The Daily Tribune <<< Without Fear or Favor >>>

»HEADLINES

»NATION

PAL spins off 3 units in major restructuring

04/20/2010

Flag-carrier Philippine Airlines (PAL) yesterday said it is spinning off three non-core units as a means to cushion the impact of a severe global downturn and the downgrade of the local aviation sector by both the United States and the European Union.

PAL said in a statement it is streamlining its operations and it will implement a restructuring program involving the spin offs “effective at the close of business hours on May 31.”

The affected units are PAL’s inflight catering services; airport services, including ground handling, cargo terminal, cargo handling and ramp handling; and call center reservations.

The PAL statement said the airline’s financial situation continued to deteriorate, with the company sustaining over P15 billion in losses during the last two fiscal years.

“PAL did its best to adjust to the harsh operating environment by restructuring its operations. It implemented a series of cost-cutting initiatives, including a manpower rationalization program in September 2009 that affected more than 400 executives and administrative employees,” according to the statement.

PAL said the spin-offs are being pursued in accordance with labor laws and the collective bargaining agreement between PAL and the Philippine Airlines Employees Association (PALEA).

There will be no disruption to its operations during the implementation of the restructuring measures, according to PAL.

It added 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,” it said.

PAL said it was constrained to take this painful decision as a consequence of several factors beyond its control over recent years, including 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, which account for nearly half of PAL’s operating expenses; 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 US; and the subsequent blacklisting of Philippine carriers by the European Union, ruining the reputation of even those airlines with outstanding safety records, like PAL.

Management also approached several potential investors, and even the Philippine government, for assistance, but none was forthcoming, it said.

“To stave off failure and protect company assets, PAL had to act quickly. The spin-off of the three non-core units is the final resort and comes after a long consultation process during which PAL and PALea exhausted all efforts to keep the company intact,” it said.

Painful as the restructuring program is, the alternative — bankruptcy — is even more unpalatable and injurious to all concerned. PAL asks all its stakeholders — unions, partners in the travel trade, the government and, especially, the flying public — to support the flag carrier as it reorganizes into a leaner, more efficient company, it added.

| More