murillo and Josefina Yasay-Paz.

Bautista, who was interviewed over the weekend after a meeting with the task force, said PAL’s creditors have asked several questions on PAL’s rehabilitation plan.

"We expect that there will be several objections on PACs rehabilitation plan, initially," Bautista said.

But he said PAL could answer the questions raised by its more than 9,000 creditors.

The questions and clarification for the rehabilitation of the ailing airlines comes mostly from its creditor banks led by the European Export Credit Agencies (ECAs) through French bank, Credit Agricole Indosuez.

The SEC has earlier said it will not allow any termination of a lease agreement with any of the airplanes currently being used by PAL.

The SEC hearing panel has earlier issued an order setting aside and with no effect the notice of termination and lease over Airbus A-330-300 by Pacer Aviation Limited and Credit Agricole Indosuez SA.

The SEC also directed Pacer and Credit Agricole "to cease and desist from requiring PAL to deliver the said subject leased property, or any other leased properties by PAL, in Hong Kong at any given period without prior order from the commission."

The task force will submit to the hearing panel their recommendation within 30 days from the date of the order of the commission, which is Dec. 7, the same day when PAL submitted its rehabilitation plan.

PAL filed a petition to rehabilitate the airline with the SEC last June 19. The financial crisis and the reduced demand for travel placed severe pressure on PAL's cash flows.

Operations have been scaled down to key profitable international and domestic routes while personnel have been reduced from 12,986 in May 1998 to 8,589 as of Nov. 7, 1998.

Miyazawa Funding for PAL Pressed

The Philippine Star News
Monday, December 28, 1998
NEWS

The Estrada administration has formally requested the Japanese government to help bail out the ailing Philippine Airlines (PAL) through the Miyazawa initiative.

The Department of Finance, which submitted the request to the Japanese government, proposed a grant of a $150-million loan under the Miyazawa Fund, to be released through the Japan Import-Export Bank to finance PAL’s rehabilitation.

Finance Secretary Edgardo Espiritu earlier raised the possibility of another shutdown by PAL if the government failed to obtain financial assistance for the flag carrier, or if PAL Chairman and majority stockholder Lucio Tan was unable to find other investors ready to infuse fresh capital.

Espiritu said the Japanese government still has to send word if it’s amenable to the proposal. He said the aid falls under the objective of Japanese Finance Minister Kiichi Miyazawa to help ailing firms stuck by the Asian financial crisis restructure their debts.

He said the scheme has been done in Thailand and Indonesia, which were also bodily affected by the regional economic crunch.

Espiritu also said the Japanese government was expected Christmas to decide on whether PAL was qualified for financial assistance under the Miyazawa Fund.

Sources said the Japanese government was reluctant in helping revive PAL.

The Philippines stand to get at least $3 billion from the $30 billion Miyazawa Fund for crisis-hit Asian economies.

The Estrada administration hoped to pump part of the money into PAL’s rehabilitation after talks with prospective strategic partners collapsed.

Espiritu noted, however, that PAL may have to go public to qualify for the fund.

PAL is not yet listed in the stock exchange.

The 57-year-old PAL grounded its local and domestic planes for two weeks starting Sept.23, weighed down by a 52.1 billion debt aggravated by a crippling 22-day pilots’ striking in June.

However, it partly reopened last October after securing a commitment from its labor union on a 10-year strike moratorium.

PAL later began negotiations with Hong Kong-based Cathay Pacific Airways for a 40-percent stake.

Cathay eventually pulled out from the talks over disagreement on management issue.

Meanwhile, PAL submitted a $150 million rehabilitation plan to the Securities and Exchange Commission to keep airborne without a new strategic partner.

Mr. Estrada said he was exerting last-ditch efforts to lure back Cathay Pacific into the negotiating table with PAL even as he admitted differences between the two airlines appeared to be irreconcilable.

“I am not giving up easily,” the President said as he appealed to both parties to reconsider their respective positions.

