Tan Said Willing to Infuse Additional Funds Into PAL

Business World

Friday-Saturday, December 4-5, 1998

By PATRISHA JOAN F. DE LEON, MANOLO A. SERAPIO, JR., YASMIN LEE G. ARPON Reporters with LEOTES MARIE T. LUGO AND MARICRIS C. CARLOS Senior Reporters

Hong Kong-based Cathay Pacific Airways Ltd. is not returning to the negotiating table unless certain changes were made in the “current form” of Philippine Airlines, Inc. (PAL).

Still, President Estrada has not given up on a possible PAL-Cathay merger, even if the two parties are no longer keen on pursuing their negotiations.

But if worse comes to worst, Lucio Tan might end up saying – and retaining control of – PAL.

Finance Secretary Edgardo Espiritu yesterday said Mr. Tan, who controls a 70% interest in the airline, is willing to infuse fresh funds should a strategic partner is not found.

Mr. Estrada, in an interview at his North Greenhills residence in San Juan yesterday morning, said Cathay wrote him a letter “expressing an interest to reopen talks.”

But in a telephone interview with BusinessWorld, Cathay regional manager for Taiwan and the Philippines Peter Foster said the Hong Kong-based carrier is “not prepared” to reopen talks with PAL.

“Cathay will not negotiate with PAL in its current form. This is our bottom line and there’s nothing anybody can say or do to change that,” he said, Mr. Foster, however, refused to elaborate on the specific problems in PAL’s “form” that turned off Cathay.

Both sides have admitted that the main cause of the talk’s failure was the issue of management control.

Mr. Foster would neither confirm nor deny the letter to Mr. Estrada. He would only say that Cathay management is willing to meet with Mr. Estrada but only to discuss other forms of participation in Philippine air transport.

“If the (Estrada) government wants us to get involved in Philippine aviation or even in Philippine Airlines, it would have to be in some form or another,” he said.

Mr. Foster declined to discuss specifics, saying the Cathay management would rather meet with Mr. Estrada first before going public with anything.

“The Cathay management wrote me a letter (informing me) that they are still available for another negotiation. So let us not lose hope,” Mr. Estrada said.

He said he will arrange a meeting between Cathay officials and Mr. Tan who, he said, is in still in Guam.

“I’m just waiting for the return of Mr. Tan. I’ll talk to him if there are still a chance for them (PAL and Cathay) to come into an agreement. So, I’m not giving up because the management of Cathay said they are willing to renegotiate,” he added.

DEBT OF GRATITUDE

Mr. Estrada, who feels the government is indebted to Cathay after it agreed under a “wet lease” agreement to service domestic routes left open when PAL shut down operations last Sept. 23, said he will try to convince Mr. Tan to reconsider.

“We owe it to Cathay. When I asked for their help during the strike, they responded. In one way or another, it solved the problem of the businesses that were affected (by the PAL shut-down). So I think I will talk it over with them (Mr. Tan and Cathay),” he added.

The President, however, could not say when he will set a meeting between the two parties. “That I cannot answer you. I think days, weeks, maybe months. But I hope PAL will have enough money to continue their flights, their operations (even without a new partner),” he said.

A PAL board member, speaking on condition of anonymity, did say the flag carrier can stand on its own.

The PAL official said this, in fact, was the finding of the two foreign consultants hired by PAL to assess its financial status and prepare its rehabilitation plan.

The official said Mr. Tan, on his own, could easily raise the needed $150 million to finance PAL’s rehabilitation.

To prove his point, the PAL board member said the flag carrier will submit on Monday, Dec. 7, a stand-alone rehabilitation plan to the Securities and Exchange Commission. The plan, however, will have a provision for a possible entry of a strategic partner just in case.

“(PAL) will submit a rehabilitation plan with or without Cathay… but they will go on the basis that there will be new investors, not necessarily strategic,” Mr. Espiritu told reporters in an ambush interview.

