Message-ID: <>
Date: Mon, 14 Jun 1999 13:20:06 +0800
Sender: Southeast Asia Discussion List <SEASIA-L@LIST.MSU.EDU>
From: Steve Graw <smg7@CORNELL.EDU>
Subject: PH:FWD: PALwatch—commentary on Phil airlines controversy


The price of staying aloft

By Sylvia L. Mayuga, Philippine Daily Inquirer, OpEd page, 14 Jun3 1999

WHAT price keeping a flag carrier aloft? The Philippine Airlines labor force of July '99, for one, is a pale shadow of its former self. Last year's strike slogans are only a bitter memory in a disbanded pilots' union, with only 270 of the original 625 Alpap members still hanging on to their jobs. Of 325 voluntary retirees, 80 are now flying for Singapore, Sri Lanka, Macau and Argentina. More expect to join Saudia come August. Others are casting glances at Cathay Pacific as its striking pilots, paid four times more, continue to press their demands.

Meanwhile the leadership of the employees union Palea has completed the 180-degree turn which began when PAL honcho Lucio Tan demanded a 10-year suspension of their CBA to reopen the airline last October. Palea president Alex Barrientos has been this year's chief endorser of surrendering labor rights, this time to new investors, in exchange for keeping their jobs.

Stock certificates with 60,000 PAL shares were the object of a word war close to the deadline. Accepting them sealed an employee's commitment to the CBA suspension and a promise not to sell the shares except to fellow-employees or to Tan himself for 10 years. Tan called them gifts because shares now valued at P1 were worth P5 when he bought them in 1993 but there seemed to be stronger reason for defiant cabin crew union members to call them death certificates.

Fear and need won the day as foreclosure deadline loomed, with the Department of Labor and Employment's declaration of the illegality of last year's Alpap strike on a technicality and President Erap's new plea for union cooperation at an employee dinner tightening the noose. By May 31, management crowed that more than 50 percent of PAL's workforce had signed their certificates. With the Securities and Exchange Commission's announcement that the deadline for new capital infusion had been met, the figure had risen to more than 60 percent.

By then, Tan had also won board approval and a 70-percent stockholder vote for increasing the number of PAL shares from 4 to 20 billion shares revalued at P1 per share despite SGV's recent valuation of one centavo for the airline's rehabilitation plan. Improvisation filled the air as the overvaluation was presented to stockholders as a second demand from new investors.

Why these new investors would raise the market value of an ailing company's stocks became as mysterious as their identities. So mysterious were they that PAL officials initially passed on erroneous facts about them to the press. The next day brought a denial from Hong Kong's Bank of East Asia and a correction of the second investor's name from Top World to Top Wealth Enterprises Ltd. By the June 4 deadline, Top Wealth, unlisted in the Hong Kong Stock Exchange, became one of the six (not two, as originally alleged) Hong Kong investors with $80 million for PAL. Two Tan-related Philippine holding companies, Richmark and Maxwell, came up with the $20-million shortfall.

Labor had been routed, the capital deadline met and the tale of Tan's unsuccessful lobbying for a $30 million infusion from government financial institutions revealed an instructive inner circle debate. Philippine National Bank president Palma-Gil refused to put in more capital because the rehabilitation plan by the SEC-appointed receivership committee dominated by Tan's team, favored the repayment of foreign lenders to the detriment of domestic lenders. Finance Secretary Edgardo Espiritu said the GFIs could contribute $15 million at the most but the DBP, RSBS, Land Bank and the GSIS had one by one refused. By deadline's eve, a Land Bank source said they had taken the President's word that government funds would not be used to bail out PAL the way they always had.

SEC Chair Perfecto Yasay's statement that the source of the new $100 million is not our concern is therefore the strangest yet. Having already set back labor history, the nature of PAL's present ownership has become part of counting the price for keeping it afloat.

As economic crisis continues to catch up with the results of PAL's internal corruption that began in the Marcos era and, if a source in the executive suite is to be believed, continues to this day, PAL has been handed over piece by piece to the tender mercies of Tan and friends.

Prior to June 4, Tan's personal stake in PAL was 70 percent and the GFIs' 17.86 percent. Stock revaluation, increased shares and the new $200 million have reshuffled the percentages--53.69 percent now belonging to Tan; 33.15 percent to his new investors; 4 percent to the GFIs and 2.71 percent to private investors, the Ayalas and possibly a privatized PNB included. Tan and friends' effective control of PAL now ranges from an official 67 percent to an actual 88.84 percent.

Dominated by private capital of mysterious provenance, the rehabilitation plan that has committed government to favored treatment of PAL as the national flag carrier is as worrisome to foreign creditors, led by Boeing and the US Eximbank, as it is onerous to labor, the GFIs and Filipino taxpayers.

What happens, for instance, to the 573,623,500 PAL shares bought by GFIs with taxpayers' money? Didn't Tan promise to buy back these shares at P5 per share if his turnaround scheme for PAL in 1995-1996 didn't work? Their value at P5 per is P2.86 billion or $72 million. Not to sell them back to Tan would be a violation of the Anti-Graft Law. But given the size of PAL's total external and internal debt of $2.24 billion, exercising this option could exact an untold price on an economy barely inching along.

Never has peering into the national dilemma, getting our priorities and figures straight and keeping our moral sense keen been more urgent.