A source, who was close to the Cathay Pacific team during the discussions, charged that the present shareholders of PAL appeared to be the biggest stumbling block in the negotiations.

“The Philippines is a difficult place at the best of times, even if we had a cast iron, solid local partner,” the source said.

“The (local) airline industry is very political, very high-profile and everybody is involved in it. The only way you can possibly do it here is with an absolutely rock-solid partner, and I’m afraid these guys just don’t qualify, ” the source added.

On the other hand, a source at PAL claimed the talks bogged down because Cathay wanted complete management control without legal liability.

Talks with other foreign airlines, including Northwest Airlines of the United States, also fell through.

PAL Task Force Report Out Soon

The Journal

Monday December 28, 1998

THE TASK force formed by the Secu­rities and Exchange Commission to evaluate the rehabilitation plan submitted by the cash-strapped Philippine Air­lines is expected to submit its findings and recommendation by January 7, accord­ing to Jaime Bautista, PAL Senior Vice President and Chief Finance Officer.

The SEC panel hearing the PAL case is composed of acting SEC chair­man Fe Eloisa C. Gloria, lawyers Ysobel Yasay-Murillo and Josefina Pasay-Paz

.

The SEC convened the task force last June 19, 1998 to assist the hearing panel in the PAL, proceedings before the SEC securities investigation and clearing department.

The task force composed of Jesus Ulanday, Monolito Soller and Rosita Guerrero was ordered to study and analyze the rehabilitation plan.

Ulanday is the chief of the Field Audit & Analysis Division of the Examiners and Appraisers Department; Soller is a lawyer from the en banc division; and Guerrero, also a lawyer from the SICD.

Bautista said that PAL's creditors have asked several questions about PAL's rehabilitation program.

The query and clarification for the rehabilitation of the ailing airline company came mostly from creditor banks led by European Export Credit Agen­cies through French bank, Credit Agricole Indosuez.

Of the local bank creditors of PAL, PNB has the biggest exposure. Other local creditors are Allied Banking Corp., China Banking Corp, PCIBank, RCBC, Equitable Bank, Union Bank, Security Bank, Westmont Bank, International Exchange Bank, Banco de Oro, Urban Bank, Land Bank of the Philippines, UCPB, GSIS, and Bureau of Treasury.

PALTask Force Report Rushed

People’s Journal

Monday, December 28, 1998

THE TASK force formed by the Se­curities and Exchange Commission to evaluate the rehabilitation plan submitted by cash-strapped Philippine Airlines is expected to submit its findings and recommendation by January 7, according to Jaime Bautista, PAL Senior Vice President and Chief Finance Officer.

The SEC panel hearing the PAL case is com­posed of acting SEC Chairman Fe Eloisa C. Gloria, lawyers Ysobel Yasay-Murillo and Josefina Pasay-Paz.

The SEC convened the task force last June 19, 1998 to assist the hearing panel in the PA L proceedings before the SEC Securities Investigation and Clearing Department.

The task force, composed of Jesus Ulanday, Monolito Soller, and Rosita Guerrero was or­dered to study and analyze the rehabilitation plan.

Ulanday is the chief of the Field Audit and Analy­sis Division of the Exam­iners and

Appraiser De­partment; Soller is a lawyer from the en banc division; and Guerrero, also a lawyer from the SICD.

Bautista said PAL's creditors have asked sev­eral questions about PAL’s rehabilitation program.

The query and clarification for the rehabilitation of the ailing airline company came mostly from creditor banks led by European export credit agencies through French Bank Credit Agicole Indosuez.

Of the local bank credi­tor, PNB has the biggest exposure. Other local creditors are Allied Banking Corp., China Bank­ing Corp., PCI Bank, RCBC, Equitable Bank, Union Bank, Security Bank, Westmont Bank, International Exchange Bank, Banco de Oro, Urban Bank, Land Bank of the Philippines, UCPB, GSIS, and the Bureau of Treasury.

