Cathay: No New PAL Talks – But Etsp Hears None Of It

Today

Friday, December 4, 1998

MANILA—Cathay Pacific Airways yesterday said it will "remain open to future cooperation with beleaguered Philippine Airlines but denied suggestions that this "openness" could lead to new negotiations for a major stake in PAL.

In a statement, Cathay said possible future cooperation between the two airlines will most likely be limited to "other areas of mutual benefit," but stressed that these areas no longer include the option of buying into or managing the Philippine flag carrier.

Despite a statement from President Estrada that contradicted Cathay's position—Estrada yesterday said Cathay had written to him, expressing a willingness to reopen negotiations with PAL—Cathay spokesman Katherine Wang said from Hong Kong that "we wouldn't revisit 'the matter' unless there is a fundamental change in the situation." She declined to elaborate as to what chances could make Cathay reconsider its decision to abandon the talks.

But as Cathay stressed that it is no longer in negotiations regarding a possible investment in PAL, "Estrada said in an ambush interview that "Cathay management wrote me a letter that they're still available for another negotiation."

He added: "Let us not lose hope. I am just waiting [to talk to PAL chairman Lucio Tan who was expected to arrive from Guam yesterday]. Maybe there's still a chance for them to come to an agreement."

Pressed for Cathay's "letter" to Estrada, however, the President and Malacañang officials failed to produce the document.

Cathay Pacific said on Wednesday that it has decided to withdraw from talks with PAL over "irreconcilable differences." The Hong Kong-based airline reportedly cannot commit to the full management of PAL unless it can retrench some 3,000 PAL workers. In return for their ending a crippling and near-fatal strike two months ago, both Estrada and Tan had promised PAL's 8.000 workers that none of them will lose their jobs.

Cathay also attributed the breakdown of talks on Wednesday to differences on the valuation of PAL. "There was a gap between the valuation expected by PAL, existing shareholders and our own estimates," Cathay spokesman Quince Chong told Reuters.

At least one PAL official, however, insisted that all is not lost in their talks, suggesting that Cathay is merely playing hardball. "This is brinkmanship." the official said.

Amid the conflicting statements and assessments, PAL yesterday said it would submit a rehabilitation plan to the Securities and Exchange Commission by December 7, still with provisions for a strategic partner. The airline said a local group had committed to inject $90 million of the $I50 million it needs for rehabilitation. It also said it had resumed talks with a potential foreign investor. Estrada reiterated that he has he led out the possibility of his government bailing out PAL.

LAMP Rep. Joey Salceda yesterday revived suggestions that Malacañang work out loan guarantees for the airline, saying the "national dignity and the welfare of PAL's workers" are at stake.

Labor leader Crispin Beltran echoed Salceda's comments. “The government should save itself the trouble of looking for a buyer for PAL, and should [instead] infuse money into the national flag carrier and he the main shareholder in the company."

Estrada said this was out of the question. "The government has no money, [and we] will not guarantee any private company." With reports front M. Gonzalez, R. Mereene and Reuters

Analysts say Cathay's Walkout on PAL Not a Big Disappoinment

Malaya
Friday, December 4, 1998

HONG KONG — Cathay Pacific Airways Ltd's decision to walk out on Philippine Airlines Inc. (PAL) should not be a major disappointment since the proposed acquisition had brought mixed reviews from the start, analysts said.

Some analysts gave Cathay Pacific a nod of approval when the carrier on Wednesday confirmed it had abandoned negotiations for a stake in PAL. It would be tough to turn financially troubled PAL into a successful investment, they said.

"The turning around of PAL under any scenario would have been a major feat," said one analyst.

"I was never convinced that it was a good investment opportunity because the labor environment is very tough."

PAL is saddled with $2 billion in debt and reported a net loss of $154 million for the six months ended September 30.

PAL temporarily closed in September after a breakdown in talks between management and a Union. The carrier's employees agreed to management's offer of a 20 percent equity interest in the airline in return for a 10 year freeze on labor bargaining.

Analysts said it had never been certain that Cathay and PAL would tie the knot.

"We have factored nothing in so there is no change to our estimates," said Wendy Wong, aviation analyst at Merrill Lynch.

"If anything it could be slightly positive," she said, adding that Cathay may gain market share if PAL shuts down.

PAL would need radical surgery to be a favorable acquisition for Cathay, analysts said. The Philippine flag carrier would among other things need to slim down its operations and change its route network.

Some analysts said a fully restructured PAL could have provided a boost to Cathay's traffic on transpacific routes and strengthen Hong Kong's position as a regional hub. (Reuters)

Cathay's Philippine Airlines Pullout Positive-Analysts

Today
Friday, December 4, 1998

HONG KONG—Cathay Pacific Airways Ltd.'s decision to walk out on Philippine Airlines Inc. (PAL) should not be a major disappointment since the proposed acquisition had brought mixed reviews from the start, analysts said.

Some analysts gave Cathay Pacific a nod of approval when the carrier confirmed yesterday it had abandoned negotiations for a stake in PAL. It would be tough to turn financially troubled PAL into a successful investment, they said.

"The turning around of PAL under any scenario would have been a major feat," said one analyst.

"I was never convinced that was a good investment opportunity because the labor environment is very tough."

PAL is saddled with $2 billion in debt and reported a net loss of $154 million for the six months that ended September 30.

