The bankruptcy filing of Japan Airlines this week should drive more than enough sense into the skulls of the union leaders of Philippine Airlines who are still opposing necessary measures to make our national carrier viable in today’s market. It is clear to me that unless they do so, PAL will likely follow the path towards bankruptcy protection of JAL for the second time in 10 years.
Japan Air Lines filed the fourth-largest bankruptcy protection in Japanese history under a ¥900 billion ($10 billion) turnaround plan after four government bailouts failed to revive Asia’s most indebted carrier. The carrier’s problems are shared by many other airlines: debt, overstaffing compared to budget carriers, massive pension obligations, rising fuel costs, unprofitable routes and a history of management woes.
According to The Wall Street Journal, Japan Airlines is launching a bankruptcy restructuring that will significantly shrink its operations. JAL plans to cut 31 routes, 53 planes (including all of its 747-400s) and almost a third of its workforce after winning state funds to help restructure. The carrier will ax 14 international routes and 17 domestic ones by the end of March 2013.
Some 15,700 JAL employees are expected to lose their jobs. JAL will also sell dozens of non-core businesses and, through bankruptcy court, force its banks to write off much of its ¥1,440 billion in gross interest-bearing debt. Retirees have already accepted an average 30-percent reduction in pension payouts, and current workers’ benefits will fall by half.
JAL, with losses in three of the past four years, has struggled to fill planes amid the worst recession in six decades and domestic competition from bullet trains and low-cost carrier Skymark Airlines Inc. On domestic routes, JAL sold less than 68 percent of seats every month since November 2008.
I caught a CNN report where a reporter flew a nearly empty JAL plane to an obscure domestic point in Japan. She said JAL flies near empty planes to that point twice a day because of pressure from politicians and there are many such domestic destinations.
Overseeing JAL’s rehabilitation is the government-backed Enterprise Turnaround Initiative Corp. of Japan, which will inject ¥300 billion ($3.3 billion) into JAL so that it can continue operations. The ETIC and the state-backed Development Bank of Japan will also provide JAL with a ¥600 billion credit line.
The massive use of government funds is a cause of concern for JAL’s competitor, All Nippon Airways (ANA). ANA worries that such government aid will compromise competitiveness in the market. “We believe it is important to secure customer convenience by the injection of public funding,” says ANA. “However, we are also highly concerned that the fair and competitive environment would not be secured under the financial support and injection of public funding,” it adds.
I guess PAL’s union members are hoping that our government will infuse funds to keep PAL flying. Our government and our GFIs cannot do what the Japanese government is now doing to support JAL. Our government is even now struggling with a pretty large fiscal deficit problem and definitely does not have the financial wherewithal to infuse into PAL even if Ate Glue wants to. It also does not make sense, policy wise, because as ANA complained vis-à-vis JAL’s bailout, such government intervention results in unfair competition.
Philippine Airlines has earlier announced plans to outsource a number of jobs in the airline in an attempt to improve its profitability and chances of survival. But the union vigorously opposed the plan. The problem is… Lucio Tan has apparently seen the folly of continually putting billions of pesos of good money after bad in the airline. He may no longer be inclined to provide a bottomless pit of money for PAL. “The airline,” he said, “is bad news” when I asked him about it during a recent visit of the taipan to the Tuesday Club.
The good news is … it seems the leadership of the PAL union is apparently seeing the problem very clearly now. I just received a copy of a letter of the union president to its members and I sense a readiness to work with management to save the airline.
The letter signed by union president Edgardo Oredina reports that they attended an international conference of airline unions held recently in Sri Lanka. The conference participants exchanged notes on the situation in their countries and the common view is that legacy airlines like PAL are finding it difficult to compete in today’s market where the budget airlines like Cebu Pacific and Air Asia reign.
The PAL union officers found out that most legacy airlines in the world are resorting to the same sort of things to survive: retrenchment, reduction of working hours, pay cuts and outsourcing to meet the challenge of low cost airlines. The country reports they heard, the union officer said, makes it imperative for airline unions to be more dynamic, proactive, innovative and aggressive in adapting to the current changes in the industry. I might add they must be more creative.
Government, on the other hand, can help PAL improve its chances of survival by truly working to regain top rating for NAIA from the US Federal Aviation Administration. The downgrade of NAIA over two years ago is preventing PAL from flying into new cities in the US. It is also preventing PAL from using its new and more fuel efficient long range planes that were recently delivered by Boeing.
Ate Glue promised to regain our rating and had placed the DOTC Secretary personally responsible for the effort. But the DOTC Secretary is too busy cooking up deals (RFID, etc.) to have the time and the inclination to get this done. The problem with accomplishing what FAA requires of us is that for our bureaucrats, walang pagkakakitaan doon... just drastic improvements in management practices. So PAL suffers in the meantime. Even Cebu Pacific, whose patriarch has expressed a desire to fly to California, cannot expand its route to cover the US until we regain our FAA rating.
Well, a PAL union ready to work with PAL management will buy the airline some time. Union and management working together should help save as much of the jobs as they can and also improve PAL’s chances from following JAL’s footsteps. A recalcitrant union whose leaders and members cannot take a fresh and creative look into PAL’s financial dilemma will just make things worse.
The airline business environment has changed drastically. Legacy airlines must adapt to the new rules of the game by changing their business models to match the efficiency of budget airlines or like JAL suffer the ignominy of going to bankruptcy court. And unless PAL employees give the impression that they will not resort to destructive tactics like what they did in the recent past, potential passengers will protect themselves by buying tickets from other airlines.
As I have experienced, getting stranded in foreign soil because PAL employees went on strike is a most unpleasant and expensive predicament. Right now, if I am planning to travel in three or six months, I will hesitate to buy a PAL ticket unless the cloud of doubt is removed on its future ability to fly.
Employment secrets
From Robin Tong.
Two girls after a job interview...
MATALINO (inis): Buti ka pa natanggap sa trabaho. Ano ba ginawa mo?
BOBA: Wala lang. Nung nagfill-up ako ng application form, linagay ko sa Sex: SIGUE!
Boo Chanco’s e-mail address is bchanco@gmail.com. This and some past columns can also be viewed at www.boochanco.com