PAL wants an injection of $150 million additional capital by share holders as part of the financial restructuring plan.

The value of common shares of PAL would be reduced from P5 per share to P0.01 per share. The shareholder equity injec­tion would comprise over 90 percent of the new eq­uity ownership of the company. PNP is objecting to this plan.

PAL operations have been scaled down to key profitable international and domestic routes. Personnel have been reduced from 12,986 in May 1998 to 8,589 as of Nov. 7, 1998. Ellie Mallorca

SSS Willing to Invest P1B in PAL

Malaya

Monday, December 28, 1998

By PEARL BANTILLO

The Social Security System (SSS) is willing to invest up to P1 billion in equity into debt-saddled Philippine Airlines Inc. (PAL) provided that the flag carrier will show proof that it can be profitable.

The state-owned pension fund placed the minimum investments that it could pour into PAL at P200 million but if it decides to invest the maximum P1 billion, the equity infusion will just eat up only a sixth of a percent of SSS's total assets.

“We can consider (investing in PAL) as long as they can prove it could be a profitable corporation," SSS president Carlos Arellano said.

Arellano added that there must be clearing up of balance sheets of PAL.

Like any other firms whose investible funds are placed in trust by its members, the security system requires the rehabilitation program which includes the entry of a strategic partner, to work out for PAL before a decision of whether or not to invest will take place.

Arellano said that a primary consideration whenever SSS would decide to invest in any company is profitability emphasizing on return on equity (ROE).

So far, all of SSS’ investments in equities have been showing a good 21 to 22 percent ROE.

Arellano noted that their target ROE is 25 percent for equities investments.

SSS is a shareholder of various blue chip companies like Bank of the Philippine Islands, Philippine National Bank, Philippine Long Distance and Telephone Co. and San Miguel Corp.

PAL is saddled with a $2.26 billion debt from various local and domestic creditors and lessors. It filed a petition for debt moratorium to the Securities and Exchange Commission (SEC) in September when PAL started to incur huge losses from operations.

Based on the management's evaluation, PAL needs $150 million equity infusion, split between majority shareholder Lucio Tan's group ($90 million) and the potential strategic partner ($60 million) to allow the flag carrier carry out viably its domestic and international flight operations.

Arellano said PAL may "not necessarily need a new management, only additional management expertise."

Earlier, Finance Secretary Edgardo Espiritu suggested that the creditors committee could among themselves either hire or form a group of professional managers that will operate PAL after acquisition talks with Northwest and Cathay Pacific Airways Ltd. collapsed.

PAL Rehab Plan Likely to Get Nod of SEC Team

Business World

Monday, December 28, 1998

By MARICRIS C. CARLOS Senior Reporter

and MA. SALVE I. DUPLITO Reporter

National flag carrier Philippine Airlines Inc. (PAL) may be in serious financial bind, but  the task force created by the Securities and Exchange Commission is expected to recommend the approval of a proposed rehabilitation plan.

At the same time, the government-owned Social Security System (SSS) is willing to put in P1 billion in new investment provided the flag carrier undergoes a facelift that will ensure profitability in the next few years.

In an interview, SSS Chairman and President Carlos Arellano said he still finds PAL attractive. “As of now, it is not a good day; they still have to clear out the situation there… but as long as they show it can be profitable institution, I’m willing to bring in more money, “ Mr. Arellano, sitting on top of a P152-billion fund, said.

Interviewed by Business World separately, two members of a three-man SEC task force said they favor the approval of PAL’s rehabilitation plan as submitted.

The task force is expected to formally submit its recommendation to a three-member hearing panel, chaired by SEC Acting Chief Fe Eloisa Gloria, on Jan.7. The hearing panel will decide whether or not PAL should be rehabilitated.

Favoring the proposed rehabilitation plan were SEC lawyers Rosita Guerrero and Manolito Soller. The third member, Jesus Ulunday, was unavailable for comment.

