The Business Daily
Friday, December 4, 1998
Rodel A. Alzona, Arvin P. Panes, Marie A. Surbano
Government announced yesterday that Philippine Airlines (PAL) has turned to at least three more foreign airlines in its search for money after negotiations with Cathay Pacific Airways Ltd. and Northwest Airlines bogged down.
“They (PAL management) are talking with other investors who need not be strategic partners,” Finance Secretary Edgardo B. Espiritu told newsmen in an interview at the Senate.
An alliance with non-strategic investors is likely to mean that Chinese-Filipino tycoon Lucio Tan would retain control of the ailing carrier.
Tan will submit a rehabilitation plan to the Securities and Exchange Commission (SEC) next Monday, well-placed sources disclosed yesterday.
The plan is said to be an addition to an earlier restructuring program formulated by a government inter-agency task force.
“Lucio Tan will do it. He will raise the $150 million (P6 billion) needed to revive PAL,” a source said.
PAL earlier said Tan would infuse part of the $90 million offered by a local group to the airline.
A local group, PAL officials said, had committed to inject $90 million of the $150 million it needed for its rehabilitation program after talks with Cathay Pacific and Northwest failed.
“The $90 million that is initially required under the rehabilitation plan will come in as soon as the plan is approved by the SEC,” PAL Executive Vice President for Administration and Services Manolo Aquino told media.
When asked whether Tan was part of the local group, Aquino said: “Yes, of course.”
According to sources, Tan will source the funds from various local business entities.
It was not affirmed whether or not the firms are owned by Tan himself.
Tan reportedly has accepted as being final government’s refusal to give financial assistance to his firm. He reportedly had asked government for P3 billion to P6 billion in assistance to resuscitate PAL.
Since taking over the chairmanship of the nation’s flag carrier in 1993, Tan reportedly has lost P20 billion in the course of his bid to expand the operations of PAL.
We Will Survive, Says PAL
PAL officials expressed confidence that the carrier could service without foreign help if need be.
“The equity is there. What is critical is the support of the riding public,” Aquino said.
The revelation was made by Aquino during a hastily arranged press conference at PAL’s head office in Makati.
Although PAL will be submitting a “stand-alone” plan, it would make provisions for the entry of a foreign partner providing 40% of the new capital.
“We are cognizant of the fact that we would need help in terms of operations and distribution and how this can be provided by an airline partner would figure prominently in our decision,” Aquino said.
Wary Creditors
With both Cathay Pacific and Northwest backing out if the deal, Aquino admitted that creditors have become wary about the prospects of the company being rehabilitated.
“Creditors are looking at what we will submit. We are in close consultation with them with regards to the rehabilitation plan,” Aquino said, adding that Tan wants creditors to be serviced properly.
He added: “We have indicated to them that we have a stand-alone plan which did not materially differ in viability and implementation from the rehab plan that included either Cathay or Northwest.”
PAL currently is over P94 billion in debt to creditors that include the likes of Chase Manhattan Bank, Credit Lyonnais, and Banque Nationale de Paris.
Meanwhile, a source from the SEC said that upon receiving PAL’s rehabilitation plan, it will take the commission until February before it could either approve or order the liquidation of PAL.
PAL to Retain Management Control
Although a foreign partner is still considered a priority issue, PAL is not about to give up management control. “We would stick to giving them the maximum 40%,” Aquino said.
Aquino said should a new foreign partner bring in more than the expected capital infusion, Tan’s stake will be diluted. Currently Tan owns 67% of PAL.
It was the insistence of Cathay Pacific to have management control over the nation’s flag carrier that, along with disagreement over the firm’s valuation, led to the collapse in the negotiations.
“There was a gap between the valuation expected by PAL, existing shareholders, and our own estimates,” Cathay Pacific spokeswoman Quince Chong told media.
Aquino added that if matters worked out in favor of PAL, the firm would take a more conservative approach to future expansion programs.
“The financial crisis in the region has taught as a very bitter lesson,” Aquino said.
Burned GFIs
PAL is not the only who has learn a bitter lesson. Government financial institutions (GFIs) with a remaining stake in PAL are opposed to infusing money into the carrier given their bad investment experience.
“All of the GFIs’ money invested in PAL burned to ashes,” a finance official said.
“We are not even thinking about it (capital infusion)…reason being that government already turned over (PAL) to private hands. We have different priorities, such as SMEs (small to medium-sized enterprises),” Remedios Macalincag, President and chief executive officer of the Development Bank of the Philippines (DBP), said.
Macalincag said Malacañang had not issued orders requiring GFIs to extend financial aid to PAL.
DBP’s exposure to the airline amounts to P750 million --- half of which is secured through loan-loss provisions imposed by the central bank, she said.
Philippine National Bank (PNB), another GFI with money in PAL (P752 million), earlier announced it would sell its stake in PAL should a buyer surface.
The Marathon Man
Not one to give up easily, President Joseph Estrada said on Thursday Cathay Pacific was willing to go back to the negotiating table with ailing PAL.
“I’m not giving up because the management of Cathay Pacific wrote a letter and they said they’re willing to re-negotiate again,” Estrada told reporters.
The President said the Hong Kong-based carrier had sent him a letter conveying willingness to resume negotiations.
“Cathay Pacific management wrote me a letter indicating they are still available for negotiations. So let us not lose hope,” the Chief Executive said.
Executive Secretary Ronaldo Zamora, for his part, said he was not aware of the existence of such a letter.
Cathay Pacific, meanwhile, denied any willingness to resume negotiations. The firm reiterated it was open to future cooperation in other areas of mutual benefit.
Cathay Pacific spokeswoman Katherine Wang said in Hong Kong: “We have not taken the decision to withdraw from the negotiations lightly.”
“The decision was made after serious consideration…We wouldn’t revisit it unless there is a fundamental change in the situation.”
Asked whether the differences could be ironed out with Cathay Pacific, Estrada said: “I think I can talk it over with them.”
“Let us not lose hope. So I’m just waiting for the return of Mr. Tan and talk to him and maybe there is still a chance for them to come to an agreement.”
Estrada said negotiations might take months again.
“I hope PAL will have enough money to continue their flights and negotiations,” he said.
But he ruled out the possibility of the government bailing out PAL.
“No, the government has no money, the government will not guarantee any private firm,” Estrada said.
Espiritu told reporters: “PAL will survive and will continue. Definitely rehabilitation is still there. It’s only a question of who will own, certainly not government.” (With reports from Reuters)
