Debts, Asia Crisis, Expansion Program Behind PAL Decline

Today
September 18, 1998
Business
BY LAWRENCE AGCAOILI

MOUNTING financial losses largely caused by the currency meltdown in the Asia-Pacific region and piling debts resulting from an ill-timed expansion program have prompted crippled national flag carrier Philippine Airlines Inc. to shut down its 57-year-old airline operation.

“With no fresh capital infusion Philippine Airlines cannot operate viably in the face of enormous losses amid harsh business environment,” a PAL statement said.

The news of the closure spawned another wave of speculations in the business community.  Rumors had it that Marcos crony Eduardo “Danding” Cojuangco and the Brunei Sultan expressed interest in taking over the beleaguered airline.

PAL lost P8.08 billion in its last fiscal year ending March 31 this year, or triple the loss it suffered the previous year.  It has outstanding financial obligations of $2 billion, used to buy 36 new aircraft under a $4-billion expansion program. Of the entire package, 20 new jets were delivered and the rest cancelled.

PAL in the first quarter of its current fiscal year ending June already posted a net loss of P2.2 billion or 337 percent higher than the P502.9 million net loss recorded in the same quarter last year.  Revenues fell 14.5 percent to 7.67 billion from April to June this year from last year’s P8.97 billion.

PAL chief financial officer Jaime Bautista said in a report recently submitted to the Securities and Exchange Commission (SEC) that higher foreign-exchange losses, financial charges and other nonoperating expenses resulted in the substantial net loss in its first quarter of operations this year.

The report showed that the airline’s financing charges surged 182.5 percent to P1.15 billion in the first quarter from P407.72 million in the same period last year.

The company attributed the decline in revenues to the labor strike staged by the Airline Pilots’ Association of the Philippines last June which led to the cancellation of 69 percent of the airline’s scheduled flights.  This was followed by the strike staged by the 9,000-strong Philippine Airlines Employees Association.

PAL sought with the SEC the appointment of a rehabilitation receiver to implement a plan that will help pay off its P85.11 billion debts to several creditors.  PAL claimed it has sufficient property to cover all debts, citing assets amounting to P90.64 billion.

The receivership committee is supposed to submit by September 21 a viable rehabilitation plan that will enable PAL to recover and pay creditors.  The proposed rehabilitation plan is supposed to be presented to the airline’s creditors, employees and other claimants at a hearing on September 30.

The SEC on July 1 froze all the assets of PAL and required strict approval of the sale of assets in excess of P3 million.