TECHNICALS

The task force was created by the SEC hearing panel to assist in evaluating the feasibility of the rehabilitation plan. In particular, the task force looked into the “technical” of the rehabilitation plan, paying particular attention to provisions regarding PAL’s finances. In fact, all three task force members are certified public accountants.

Ms. Guerrero said that as it is, PAL’s rehabilitation plan seems feasible, adding it was able to specify how management plans to infuse the needed capital in case the flag carrier fails to find a strategic partner.

Mr. Soller also agreed that PAL is still “viable”. It even has an alternative plan in case it fails to get a strategic partner, he said, referring to the $150-million equity infusion that would come from existing stakeholders.

Both Ms. Guerrero and Mr. Soller though stressed the task force is just a recommendatory body. In the end, they said the decision whether or not PAL will be allowed to continue operations will come from the three-member SEC hearing panel.

At the same time, Ms.Guerrero and Mr. Soller emphasized that their decisions was based solely on what the submitted rehabilitation plan says. The comments of creditors and other stockholders will be considered by the hearing panel, not the task force, Mr. Soller added.

As it is, he said he doesn’t see any hitch should PAL decide to go ahead with the equity infusion and capital restructuring components of its rehabilitation plan.

Under existing corporation statutes, PAL needs the approval of two-thirds of 70% of its stakeholders to proceed with the proposed capital restructuring program outlines in the plan.

LEGAL HINDRANCE

But since Chairman Lucio Tan controls about 70% of PAL’s shares, Mr. Soller sees no legal hindrance to the implementation of the plan.

Nevertheless, during the conference hearing with PAL officials on Dec. 23, the task force directed the flag carrier to submit a more detailed explanation of its proposed capital restructuring program.

The SEC task force called members of the airline’s interim rehabilitation receiver to a meeting last week to clarify certain provisions of the plan.

Emerging from the closed-door meeting, PAL chief finance officer Jaime Bautista admitted “most (of PAL’s creditors) have not accepted” the rehabilitation plan.

He said though PAL remains confident it will be able to convince its creditors once the plan’s fine prints are explained to them.

Initially, he said PAL expected opposition from the creditors considering the plan contains debt and capital restructuring components. ”We are ready to negotiate with them,” he said referring to PAL’s 9,000 creditors.

Already, PAL’s European creditors led by Credit Agricole Indosuez have voiced their objections against the plan. Credit Agricole is trustee for various credit facilities which enable PAL to acquire 12 Airbus A330/A340 aircraft from different lessors. In particular, the European creditors said the plan does not embody “two fundamental elements” they said are crucial to PAL’s recovery – the entry of a strategic partner and the $200-million initial investment needed to support the rehabilitation plan.

Two legal banks also expressed reservations. These are PCI Bank and the Philippine National Bank (PNB).

PCI Bank’s objection concerns the 15-year leeway PAL is seeking from its creditors concerning the maturity period of its loans. It instead proposed a maturity period limited to 10 years, inclusive of the grace and payment periods. It also balked at PAL’s proposal fro creditors to waive interest on all “post-petition” loans including default interest.

For its part, PNB’s objection is based on Pal’s proposed move to reduce the par value existing common shares to only P0.01 a piece from the current P5 per share. It said the capital restructuring “will substantially dilute” its stake in PAL.

Meanwhile, SSS’s proposed P1-billion new investment in PAL, if it pushes through, is equivalent to one-sixth of the $150 million the airline is desperately in need of. Mr. Arellano said his first concern is still the labor problem hounding the airline, which also caused it to lose its fragile links to prospective strategic partner Cathay Pacific Airways Ltd.

He also said there has to be a cleaning up of PAL’s balance sheet and the entry of a strategic investor, foreign or local, should be ensured.

Mr. Arellano said it is imperative for PAL or the government to come out with a new vehicle that will present clear solutions to PAL’s problems.

