ANDREW DOYLE / MANILA
It's once more back from the brink for Philippine Airlines
Along with other hard-hit former Asian tiger economies, the Philippines is struggling to haul itself out of the economic slump of the late 1990s, but there are encouraging signs the country's aviation industry is beginning to bounce back. Embattled flag carrier PAL is engineering yet another return from the brink of disaster after its remarkable financial turnaround was dramatically halted by the events of 11 September. New airport, maintenance and training infrastructure projects are attracting overseas investors keen to tap a pool of inexpensive but well-educated labour. Lufthansa Technik is shifting its A330/A340 heavy maintenance line to Manila after taking over PAL's engineering division and the capital's main airport is expanding with a third terminal due to open later this year. Meanwhile, plans are afoot to transform a former US airbase into a major maintenance and training centre
Philippine Airlines (PAL) has been handed plenty of opportunities to practise its survival skills during the past several years - which perhaps explains why it has once again managed to pull itself back from the brink.
The 11 September attacks dealt a body blow to the carrier's recovery plans, causing traffic on lucrative transpacific flights and routes to Japan to disappear almost overnight. But despite the gloom, PAL president and chief operating officer Avelino Zapanta has been able to draw some comfort from the fact that signs of a revival in traffic are clear, and that the upturn has perhaps arrived somewhat more quickly than expected.
Zapanta is now predicting PAL will achieve a small operating profit for the financial year to the end of March as economy-class passengers begin to return, though premium class customers remain hard to come by. There are "very concrete signs of improvement", he says.
The Philippine flag carrier is nevertheless still reeling from losses of 2.1 billion pesos ($41 million) incurred during the three months following the 11 September terrorist attacks and the associated "evaporation" of business class traffic, says Zapanta.
But his optimism is supported by the airline's revised forecast of a net loss of 1.7-1.8 billion pesos for this financial year, down from its October prediction of a 2.7 billion pesos deficit.
PAL, which remains in receivership following its 1998 bankruptcy, has suffered less during the downturn than some of its Asian rivals, thanks to the legions of Filipino overseas workers and their families that remain loyal to the airline. These travellers account for around 80% of PAL's economy travellers.
However, despite managing to stay profitable at the operating level, the carrier is still saddled with the burden of servicing its substantial debts. It also continues to suffer from the loss of many of the "affluent tourists", particularly from Japan, who used to fill the airline's business class cabins, says Zapanta.
Many of PAL's frequencies to Tokyo, Fukuoka and Osaka had to be dropped after Japan advised its citizens not to travel to the Philippines on safety grounds. "We will probably bring [these routes] back when the travel advisory gets lifted," Zapanta adds.
The events of 11 September dealt a blow to PAL majority owner and chairman and chief executive Lucio Tan's ambitions to launch an initial public offering (IPO), as the company had been on the verge of delivering the three consecutive years of solid profitability required by Philippine stock exchange rules. As a result the sell-off cannot take place for at least another three years.
"We want to get out of receivership as soon as possible," says Zapanta. "You do not want to be hindered by looking over your shoulder for creditors." He admits the likelihood of the IPO going ahead in the foreseeable future is "remote".
PAL hopes shortly to conclude a lease deal for a fifth Boeing 747-400 to enter service in the fourth quarter. This will be used to offset capacity lost as the airline's four Airbus A340-300s and eight A330-300s are sequentially withdrawn from service for heavy maintenance checks starting later this year. "We will have to have [another 747-400], but it could be as late as October," says Zapanta.
PAL has asked the Philippine government to delay "open skies" with the USA - originally due to be implemented in late 2003 - by a decade because it believes the airline will not be able to fend off any resulting competitive onslaught from US carriers.
Nevertheless PAL does plan to add flights to US Midwest and East Coast cities in the longer term. "We have not really begun to tap Filipino Americans in the Midwest and East Coast," says Zapanta. "But we have not decided to compete head on with the US carriers."
Source: Flight International
