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[My forthcoming column in Catalyst].

The predicament of Philippine Air Lines, the nation’s flag carrier essentially parallels the problem of the Philippine National Bank, the erstwhile government’s own bank (which is in the process of a merger with Tan’s own Allied Bank). In both cases, the cause of the problem was named Lucio Tan.

The essence of the Tan strategy was to buy into the government asset at a minimum share percentage to establish a bridgehead, cajole the government (or as some put it, put forward an offer some key public officials cannot resist) into deciding for the privatization of the asset. When the asset is sold to the Tan group, the most profitable components of the asset are stripped away or transferred to a similar Tan-controlled company. Then, the now-unprofitable government asset is left withering on the vine and eventually dies.

Or, if it can still be cajoled further, the government infuses more money into the asset and the asset redirected to new markets (with the big advantage of having the government on its side). Eventually, the asset is still merged into a Tan-controlled company and is left to die.

PAL has always been a problem for the TAN group because it has been milked before by the past managements and it miscalculated the effects of the Asian crisis of 1997 and the rising oil prices. It has also to contend with various new competitors, notably the Cebu-Pacific Air. Its own Air Philippines languishes.

Tan has an additional problem with PAL. As a national carrier, it has certain advantages in the international routes, such as preferential treatment for national carriers, first choice in newly-opened routes, and as official government carrier. However, these advantages cannot be carried over to Air Philippines in a merger, and if Tan continues to operate PAL, it would only compete against Air Philippines and cause losses for both. Additionally, it has to contend with stricter requirements for air travel as a national carrier, suffer stricter government supervision (it is still partly owned by government), and cannot compete favorably against the new king of the sky—the budget airlines such as Cebu-Pacific Air.

Tan’s solution is to squeeze PAL more within these limits while attempting to convince government to assist it in its merger plan (straightforward or de facto) and to transfer the national carrier status to Air Philippines. This is the context of the move to emasculate PAL’s independent capability for various services such as catering, maintenance, and other ground operations by outsourcing these to other TAN companies (which also service Air Philippines). At the end of the day, the two TAN airline companies will have been indistinguishable from each other.

In the meantime, the 2,600 PAL ground-based workers are forced into early retirement or re-hired into TAN’s service companies at reduced benefits. The fate of PAL’s pilots and air stewards and stewardesses is not far behind.

PAL should not have been outrightly privatized and should have remained under government control, not only for economic reasons but also for political and security reasons. Tan himself is heavily investing in China and has partnered with prominent Chinese businessmen identified with the Chinese government. Just like in the ZTE-NBN case –in which security concerns have been raised—the PAL case also has a security angle, especially in the light of tensions in relations with China.

The PAL case demands a longer-term solution from government. So far, the Aquino administration has sided with Lucio Tan. What magic does Tan have to inveigle Philippine presidents, all the way from Marcos, into agreeing with his schemes?

Remember, in PAL’s case, greed does not fly planes.

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