Later in the day, PAL Executive Vice-President for Administration and Services Manolo E. Aquino said the “stand-alone” plan “does not provide for a foreign airline-partner, but if there is one in the future, that will be an enhancement.”

PAL counsel Estelito Mendoza, former Solicitor General, said PAL’s interim rehabilitation receiver is ready to submit the plan. Even without partners, he said it would still be feasible for PAL to get back on its feet. “It will be harder, but not impossible,” he told

CLA Flunks CAB Test

Tonight

Friday, December 4, 1998

Streetlights

By WILLIE S. BAUN

PASS or fail, that's how the Civil Aeronautics Board (CAB) has tersely put it before the CLA Transport Inc.

CIA is grappling with the Philippine Airline over six cargo delivery slots at the Narita Airport in Tokyo. PAL, at the moment, has the upperhand as CAB has amended the slots to the national flag carrier.

Claiming its six-month temporary permit to operate gave it the right over the Narita slots, CLA has accused CAB of partiality. The charge raised CAB's regulatory hackles.

CLA was told to meet all nine CAB requirements by December 13, DOTC Assistant Secretary Jacinto Ortega, concurrently CAB Vice Chairman, at the same time reprimanded CLA for failing to submit any “satisfactory document that meets the air carrier operating certificate.”

Flunking the CAB test so far, CLA has been sent to the comer, so to speak, to contemplate whether to put up or shut up. Self- serving full-page ads, CLA should know by now, aren't going to get it out of there.

Cathay Wants Another Go at PAL

THE JOURNAL

FRIDAY, DECEMBER 4, 1998

CATHAY WANTS ANOTHER GO AT PAL (3) BY BERNADETTE TAMAYO AND ITCHIE CABAYAN

PRESIDENT Estrada revealed yesterday that Cathay Pacific wanted to renegotiate a deal with Philippine Airlines.

In a press conference,the President said Cathay had written him about its intention to reopen discussions with PAL for a 40 percent stake in the cash-strapped national flag carrier.

Mr. Estrada, however, has yet to talk to PAL chairman Lucio Tan about Cathay's plan since Tan is still in Guam.

"The Cathay management wrote me a letter that they are still available for another negotiation. So, Iet us not lose hope,” the President told Palace reporters.

Mr. Estrada held a press conference at his Greenhills residence after Bangko Sentral Gov. Gabriel Singson presented to him the P2,000 Centennial commemorative note.

I'm just awaiting for the return of Mr. Tan and talk to him and maybe there's still a chance to for them to come into an agreement,” the President said.

"So, I am not giving up because the management of Cathay wrote me a letter and they said they are willing to renegotiate anew.-

The President acknowledged the assistance extended to the government by Cathay when it conducted emergency provincial flights following PAL’s decision to close down.

"We owe it to Cathay when asked for their help during the (PAL Employees' Association) strike. I asked the help of Cathay and they responded. So I think I can talk it over with them," he said.

The President reiterated that public funds will not be used to rehabilitate the debt saddled PAL, saying the government, which has no money to spare, would not bail out any private firm.

“The government has no money. The government will not guarantee any private firm." he said.

The Chief Executive expressed confidence that a deal could be sealed between PAL and Cathay noting that it was the latter which helped his administration cope with PAL's temporary closure last Sept. 23.

Cathay entered into a "wet lease" agreement with the Philippine National Bank Holdings Inc. two months ago to allow it to fly the domestic routes abandoned by PAL when it closed shop on Sept. 23 following the collapse of talks between PAL management and its employees.

Under this arrangement, Cathay Pacific used its own complement of pilots and flight attendants in plying the country's major domestic routes.

The government resorted to this temporary measure to prevent any disruption in the domestic airline industry and save businesses heavily dependent on air transport.