The SSS chief said the government has already taken one step in this direction in trying to create a management team that will “professionalize” the management of PAL.

Finance Secretary Eduardo Espiritu earlier said he is looking at letting a team of creditors constitute this team. Some junior officials of PAL’s foreign creditors have been called to a meeting at the Department of Finance (DoF) the other week with Mr. Espiritu and have already given their approval of the plan.

Asked whether he wants a change in PAL’s Management before he plunks in more investments, Mr. Arellano pointed out the issue in PAL is not Mr. Tan as some investors and creditors have been saying. “I don’t think the issue in PAL is Lucio,” he said.

A Mercenary Economist of the West

The Journal Sunday, December 27, 1998

DIEHARD

By HERNAN TIU LAUREL

THERE are many serious issues to tackle, even if it is the Christmas holidays. Take the "warning" to the government on so-called cronyism, issued by discredited globalist "boomsayer" Bernie Villegas published last December 24. Readers must remember that it was Villegas, along with Bobby de Ocampo, who denied to the very last that the Philippine peso would go down the way of the Thai Baht in 1997. It was with economists like Villegas in mind that author Paul Ormerod coined the phrase, “the death of economics”- for the title of his book dealing with the failures of neo-liberal economics.

Villegas is mercenary economist of the foreign trans-nationals under the aegis of the Westem oligarchy, funded through their foundations and donations of local "compradors”- and agents, the Makati Business Club cacique class. One of Villegas' major tasks the past two decades has been the Comprehensive Task Reform Package project that was begun sometime in the first quarter of the 1980's. It proposed, among many, revisions of the Philippine tax system that opened up the economy to a deluge of imports by eliminating import tariffs. It transferred tax burdens from business to citizens through regressive indirect taxes such as VAT and the EVAT. It called for the shift from ad valorem to specific taxes which was aimed at Philippine tobacco and cigarette producers. These tax reforms were supposed to create the "globalized" economy.

In drawing up the tax reform proposals, a Hong Kong-based consultancy group involving a certain Vic Abola was engaged by foreign tobacco manufacturing companies. This name appears repeatedly with the names of Villegas' institutional research groups that worked on the CTRP. The CTRP was railroaded into a law by the Ramos administration through the "rainbow" Congress of Joe de Venecia. We have been suffering the consequences ever since: high taxes penalizing consumers and domestic producers, tariff elimination that opened the floodgates to imports and caused the severe depletion of our foreign exchange reserves.

It was no accident that Lucio Tan and his enterprises became one of the focal points of debates and controversy during the debates on the CTRP. In any economy, tobacco and cigarettes occupy a substantial share and it invariably becomes a target for takeover by Western tobacco trans-nationals, particularly American. We all know of the intense drive of American tobacco companies the past decades to penetrate foreign markets due to the pressure of health concerns back in the US. In Asia, of particular interest to US tobacco companies are Indonesia's "kretek” market, South Korea, Japan, and the Philippines' cigarette markets. But for Tan, it was not only tobacco and cigarettes, he was also into beer and liquor through Asia Brewery.

Tan had gone into beer making because he believed that he could bring good and certainly cheaper beer products to the market. He competed with the San Miguel Corporation that was then dominated by the cacique Soriano brothers who swore to eliminate the "kabise- through the reformulation of the "sin taxes" to price Tan's products out of the market. Despite the competition, Tan had captured more than 10% of the market. Meanwhile, Tan extended his entrepreneurial enthusiasm to the privatized Philippine Airlines which, because he was identified as a target of political and economic vendetta by Ramos and his globalist allies, also began to be a corporate victim of systematic economic and financial persecution.

