Should PAL be renationalized?
As soon as President Noynoy Aquino stepped into the labor row at Philippine Airlines talks of a “worst-case-scenario” government takeover reverberated anew. While Aquino urged both management and employees to work out an agreement that would keep PAL planes in the air (lest tourism suffers a black eye) Justice Secretary Leila De Lima already thinks a takeover is the “absolute option” if talks prove futile. PAL had helped bring Filipino workers to other countries and sparked business and tourism in the countryside. Plus PAL carries the flag – national pride is at stake. PAL must be saved by the government at all costs, or so government thinks.
The renationalization of PAL has happened before. Not just once – as PAL had been tossed between private and public hands – through cycles of losses and profitability. By and large PAL had been privately-owned when doing good, and government-controlled when in trouble.
In the 70’s, former President Ferdinand Marcos found that the one-airline policy made sense. Hence competing Filipinas Orient Airways and Air Manila were dissolved and PAL remained. PAL was one of the country’s mammoth corporations taken over by the government which used public funds to finance its modernization and expansion. PAL was proclaimed “the national flag carrier” – its planes trotting the global skies more out of national pride than profitability.
After 1986, the airline was handed over to the private sector by President Cory Aquino following mounting losses and problems due to mismanagement by the cronies of the preceding administration. The older Aquino saw the government just had too many headaches to deal with. PAL recovered for a while but old management’s past sins outweighed new management’s reforms. The airline still employed “top heavy” and flew to many unprofitable routes using aging planes of various types. This, at a time when other airlines were purchasing one type of plane to make up their fleet, for cost efficiency in maintenance.
It was only a matter of time that PAL would plunge into another round of turbulence – the kind brought about by a staggering economic crisis affecting not just companies but countries. True enough as the 1997 Asian financial crisis hit, the airline folded up for 14 days following severe financial bleeding. The government (again) came to the rescue, infused new money from fresh investors it had lured, and restructured PAL’s debts.
Between then and now, PAL breezed in and out of receivership and underwent an ambitious re-fleeting program while facing tough competition from emerging budget carrier Cebu Pacific, which is now the leading airline in the country in terms of routes, passenger load, and profitability.
For some time now, PAL had been in a silent panic mode because of competition. To fight rivals it dared to match their budget fares. It converted Air Philippines into its budget brand and further created sub-brand PAL Express to fly to missionary routes and small airports being served by Cebu Pacific. But amid these innovations parent company PAL continued to do business the way it always did (as a legacy carrier) largely contributing to the company’s financial illness.
Today, it is facing yet another crisis. Losses – whether real or projected – led to maverick business decisions such as outsourcing and reorganization affecting thousands of employees. With the impending labor disputes that can potentially ground its planes, PAL needs salvation and the government is poised to step in.
Each time the government indulges in messianic efforts to save PAL, it uses public resources which may vary from financial help, favors to its private owners and time and effort – all in the guise of saving the country’s flag carrier. But is it really worth it? Should the government save PAL? Maybe not this time? As it is, fighting for PAL’s survival may even be dead crusade.
PAL is bleeding because it is playing in an unfair field. It competes head on with budget carriers whose operations are far more cost-efficient than legacy airlines. As with any enterprise threatened by a changing business landscape, PAL has to evolve. It may even have to convert from legacy to budget carrier and make painful choices to survive – choices PAL could and should make on its own.
It is not just PAL that’s seeing its eventual demise due to less pragmatic business practices. Legacy carriers Japan Airlines and British Airways are just some of the many financially-troubled airlines awaiting redemption and may be gone if they fail to roll with the punches. A throng of other American carriers have also merged or have ceased to operate due to similar problems. In most cases, a labor dispute could be a more visible sign of trouble as companies first look to downsizing or cutting employee benefits to manage losses.
The only legacy carriers that appear to be thriving and surviving are mostly the airlines from the Middle East. With the subsidy they’re getting from their sheiks and princes they have little to worry about. But for the rest of the world’s full service airlines, flying one day at a time these days is a blessing with all the challenges.
And it’s not just the budget carriers that are taking legacy off the skies. Unstable global fuel prices; the continuing threats of terrorism after the 9-11 attacks; and the challenges in the aviation industry such “less open skies” policies by many countries; and the Philippines’ recent category downgrade by international civil aviation bodies make it all the more difficult for many airlines to stay in the air.
It may be painful to see the national flag carrier evolve or even disappear but that’s a possibility in the aviation industry’s changing horizons. A dialogue may resolve PAL’s labor row but the airline is in a much serious mess of which, the current labor dispute is just but a symptom.*
