PAL eyes add’l US flights via wet lease to skirt FAA ban

MANILA, Philippines - Flag carrier Philippine Airlines (PAL), jointly owned by tycoon Lucio Tan and diversified conglomerate San Miguel Corp. (SMC), is set to mount additional flights between Manila and the US in the middle of the year despite restrictions on increased flights to the US.

Ramon S. Ang, president and chief operating officer of PAL, said on the sidelines of the vin d’ honneur’ at the Malacañang hosted by President Aquino that the carrier managed to skirt the Category 2 status imposed by the US Federal Aviation Authority (FAA) on the Philippines.

Ang pointed out that PAL would use Boeing 777 aircraft for the planned flights between Manila and the US.

He revealed that the airline has entered into a “wet lease” agreement with a US company that would allow the airline to mount flights between Manila and the US.

Airlines are considering wet-lease deals as contingency measures to allow them to mount flights to the US in case the country fails to regain its Category 1 status with the US FAA.

Airlines lease aircraft from other airlines or leasing companies for two main reasons; to operate aircraft without the financial burden of buying them, and to provide temporary increase in capacity. The industry has two main leasing types, wet leasing which is normally used for short term leasing and dry leasing which is more normal for the longer term leases. 

A wet lease is a leasing arrangement whereby an airline provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline which pays by hours operated. The lessee provides fuel and covers airport fees, and any other duties, taxes, among others.

A wet leased aircraft may be used to fly services into countries where the lessor is banned from operating.

Ang said PAL is wet leasing Boeing 777s to go around the ban as the Category 2 status also prevents the airline from upgrading its current fleet of old Boeing 747s.

He admitted that the set up would cost PAL several millions of dollars per Boeing 777.

However, he pointed out that the savings on fuel expenses with the use of old Boeing 747s would offset the additional costs.

Earlier, PAL said it was in talks with Cayman Airways and the government of Cayman Islands for possible joint venture arrangements to make PAL more competitive and able to make the most of its lucrative US routes.

In June, Ang said PAL was looking at entering into an agreement with a regional airline as a way to go around the four-year long ban imposed on local airlines to add flights to the US since the Philippines was placed under the Category 2.

Cayman Airways was established and started operations in 1968. It was formed following the Cayman government’s purchase of 51 percent of Cayman Brac Airways from LACSA (the Costa Rican flag carrier) and became wholly government owned in December 1977

In 2008, the safety rating of the Philippines was downgraded by the US FAA upon the recommendation of the International Civil Aviation Organization (ICAO) to Category 2 from Category 1.

Category 2 indicates that the FAA had assessed that the Philippines’ civil aviation authority had failed to comply with ICAO safety standards for the oversight of air carrier operations. While in Category 2, Philippine air carriers are permitted to continue current operations to the US under heightened FAA surveillance.

In April 2010, the 27-member European Commission decided to impose a ban on Philippine carriers including PAL from European airspace for the failure of the Civil Aviation Authority of the Philippines (CAAP) to reform the country’s civil aviation system.

Both decisions made by the European Commission and the FAA prevents airlines from the Philippines to mount additional flights to the US and Europe.

PAL is set to ask the European Union from an exemption from a ban on Philippine carriers from European airspace using its certification from the International Air Transport Association (IATA) as well as its connections with European companies.