Corporate Watch
By Amelia H.C. Ylagan
BusinessWorld
BusinessWorld
She exudes the mystique of the faraway unknown. Standing proud and beautiful, she subtly beckons to escapist liaisons by her seeming inaccessibility. Many want her for the glamour and romance of anticipated capture, pheromones excited by competitive pursuit and the final vanity of victorious acquisition. I must have her, he says.
And so Chinese-Filipino billionaire Lucio Tan, tobacco and alcohol taipan, bought Philippine Airlines (PAL) in 1992, when it was offered for sale in then-president Fidel Ramos’s massive privatization program. To be exact, it was not publicly known until a year after that Tan was actually PAL’s majority buyer,when he quarreled with Antonio “Tony Boy” Cojuangco, then Philippine Long Distance Telephone Co. (PLDT) chairman, who had won the fight for PAL by a thin 7% over the bid by the PCI Capital Consortium of John Gokongwei and Eugenio Lopez, Jr.
Cojuangco and his AB Capital and Investment Corp., in partnership with the Soriano family, was to have paid the Philippine government P9.78 billion for PAL. But rumors had it that when the call came for the payment by Cojuangco, he had to “borrow” from Tan to support his share of the commitment. Few knew of the quid-pro-quo for Tan’s subsequent backdoor 40% share in PR Holdings Corp., the new consortium formed to operate PAL in its apres-privatization start-up.
The Soriano group was reportedly angry over discovering that they were in bed with Tan, and promptly bailed out of PAL. It was shocking to most, in the heightened idealism of the immediate post-EDSA I People Power Revolution, that a reported Marcos crony had surreptitiously taken control of the then 51-year-old flag carrier — PAL — national patrimony by its very name and proud existence as Asia’s first airline. On the other hand, it can be easily understood why Tan wanted so much to have PAL as a “trophy mistress” perhaps for the vanity of acquisition and the loud braggadocio of the low-key Chinese Filipino (naturalized) having “arrived.”
But it probably was not all vanity that drove Tan to acquire PAL. Part of the recommendations of the Asian Development Bank (ADB) study commissioned by the Department of Finance for the PAL privatization included the spin-offs of support groups from the basic flight operations, such that efficiencies of the newly independent activities could be measured arms-length from the main business of flying. Likewise, basic airline operations, which included flight operations, marketing and sales, and its trimmed down finance and administrative services will have concentrated on direct operating expenses and the overpowering variables of fuel and insurance.
And so did the privatized PAL spinoff in-flight catering, maintenance;airport services, including ground handling, cargo terminal, cargo handling and ramp handling; and call center reservations — reportedly to Tan-owned or affiliated companies. This was both good and bad for the company, good because of the streamlined efficiencies for unhampered core business, as cited in the privatization template, and bad because of the massive retrenchment of long-time employees who were very knowledgeable in running an airline, and knew PAL’s history and idiosyncrasies.
A funding group that studied the PAL privatization joined many investment analysts in asking why the ADB recommendation for a foreign-airline ownership and management in the privatized PAL was rejected by the Philippine government in 1992, as was the same recommendation by the World Bank in a second study, for one-third of the airline to be transferred to foreign hands chiefly as a means of retiring some of PAL’s $650 million in foreign debt. Although the idea of foreign airline experts partly owning and running PAL was not palatable to extreme nationalists at that time, hindsight taunts history for the jealousy and the consequent apparent failure of an airline “run like hell by Filipinos,” paraphrasing President Manuel A. Quezon in the Commonwealth Republic.
And so, after years of financial losses, deteriorated goodwill and labor cases, Lucio Tan has admitted that the stripped PAL (from spinoffs) is again now for sale. It’s like shedding an aging mistress.
Taipan John Gokongwei (JG Summit) was initially rumored to be interested, probably to thereby acquire PAL-controlled foreign routes for his son Lance’s unstoppable Cebu Pacific, and complete their growing monopoly of the airline business. But Gokongwei reportedly lost interest, considering possible conflict of interest with his partners in his Digitel Telecommunications sale to Philippine Long Distance Telephone Co. (PLDT), the latter being an interested bidder — for a while — in Tan’s offer to sell PAL. PLDT Chair Manuel Pangilinan backed out, some say maybe because he was not about to tussle again with San Miguel Corp.’s Ramon Ang, as they two did, over the giant utilities company Meralco in 2009. (Pangilinan won.)
Now the fiercest suitor of PAL is SMC. A news report said that Ang signed an agreement with PAL on Dec. 23, 2011 to do a due diligence audit until Jan. 31, 2012, after which SMC will make its official and final bid amount. Why would a healthy conglomerate like SMC be so ardent in its pursuit of a flailing company like PAL? It is to run an airline in these times of rising fuel and insurance costs, which gorge falling revenues from the steep competition of newer airlines without debt baggage.
There are probably no further spinoffs, outsourcing prospects and affiliated businesses that can still ravish PAL. These have been neatly cornered by the businesses of those who had controlled PAL in its last two turbulent decades and frittered away by former leaders and factotums of the government before them. There are probably no airplanes to be ordered or leased, and generous concessions made on these. The expansion of European and US routes is unlikely, at least in the next few years, because of the deteriorated safety reputation of the airline and the effect on travel of world terrorism and local peace and order.
Yet PAL seems to be still much of a trophy acquisition.
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