PAL temporarily closed in September after a breakdown in talks between management and a union. The carrier's employees agreed to management's offer of a 20-percent equity interest in the airline in return for a 10-year freeze on labor bargaining.

Analysts said it had never been certain that Cathay and PAL would tie the knot.

"We have factored nothing in so there is no change to our estimates," said Wendy Wong aviation analyst at Merrill Lynch.

"If anything it could be slightly positive: she said, adding that Cathay may gain market share if PAL shuts down.

PAL would need radical surgery, to be a favorable acquisition for Cathay, analysts said. The Philippine flag carrier would among other things need to slim down its operations and change its route network.

Some analysis said a fully restructured PAL could have provided a boost to Cathay's traffic on trans-Pacific routes and strengthen Hong Kong's position as a regional hub.

A radical restructuring of PAL would, however require full man management control, they said.

Cathay said negotiations had broken down because of differences on issues such as management control and valuation.

"As negotiations continued we did not feel that we would be able to effectively exercise control," said Cathay's spokeswornan Quince Chong.

Cathay chief executive David Turnbull said last month that Cathay made a provisional offer for PAL of P3 billion to P4 billion and the offer would include a group or foreign investors.

PAL said on Wednesday a local group had committed to infuse $90 million of the $150 million needed for its rehabilitation. PAL said it had resumed talks with a potential foreign investor that it declined to identify.

Analysts said it was too early to rule out a tie-up between Cathay and PAL.

Philippine President Joseph Estrada said talks for a tie-tip between Northwest Airlines Corp. and PAL had fizzled out but he was confident the government could convince Cathay to remain at the negotiating table. Reuters

Tan Uusisain ni Erap sa PAL

Abante

Thursday, December 3, 1998

Rey Marfil

Tan uusisain ni Erap sa PAL

Muling ipatatawag ng Malacañang si business tycoon Lucio Tan kaugnay sa naghihingalong operasyon ng Philippine Airlines (PAL) matapos ibasura ang pakikipag-alyansa sa Cathay Pacific Airways.

Ayon kay Pangulong Joseph Estrada, kakausapin niya si Tan para alamin ang kabuuang detalye sa kalagayan ng PAL at problemang nakapaloob sa dalawang dayuhang airlines na gustong makisosyo sa PAL.

Hanggang sa kasalukuyan, hindi nakakausap ni Estrada and pamunuan ng Cathay Pacific Airlines, maging ang Northwest Airlines, isa pang dayuhang airline na pinaboran ni Tan na maging kasosyo sa operasyon.

Sinabi ng Pangulo na bagama’t seryoso ang pamunuan ng Cathay Pacific na makipag-alyansa sa operasyon ng PAL, hindi aniya makatarungan ang gagawing pagtanggal sa humigit-kumulang sa 30 kawani ng paliparan, kabilang ang 200-kataong piloto.

Pinabulaanan ng Chief Executive ang balitang makikipag-usap sa ibang local airlines ang Cathay Pacific bunga ng pagkabigong makuha ang PAL.

Aniya, malabong mangyari ito dahil lubhang napakaliit ng operasyon kumpara sa PAL na umaabot kahit saang sulok ng mundo.

Naipangako ng Pangulo sa mga kawani ng PAL bago bumalik sa kanilang trabaho na walang sinumang tatanggalin sa muling pagbubukas ng operasyon.

Cathay and Northwest Both Quit PAL Talks

International Herald Tribune

Thursday, December 3, 1998

Asia/Pacific

MANILA —Cathay Pacific Airways Ltd. and Northwest Airlines Inc. have broken off talks to buy a stake in Philippine Airlines Inc., the debt-strapped carrier said Wednesday, leaving it in search of another partner to save it from collapse.

Cathay, the Hong Kong-based carrier, said it had withdrawn from negotiations to buy a controlling stake because of fundamental disagreements over management control, job cuts and other issues.

The chief financial officer of the Philippine flag carrier, Jaime Bautista, also said talks with another potential investor, Northwest Airlines Inc., "fizzled out" after Cathay reached a preliminary agreement Nov. 10 to buy a 40 percent stake and take management control of the airline.

But Philippine Airlines said late Wednesday that it was resuming talks with an unidentified foreign investor. The airline also said that an unidentified local group was offering to infuse $90 million of the $150 million the airline says it needs to reorganize and make itself viable. 

Some analysts said Northwest or Cathay might resume negotiations, seeking more favorable terms.

Still, an analyst said the carrier, which is the oldest in Asia and which stopped flying briefly in September, could well be forced to shut down for good.

"It doesn't surprise me at the end of the day," said Ian Wild of SG Securities in Hong Kong, “that people should look closely at Philippine Airlines and decide that the existing business is irretrievable.”

"The inevitable may end up happening," he said. "The Philippine Airlines company may well disappear."

Analysts and officials said the sticking point in the talks with Cathay was the Hong Kong airline's intention to dismiss a large number of PAL's 8,000 workers. 

Cathay said that there were also differences over the valuation of the airline and over management control.

In September, during the brief shutdown of Philippine Airlines, the carrier's biggest labor union agreed to accept a management offer of 20 percent equity in exchange for a 10-year freeze on strikes and labor bargaining.

That agreement allowed the airline to resume flying. Cathay later provisionally agreed to invest up to $100 million in the airline in return for management control and up to 40 percent of equity.

(Reuters, Bloomberg)