The systematic persecution of PAL came mainly in many forms, one of which was a hostile Civil Aviation Bureau that started giving away with PAL air routes to foreign airlines over PAL's protests and without reciprocity from the other countries. The precipitate deregulation of the airline industry under Ramos, while ostensibly favoring airline commuters. also had its less constructive intentions and effects. The deterioration of safety and security standards is one possible effect of deregulation and cut-throat budget was in the industry, a concern that was particularly relevant in the aftermath of a tragic Cebu Pacific crash that was marked by roughshod government monitoring and airline maintenance. These adverse measures under Ramos added great difficulties to PAL that was already saddled with a long festering over-staffing problem.

It was in a briefing Villegas set up for Senator Miriam Santiago after the 1995 elections that I got my first idea of Villegas' visceral dislike for Tan. Having run with her, the only other candidate on her slate, Miriam wanted to bring me along. In the course of the briefing the subject of PAL and Lucio Tan was raised, and Villegas went on a long tirade of completely unfounded and preposterous charges against Tan, including a ridiculous allegation that Tan had cornered the toilet paper supply contract of the airline. An investor who personally guarantees billions worth of loans for PAL would certainly not bother about toilet paper, I thought. But Villegas spent an inordinate amount of time fuming over this. Miriam and I left unconvinced about Villegas and his economics, and certainly even less about his theories about Tan.

When Bernie Villegas and his Center for Research and Communication or his University for Asia and the Pacific speak on economic issues, or warn of “cronyism,” keep in mind their mercenary backgrounds. What Villegas was warning about last December 24, is the prospect of PAL surviving as an airline independent of the control of foreign companies. He wants PAL delivered to foreigners on a silver platter, after helping destroy it through privatization and deregulation. Government should take the warning from Villegas with a grain of salt, and then go on to the right thing: Keep it flying with whatever it takes. After the bloodletting and a little more, PAL is already a very viable airline. This is not the time to give it away.

Bintang ni Gatchalian: Pinapaboran ng CAB ang Foreign Carriers

Kabayan

Sunday, December 27, 1998

Jerry S. Tan

Hayagan na kung ipakita ang paboritisimo ng mga opisyal ng Civil Aeronautics Board (CAB) dahil higit na pinapaboran nito ang mga foreign carrier sa halip na mga domestic airline.

Ito ang nabatid ng mga mamamahayag sa ginawang pakikipanayam kay William Gatchalian, pangulo at chairman ng Air Philippines.

Ayon kay Gatchalian, walang suportang nakukuha ng kanilang kompanya mula sa ahensyang nabanggit upang higit na mapaunlad ang lawak ng biyahe ng kanilang pampasaherong eroplano.

Kinumpirma rin nito, na hindi lamang Philippine Airlines ang nagrereklamo sa “favoritism system” ng CAB kung hindi ang iba pang mga domestic airline na unti-unti nang namomonopolya ng mga foreign carrier ang “profitable routes.”

Bilang katunayan, inihalimbawa nito ang lumalaking bilang ng mga sa pasahero sa araw-araw na paglipad patungong Maynila ng mga Singapore Airlines, China Airlines, at Northwest Airlines.

Kabilang sa mga itinuturing na “profitable route” ang Manila-Tokyo, Manila-Taipei, Manila-Singapore, Manila-US, West Coast, Manila-Middle East, at Manila-Seoul (Korea).

Inakusahan ni Gatchalian ang CAB ng hindi parehas na pagtrato, kung saan ay kaya naman ng kanilang kompanya at iba pang mga domestic airline na maserbisyuhan ng “profitable route.”

“Kaya namin ang international flights anumang oras kung pahihintulutan at hindi rin problema para sa amin ang makakuha ng permiso mula sa mga foreign counterpart ng CAB,” pagbibigay-diin ni Gatchalian.

Naghihimutok ang Air Philippines sa CAB dahil inabandona nito ang Philippine Airlines at ipinagkaloob sa mga foreign carrier.

“Sa loob ng tatlong taong pagsisilbi sa mga mamamayan ay walang pagkakautang ang kompanya sa gobyerno at sariling sikap ang aming ginawa upang umunlad pero parang tinitikis kami ng CAB,” dagdag pa ni Gatchalian.

