PAL’s road to recovery more hard work than luck

For an airline that was on its back just seven years ago, the road to recovery for Philippine Airlines (PAL) is nothing short of a commercial miracle.

PAL has already paid back more than half of its $2.2 billion in debt, and president and chief operating officer Jaime Bautista says it will be free of its debt obligations well before the 2010 deadline set by its creditors.

From his ninth floor office at the Philippine Airlines headquarters in Manila’s Makati business district, Bautista told AFP in an interview that he was confident the airline had got "over the hump".

"We survived Sept.11 and we got over the Severe Acute Respiratory Syndrome in the spring of 2003," he said.

"The road to our recovery has not been easy... a lot of hard work rather than luck, but we are over the hump."

He says he is also confident that when the airline reports its results for its financial year ending March 31, the airline can expect another record profit.

In the fiscal year 2004-2005, the airline reported a net profit of P1.2 billion, reversing the loss of P643 million that it suffered in the previous fiscal year.

Bautista said despite the high cost of fuel this year the airline should report a profit "similar to this year".

After signing a $840-million deal with Airbus on December 6 for nine A320s with options for another five, Bautista said the airline must move to the next phase of its modernization program – the wide-body jets.

Just who will get the order – Boeing or Airbus – and for how many aircraft Bautista isn’t saying, but he expects the new orders to be placed well within the next five years.

At present PAL’s wide-body fleet consists of 17 aircraft: five 747-400s, four Airbus A340-300s and eight A330-300s.

"We don’t intend to replace all of these aircraft," Bautista said.

"What we intend to do is add to the fleet as most of our wide-body aircraft are quite new."

He said the replacement of PAL’s narrow-body fleet has now been completed with the signing of the Airbus deal.

"The new aircraft should come into service between 2006 and 2008, with delivery on the options – should we take them up – between 2009 and 2012."

In addition to the aircraft ordered from Airbus, the airline intends to lease two new A320s and two Airbus A319s from GE Commercial Aviation Services.

Bautista said the decision to go with Airbus over Boeing came down to the fact that it "suited our requirements".

Founded in 1941, Philippine Airlines was halfway through a $4-billion refit, headed by new chairman Lucio Tan, when the full impact of the Asian financial crisis hit the airline industry in early 1998.

That year the carrier reported its biggest annual loss ever – P8.08 billion.

The airline’s problems were compounded by a series of labour disputes by its pilots and ground crew which saw the airline file for receivership with the Securities and Exchange Commission (SEC) in June 1998.

The SEC, with the help of the airline’s creditors, set up a rehabilitation program allowing the airline to operate while paying off its debts.

PAL was forced to cut its work force of nearly 15,000 by almost half, all engineering work was subcontracted out to Lufthansa, the fleet was reduced from 53 to 22 aircraft and routes were cut or discontinued.

It took the intervention of then president Joseph Estrada, who brokered a deal between the unions and airline management, to bring peace to the shattered flag carrier.

"It hasn’t been easy," Bautista said. "But we are still flying and we are starting to grow again.

"Our chairman (Tan) is keen for us to fly to Europe again but the cost is still too high," Bautista said.

"Europe is a very expensive place to fly to but we will look at it again. We are not in a hurry."

"In November we began operating a service three times a week to Beijing and flights are around 70 percent full which is not bad considering what we have been through," he said.