PAL offers deal it says US cannot refuse

WASHINGTON — Philippine Air Lines will agree to legitimize the use by American carriers of the Philippines as a hub for cargo traffic in return for a 10-year postponement of "open skies" for passengers, PAL president and chief operating officer Avelino Zapanta said.

He told reporters on Thursday this issue would be on the agenda when US and Filipino officials meet possibly next month to examine the 1982 RP-US air transport agreement which he said was "terribly onerous" for the Philippines.

Zapanta, in Washington to lobby US legislators for a postponement of unlimited passenger flights between both countries, said the United States has suggested bilateral talks be held in Manila in October, but the Arroyo administration is still undecided on the timing.

He said PAL was seeking to attend the talks as part of the Philippine delegation, not as an observer.

Officials with Zapanta said they had received reports from Manila that Mrs. Arroyo’s Cabinet at a recent meeting agreed, at PAL’s insistence, to ask the United States to postpone the "open skies" policy between both countries for 10 more years.

The 1982 agreement, which has undergone several postponements in the past, automatically allows for unlimited passenger flights by Oct. 1, 2003.

Zapanta said the late President Ferdinand Marcos, under pressure from Washington, gave US airlines so-called Fifth Freedom rights in the 1982 agreement which "proved golden for them but empty for us."

Under these rights, carriers from the US and the Philippines can fly to each other’s territory and then on to a third country and in all sectors they can load and unload passengers.

But while US airlines can fly lucrative routes to countries two to three hours away from the Philippines like Hong Kong, Singapore and Thailand, PAL cannot do the same from the United States. It is at a geographic disadvantage because apart from Canada and Mexico the closest US neighbors are much further away in South and Central America and traffic is relatively light.

Zapanta said the situation was aggravated during the Ramos administration when US cargo carriers in 1995 got privileges not in conformity with the agreement.

He said instead of US planes flying cargo from the United States to the Philippines and then on to other countries, they have based small planes in Luzon and use these to fly cargo to neighboring Asian countries.

Referring to Fedex at Subic, UPS at Clark and DHL in Manila, Zapanta said they have in effect created a hub and spoke operation in the Philippines acting as if they are the flag carriers. "That is not part of the agreement," he said.

He said Washington was aware of the situation and it was for this reason that an October meeting was proposed, ostensibly to liberalize "open skies" but really to legitimize the current cargo operations.

Zapanta pointed out that Philippine carriers — PAL and Cebu Pacific — were not ready to compete directly in the passenger sector against the strong American carriers which, he said, also received assistance from the US government in the form of direct subsidies, loan guarantees and insurance guarantees.

"Such assistance is not available to Philippine carriers so the playing field is not even and this is the reason we need 10 years more to put PAL on a competitive footing," he said.

With respect to cargo traffic Zapanta said, "The interest of the Americans is toward legalizing the violation they’ve committed in the implementation of the cargo open sky policy. We really don’t have a violent objection to that because we are not in a position to match the extent of the US cargo carriers’ structure in the Philippines.

"They can maintain that kind of operation. In exchange we want the continuing suspension of open skies for passengers for the next 10 years," he said.

Referring to what he called Mrs. Arroyo’s "musings" on reacquiring PAL, he said he did not think the government was serious about it. In any event Lucio Tan, the majority owner of PAL, will probably go along with the idea for as long as he gets paid, Zapanta said.