Bunsod nito, hiniling ng pamunuan ng Air Philippines kay Pangulong Joseph Estrada na maging parehas ang CAB sa pagtrato upang makatulong ang kanilang kompanya sa pagsisikap ng administrasyon na pasiglahin ang ekonomiya ng bansa.

Nabatid pa mula sa pamunuan ng naturang kompanya na sa tagal ng kanilang operasyon, isa pa lamang na international route ang inaprubahan ng CAB, byaheng Cebu-Osaka (Japan) na takdang isakatuparan sa Marso 1999.

Malaya
Sunday, December 27, 1998
Jesus C. Sison

Executive Secretary RonaIda Zamora is right. The departments of Justice and Finance and the BIR should get together in the prosecution of the tax evasion cases against business tycoon Lucio Tan. If not, the government will lose much-needed money.

***

If the talks with Cathay Pacific Airways fail, businessman tycoon Lucio Tan, owner of the majority shares in the Philippine Airlines said he is prepared to discuss the PAL case with all-Filipino venture. I believe some Filipino investors will want to invest in PAL provided there is good management and they are guaranteed that their investments will be guarded and protected.@

Air Philippines Head Hits Government ‘Bias’ For PAL

Philippine Daily Inquirer

Sunday, December 27, 1998

By Armand Nocum

AIR Philippines majority owner William Gatchalian has criticized the government for its alleged bias for Philippine Airlines.

Gatchalian is particularly unhappy about plans by the Estrada administration to use part of the country’s share of the Miyazawa fund to rehabilitate the troubled flag carrier.

Gatchalian, known to be a close friend of President Estrada who has named him presidential adviser on overseas Filipino workers’ affairs, said the government was serious in its plan to use the fund to help PAL, it should extend similar assistance to new players in the industry.

Japan established the $30 billion fund to help Asian countries combat the economic crisis besetting the region.

“We also deserve an incentive. If PAL is given part of the Miyazawa Fund, we should also have a part of it,” Gatchalian told reporters in an interview.

He said he would be happy even with a 10-percent share of the fund.

“The government appears to be biased toward PAL. There should be no monopoly in the airline industry,” he said.

But Rolando Estabillo, PAL Vice President for Corporate Communications, denied that Malacañang was leaning over backward for PAL.

“Gatchalian is entitled to his own opinion. We just wish him a merry Christmas and a happy New Year,” Estabillo told the INQUIRER.

EXECUTIVE Secretary Rolando Zamora and Finance Secretary Edgardo Espiritu had earlier suggested that part of the Miyazawa Fund earmarked for the Philippines be used to rehabilitate PAL following the collapse of the buyout talks between PAL and Hong Kong-based Cathay Pacific Airways.

But financial experts assailed the plan, saying it would send the “wrong signal” to the Japanese government, as PAL majority owner Lucio Tan is known to be close to Mr. Estrada.

Gatchalian said he wondered what it was about PAL that prompted the government to do everything it could to help keep it afloat.

“You can consider us a second flag carrier. What’s the difference?” he said.

Gatchalian also hit the Civil Aeronautics Board and the Air Transportation Office, which he said were made up mostly of former PAL pilots and executives.

He said the two agencies appeared to be conspiring to stunt the growth of new domestic airlines as these prepared to expand operations to include international travel.

Gatchalian said the two agencies had been quick to grant foreign carriers—including Singapore Airlines, Eva Air, China Air and Cathay Pacific—rights to fly to choice destinations, but were hesitant to do the same to new Filipino players.

“No wonder they now refer to the ATO as ‘Another Tan Office,’” he said.

Air Philippines and Cebu Pacific are firming up plans to go international to improve their financial and corporate standings.

Gatchalian said new Filipino airlines should be allowed to fly profitable routes abroad, such as the Taipei, Singapore, Osaka, Tokyo, Seoul and US routes, to help them grow and expand.