PAL: From SEC rehabilation to NY court restructuring

“Asia’s oldest carrier has been brought to its knees. The financial crisis in the region, a pilots’ strike, the threat of a further strike from 8,000 ground crew and an over-ambitious $4 billion re-fleeting program, have each dealt a painful blow to Philippine Airlines.”

This was taken from a story dated June 30, 1998, published in the Financial Times, a copy of which I managed to keep in a box of article clippings “I might need in the future.”

I didn’t really think I would need it one day, 22 years later. Maybe I kept it because it was about a giant institution that was crumbling at the time.

“Last week, the Securities and Exchange Commission in Manila began hearings on PAL’s petition for the suspension of debt payments and a rehabilitation plan. The airline has debts of P85.1 billion or $2.05 billion, most of which is owed to foreign institutions and aircraft lessors, and assets worth P90.6 billion,” the 1998 article also said.

Fast forward to 2020, or 22 years later, PAL has found itself in a similar situation, but a look at its sometimes turbulent past shows that the flag-carrier’s troubles were a long time coming.

Lots of moving parts

An aircraft is the perfect metaphor to PAL and the industry that it is in – lots of moving parts, dependent on skilled crew to soar to the skies but, unfortunately, also affected by outside forces such as headwinds and air pockets, to be able to land safely despite having the best pilots in the flight deck.

This, in essence, is the saga of PAL, filled with twists and turns and it started long before COVID-19 struck.

From its birth before World War II, its accumulation of debts during the Marcos years, the 1997 Asian financial crisis, to labor disputes, and many more, PAL has had to face seemingly insurmountable challenges.

One wonders why taipan Lucio Tan even decided to place his bet on the company.

Tan came in 1995 when the government decided to reprivatize PAL. El Kapitan decided to step in, but little did he know that two years after, the 1997 Asian financial crisis would erupt.

Perhaps, he really wanted to have an airline added to his growing empire of tobacco and banks at the time.

With the impact of the regional financial meltdown weighing heavily on PAL, it was not easy for the airline to take off.

PAL, in the years that followed the crisis, had long-standing labor problems, an oversized workforce of 13,000 people, excess assets and growing competition from new airlines.

The Financial Times story hinted on the mistakes of PAL at the time:

“Victor Limlingan, a professor at Manila’s Asian Institute of Management and a former member of the Civil Aeronautics Board, believes Lucio Tan, majority owner and chairman of PAL, made the mistake of disregarding management’s advice to downsize when he took over in 1995.

“ ‘Mr. Tan instead embarked on the aggressive modernization – and then became hostage to PAL employees in a newly liberalised aviation sector where the government was less inclined to mediate between management and labor, says Mr. Limlingan.’ “

It said that if labor disputes have crippled PAL, it is only because the costs of the modernization program had already dangerously over-extended the airline in an environment where the Asian crisis slashed passenger loads.

PAL managed to surpass that challenging time although not without costs, employees included. PAL had dismissed 5,000 of its 13,000 workforce in “the country’s largest mass sacking,” said the Financial Times.

And yet, we would see the same imbalance in the succeeding years – from accumulating expensive assets to costly structural problems to external headwinds, which all put PAL in a precarious situation when COVID-19 struck.

PAL purchased at least 54 additional aircraft when San Miguel bought into the company. This, insiders said, would take a toll on PAL years later although it was at the time when the airline made money after a long while.

Business as usual

But it’s still business as usual for PAL even as it is preparing to file for Chapter 11 in New York. Even during restructuring, PAL will continue to operate.

“We have restored flights to 32 international and 25 domestic destinations. Our strength is our full-service brand: highest standards of safety and service rolled in one,” says PAL wingwoman Cielo Villaluna.

Lessons

Hindsight is always 2020 and as this year forces PAL to look back on the impact of past decisions, drastic management changes, family-related squabbles and costly wastage, it should heed the lessons well if it is to make it beyond Chapter 11.

This is after all already PAL’s second fly by on rehabilitation and restructuring land.

But it’s not an impossible or hopeless situation to overcome – with enough luck, effective changes, and a skilled crew at the helm.

And while it’s a dark time for the airline now, its core team shouldn’t forget that even in the darkest nights, there is an incandescent moon that lights one’s path, all the way to the morning.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com