PAL to spin off units

TO STAVE off bankruptcy and protect its assets, Philippine Airlines (PAL) is streamlining its operations, spinning off three non-core units, effective at the close of business hours on May 31, as it failed to find investors to help it navigate the harsh aviation environment.

In a statement sent to the Philippine Stock Exchange by publicly listed PAL Holdings Inc., the flag carrier said the units—inflight catering services; airport services, including ground handling, cargo terminal/cargo handling and ramp handling; and call center reservations—would be spun off as part of the next phase of its restructuring program undertaken in the face of a severe global downturn in the aviation industry.

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Flights continue

PAL assured its customers that there would be “no disruption to its operations.”

“All domestic and international flights are being operated according to published departure and arrival times. All PAL offices and facilities in the Philippines and overseas
remain open to serve customers. And all accredited travel agents continue to sell and honor PAL tickets,” the statement said.

Asked whether there were plans in the near term to cut routes, PAL officer-in-charge for corporate communications Jonathan Gesmundo told Sun.Star Cebu: “I don’t think so. We will be maintaining our normal operations. Kung ano yung existing flights namin, patuloy pa rin yun.” (We will continue to operate our existing flights.)

“We’ll have to see the developments in the coming weeks to see if our operations will be affected by the actions of the union,” he said.

In its statement, PAL said the spin-off was being pursued “in accordance with labor laws and the collective bargaining agreement between PAL and the Philippine Airlines Employees Association.”

But Gesmundo said there might still be a “reaction” from the union.

PAL said the painful decision had to be made because “the alternative—bankruptcy—is even more unpalatable and injurious to all concerned.”

The airline said it had incurred losses of more than $350 million (P15 billion) in the last two fiscal years despite having implemented a series of cost-cutting initiatives, including a manpower rationalization program in September 2009 that affected more than 400 executives and administrative employees, to cope with several factors beyond its control.

These factors were the “unabated liberalization of the industry to the detriment of local players like PAL; the worldwide economic recession that led to a crippling slowdown in passenger traffic; record-high oil prices in 2008-2009 and the continuing increase in the price of aviation fuel; the downgrade of the Philippine aviation sector to Category II by the United States, that prevents PAL from using new long-range aircraft or increasing flights to the United States; and the blacklisting of Philippine carriers by the European Union, ruining the reputation of even those airlines with outstanding safety records, like PAL.”

No investors

According to the statement, the management sought potential investors, as well as the Philippine government, for help, “but none were forthcoming.”

PAL asked its stakeholders, meaning the unions, partners in the travel trade, the government and consumers, for support as it reorganizes into a leaner and more efficient company.