Lucio Tan puts Philippine Airlines on the block

Eight years after taking over Philippine Airlines (PAL), business tycoon Lucio Tan is now looking for buyers willing to take over the flag carrier and complete its rehabilitation.

Airline sources said yesterday Tan is willing to sell his controlling share in PAL so it would get another round of much-needed capital infusion.

According to the source, Tan was "not exactly eager" to get out of PAL, but the beer and tobacco magnate was keeping an eye on possible opportunities that would allow him to sell the airline company on good terms.

Tan took over PAL in 1995 and immediately launched a massive refleeting program shortly before the mid-1997 Asian financial crisis that drove the company to the ground and forced it to file for suspension of debt payments.

In 1998, PAL was put under receivership by the Securities and Exchange Commission (SEC), posting huge losses every year until 2001 when it was able to generate a net income of P436.5 million, over 850 percent more than its profit a year earlier.

However, PAL was hard hit by the fallout from the terrorist attacks on Sept. 11, 2001 and the following year sent the airline back in the red.

In 2001, PAL reported that it ferried nearly 5.75 million passengers on a fleet of 32 aircraft.

Passenger load factor, or the ratio of occupied to available seats, was 68.5 percent – better than the previous year’s 66.1 percent.

PAL resumed services to Sydney, Australia; Busan, South Korea; Taipei, Taiwan and Jakarta, Indonesia during the year, expanding its network to 16 points in nine countries.

It has since added Vancouver, Canada to its list of destinations and is expected to fly to Ho Chi Minh City, Vietnam soon.

Despite the improvements already undertaken by the airline, however, Tan is expected to have some difficulty in finding a buyer because of the slump in the global airline industry that has so far sent several major airline companies to the ground.

PAL also has a tangle of unresolved legal cases, including the P2-billion put-option claim by the Philippine government currently under litigation.

PAL had refused to settle the government’s P2-billion claim, prompting government financial institutions to go after Asia Brewery and Fortune Tobacco which were listed as guarantors of the put option signed by the airline.

Tan earlier said he was willing to settle the government’s claim but only if the Arroyo administration would agree to protect his monopoly over Philippine skies. Tan also complained of the valuation of the shares in question.

Tan earlier said he was negotiating with the government to settle the claim, specifically asking the government not to sell certain air routes to other airlines.

Tan was not specific which routes he did not want the government to sell but PAL’s bread-and-butter are still the main routes to the US West Coast.

Tan has been struggling to protect this business by persuading the government not to sell the routes that PAL was not servicing although the flag carrier did not have the money to buy the routes itself.