PAL looks to state-owned banks for loan

FRESH from a favorable government ruling on its planned retrenchment, Philippine Airlines (PAL) on Wednesday said it would tap state-owned banks to finance the multibillion-peso severance package of close to 2,600 terminated rank-and-file workers. In a briefing, Jaime Bautista, PAL president and chief operating officer, told reporters that the company’s planned spin-off of in-flight catering, airport services and call center reservations will cost an estimated P2.5 billion.

Bautista said this is higher than the original P2 billion estimate that the Department of Labor and Employment (DOLE) had assumed in its decision clearing the way for the flag carrier’s retrenchment.

The executive said PAL plans to finance the severance package of its terminated employees by securing loans from the Development Bank of the Philippines or Land Bank of the Philippines.

“If this is not possible, we will seek financing from other PAL creditors,” he said.

Given its recent losses and current financial position, PAL would be hard put to raise P2.5-billion, Bautista said, adding that this is a bitter pill the company has to swallow.

“PAL believes DOLE’s decision is ‘just, reasonable and humane.’ Since it has the force and effect of a law, we must respect the ruling,” he said.

Earlier, the DOLE assumed jurisdiction of the labor row at the airline, effectively preventing the workers from embarking on a strike that would have crippled PAL’s operations.

Barring a court-issued temporary restraining order, the airline management plans to implement the appropriate provisions of DOLE’s order after the prescriptive period for legal remedies lapses, the executive said.

“By not contesting the DOLE Secretary’s decision, especially the grant of additional benefits, PAL hopes to finally implement a long delayed corporate restructuring that aims to stabilize the airline’s finances and eventually lead to an expansion and improvement of services,” Bautista said.

“The decision to spin off was difficult but necessary. At the end of the day, PAL wants to be remembered not for the 2,600 jobs it lost, but the more than 4,000 it saved,” he said.

PAL expects to save about P500 million to P600 million a year from its planned spin-off.

“It’s a solution to a problem that would keep the flag carrier flying,” Bautista said.

“The spin-off will lead to the early retirement of affected rank-and-file workers. They will all receive their respective separation pay and benefits that are much more than what the Labor Code provides,” he said

A unit of Philippine Long Distance Telephone Co., ePLDT Ventus, would take over the call center reservations service of PAL, while Sky Kitchen and Sky
Logistics would assume the catering and airport service functions, respectively. Cebu-based businessman Manny Osmena owns Sky Kitchen and Sky Logistics.

In 2000, PAL sold its maintenance and engineering department to Lufthansa Technik Philippines (LTP), which absorbed the flag carrier’s 1,300 mechanics.

PAL insists the spin-off of its three non-core units would allow it to survive a compendium of debilitating issues, including $312-million in losses in the last two years due to the global recession, volatile fuel prices, the US Federal Aviation Administration’s downgrade of the Philippines’ aviation safety rating to Category 2, cut-throat competition from budget airlines, and the previous government’s liberal grant of air traffic rights to foreign carriers.

In the first quarter ending June, the flag carrier recorded a profit of $31.6 million, or 11 percent lower than a year ago.

Revenues went up by 30 percent to $426.7 million over last year’s $327.7 million.

It sought rehabilitation in 1998 after racking up $2.12 billion in debts.

PAL brought down its liabilities to about $1 billion since entering corporate receivership and emerged from rehabilitation after recording a profit in 2007. –DARWIN G. AMOJELAR SENIOR REPORTER, Manila Times