Philippine Airlines' future hangs in the balance as it prepares a plan to avoid bankruptcy. PAL's interim receivership committee is being supervised by the Philippine Securities and Exchange Commission as it works towards the SEC's 21 September deadline.
PAL is struggling to survive an ill-fated fleet expansion and Asia's currency crisis, which hit the Philippine peso especially hard. PAL lost a record US$205 million last year and efforts to downsize sparked a devastating pilots' strike in June followed by a ground staff strike in July. The airline was forced to petition for rehabilitation, seeking protection from creditors and placing itself under SEC supervision.
Now the SEC wants PAL's plan for addressing five issues that are key to its survival. Fleet reduction heads the list. Before PAL started cutting back, the finance of its 54 aircraft was costing $29 million a month. During the pilots' strike PAL planned to slash its fleet to a skeletal 14, but its target now is 21.
'We are in on-going negotiations with Airbus, Boeing, and the lessors,' says Avalino Zapanta, PAL senior vice-president. Selling aircraft has proved difficult and PAL has had more success deferring or cancelling new deliveries.
PAL's route network, another key issue, is obviously linked to fleet size. PAL has designed route plans known as Plan 14, Plan 21 and even a Plan 25, based on the number of aircraft. 'Now we are working on Plan 21,' says Zapanta, 'but there's a likelihood of a Plan 25.' The latter is still hypothetical, he stresses, but 'if we graduate to Plan 25 you might see us flying back to the Middle East, Australia, and Vancouver.'
Work force reductions are another key element which is tied to the issue of spinoffs. After two strikes in two months, Zapanta notes, 'the unions have now accepted the basic principle that we have to downsize and retrench.'
Recent months have been traumatic for PAL employees. Strikes and downsizing produced 5,000 layoffs. Thanks to intervention by newly elected Philippines President Joseph Estrada, management and labour have now acknowledged some of each other's concerns. PAL has negotiated with unions over the size of layoffs, rehired some pilots and offered severance pay, retraining, and reemployment options.
Multi-party talks are underway over PAL's operating divisions. The units on the block include maintenance, ground handling, catering, IT, cargo and even the airline's training centre. All efforts point towards the biggest hurdle - PAL's $2.1 billion debt. CFO Jamie Bautista says $110 million of that is due within a year, another $590 million in two years, and the $1.4 billion balance in 12-15 years. If creditors agree to restructure loans, Lucio Tan, who owns 70 per cent of PAL, could agree to contribute more capital.
Foreign suitors have also reemerged. 'Northwest is back,' says Zapanta. 'The Swires of Hong Kong are here too. And Lufthansa is not just interested in maintenance; they are interested in the whole company.' Taiwan's Evergreen group, parent of EVA Airways, has also entered the race. Evergreen wants to launch its own domestic Philippine airline, but some observers think Manila 'is telling Evergreen to work with Philippine Airlines instead.'
Sensing this is the right moment to invest, foreign interest is high. According to Zapanta, 'Negotiations are underway right now on taking equity or buying PAL.'
Source: Airline Business