The Cathay-PNB holdings agreement was terminated after PAL resumed operations on Oct. 7, following the ratification by its employees of a labor-management accord giving them 20 percent equity and three board seats in the airline in return for the 10-year suspension of their collective bargaining agreement.

Mr. Estrada had convinced PAL employees to approve the accord after assuring them he would protect their security of tenure at the airline as long as he is President.

PAL Readies Stand-Alone Rehab Plan

Manila Bulletin

Friday, December 4, 1998

Philippine Airlines (PAL) is set to submit its new rehabilitation plan before the securities and Exchange Commission (SEC), pursuing a stand-alone tack with all the required $150 million financial requirement to put the flag carrier into a better financial footing.

PAL said yesterday that the stand-alone option, which is one of the two routes drawn up by PAL’s financial advisors, does not include infusion by the national government through the government financial institution (GIFs) with existing exposures in the airline firm.

Meanwhile, President Joseph Estrada said yesterday he was still hopeful Cathay Pacific Airways Ltd. would resume negotiations to acquire part of Philippine Airlines (PAL), whose fate hung in the balance after the Hong Kong carrier pulled out of talks.

“Cathay management wrote me that they are still available for another (round of) negotiations so let us not lose home,” said Estrada, who has taken personal interest in the survival of PAL, Asia’s oldest airline.

“I’m not giving up because the management of Cathay wrote a letter and said they’re willing to renegotiate again,” Estrada said.

On the other hand, PAL said it would pursue its rehabilitation program even without the participation of a strategic partner, as it vowed to maintain operations and serve the riding public in the wake of Cathay Pacific’s retreat from a possible investment in the flag carrier.

“We have stand-alone plan that we will submit to the SEC on December 7. It does not provide for a foreign airline partner but if there is one in the future, that will be an enhancement,” said Manalo E. Aquino, PAL Executive Vice President.

Despite the withdrawal of Cathay Pacific, PAL said a number of reputable and established local groups had indicated interest in acquiring a stake in PAL.

The plan, according to Aquino, includes the retention of 22 aircraft and the restructuring of outstanding obligations.

According to industry sources, PAL is still pursuing plans to have a foreign partner in the future.

PAL’s negotiations with Cathay Pacific Airways Limited turned sour due to disagreements on management control and evaluation.

PAL Weighs Rehab Options

Philippine Daily Inquirer

Friday, December 4, 1998

Finance secretary Eduardo Espiritu yesterday said the management of cash-strapped Philippine Airline had an alternative rehabilitation plan to submit by Dec. 7 despite the collapse of buy-in talks with potential strategic investors Cathay Pacific Airways and Northwest Airlines.

Espiritu told reporters the Lucio Tan-led management was negotiating with other potential investors but would still push through with a rehab plan should these talks bog down.

“They will submit a rehab with or without Cathay,” Espiritu said.

The finance chief  said the group of the tobacco magnate Lucio tan, which controls 70 percent of the beleaguered airline, was negotiating with other prospective investors.

“We cannot disclose them because they are the ones negotiating. But some of them are not airline groups, “he said. He said there were  a lot of other options available.

“But the government’s preference is strategic…somebody who has expertise, “he stressed.

But he said Malacañang would not interfere in PAL’s bailout and that it would be up  to the current management to draw up the alternatives.

If no new strategic partner comes in, Espiritu said the rehab plan would still be pursued but there would be no more transfer of management control. Instead, he said there would be “management-sharing” between Tan and the other new shareholders.

The tan group has estimated that the flag carrier would need P6 billion to enable it to recover its foothold.

It was reported on Thursday that both Cathay and Northwest had already pulled out of buy-in talks with PAL.

Espiritu earlier said the International Finance Corp., the investment arm of the World Bank, was willing to invest in PAL if there would be a strategic partner which would come and efficiently implement its restructuring program.

Should any deal push through, the new foreign partner, along with IFC, will take up 40 percent of PAL while Tan group’s control will be reduced to 30 percent.