Up For Grabs: Philippines To Hold Air Talks With Australia, Oman, Qatar & Turkey

THE PHILIPPINES will hold air talks with Oman and Australia next month in a bid to open up more commercial opportunities for the airline industry while better serving Filipino communities living in those countries, the Civil Aeronautics Board (CAB) said on Monday.

“We have confirmed talks with Oman on April 6-7 and with Australia on April 28-29,” CAB Executive Director Carmelo L. Arcilla said in a phone interview on Monday.

In 2009, the Philippines and Oman signed an air service agreement, approving entitlements for 17 direct flights between the two countries. In December, Oman Air, owned by the Sultanate of Oman, launched thrice-weekly service between Ninoy Aquino International Airport and the Muscat International Airport.

“For Oman, their lone carrier, Oman Air, wants to expand their entitlements here to daily from tri-weekly flights,” Mr. Arcilla said.

He added that the carrier’s core market will be about 40,000 overseas Filipino workers.

“Cebu Pacific Air has entitlements for two weekly frequencies from Manila to Oman. We continue to review our network plans so we can explore opportunities to serve even more Filipinos in the Middle East,” Cebu Pacific Air General Manager Alex B. Reyes said in a text message on Monday. Officials of Philippine Airlines, however, could not be reached as of press time.

Mr. Arcilla also said that the Philippines will hold air talks with Australia on April 28 to April 29, at the request of the local aviation regulator.

Talks with Australia, according to Mr. Arcilla, would “benefit the more than 390,000 Filipinos there.”

In 2014, Cebu Pacific Air started mounting flights to Australia from Manila, joining flag carrier Philippine Airlines, Inc.

“Other than Oman and Australia, we’re also awaiting the confirmation of Qatar for June 27-28 air talks; also with Turkey for June 9-10 air talks,” Mr. Arcilla added.

Talks between the Philippines and Australia were last held in 2013. At the time, the two countries failed to reach an agreement due to “outstanding issues,” including the so-called fifth freedom rights.

Sought for comment, Cebu Pacific’s Mr. Reyes said in a mobile phone reply: “Yes, we intend to request for additional entitlements to Australia.”

“Cebu Pacific recently requested a reallocation of unutilized seat entitlements so we can add flights to the Australia market. It currently has 2,202 seats weekly, which we operate with five times weekly flights from Manila to Sydney. We look forward to the new round of air talks between the Philippines and Australia, which will be held in April,” he added.

Source: Chrisee Jalyssa V. Dela Paz, http://www.bworldonline.com

Philippine Airlines Plans 9 Billion Terminal 2 Expansion


MANILA, Philippines–Flag carrier Philippine Airlines (PAL) is studying a $200-million (P9 billion) expansion plan for the existing Ninoy Aquino International Airport Terminal 2 to cater to increasing demand seen in the next few years.

PAL president Jaime Bautista said the expansion project would rise on an adjacent lot that used to be Nayong Pilipino—an 18-hectare complex that has long been idle.

According to Bautista, the proposed terminal will be used mainly for international flights, and must be able to cater to at least 10 million passengers a year, on top of the eight million now being served by Naia Terminal 2, which is nearing full capacity.

“This is important. It’s part of our long-term plan, which is to expand Terminal 2,” Bautista told the Inquirer in a recent interview. “If I had my way, I’d like the project started before the end of the year.”

PAL currently has a fleet of 73 aircraft and is taking delivery of 38 more from European plane maker Airbus over the next five years and possibly longer if deferrals are allowed. The carrier, owned by tycoon Lucio Tan, mainly operates in Naia Terminal 2, also known as the Centennial Terminal, which opened in 1999.

PAL has already secured a 25-year lease for a portion of the Nayong Pilipino property, Bautista said. He said PAL would spend about P600 million for the area to be used as “parking” for PAL’s expanding fleet.

So far, PAL has not made any formal proposal to the government for a terminal expansion project. But this is not unusual given the current administration’s stand against unsolicited proposals.

Transportation Secretary Joseph Abaya had repeatedly noted the administration’s preference for an open bidding process instead.

Because of this, other business groups have held back from coming forward with their own solutions to address the congestion at Naia, including a $10-billion Manila Bay international airport that San Miguel Corp. presented to Malacañang last year.

Bautista noted that PAL was also open to the government’s plan to build what is being called the Naia Terminal 5. The move was in response to growing passenger congestion, coming ahead of a long-term plan to build a new international airport at Sangley Point, Cavite.

The four existing terminals at Naia handle about 32 million passengers a year and the maximum capacity of 35 million will likely be reached this year, the Japan International Cooperation Agency said.

But the new terminals may not address air traffic congestion, which is made worse by the fact that Naia only has two runways. A plan last year to build a third runway was scrapped and the Transportation department said it would focus on increasing runway efficiency.

Source: Miguel R. Camus

Airline News Philippines Review

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Philippine Airlines: Clipped Wings

MANILA, Philippines – When San Miguel Corporation (SMC) acquired 49% ownership of Philippine Airlines (PAL) two years ago, the conglomerate committed to turn the national flag carrier into a profitable business.

Part of returning the legacy carrier to black was to add passenger aircraft into its fleet.

So in 2012, PAL ordered 44 units of Airbus A321, and 10 A330-300 twin-aisle jets. It intended to implement the re-fleeting plan to reduce fuel and operating costs, according to its former president, Ramon Ang. The 54 wide and narrow-bodied Airbus aircraft had a $7-billion price tag.

Two years later and in a disclosure to the Philippine Stock Exchange (PSE), PAL’s parent firm PAL Holdings Inc. posted a net income of P1.49 billion ($33.24 million*) in the second quarter of 2014, an upturn of P1.08 million ($24,096.39) worth from the same quarter last year.

From April to June this year, revenues jumped 47.4% to P27.3 billion ($608.75 million) compared to P18.52 billion ($412.98 million) in the same period last year as passenger revenues surged 51% while cargo revenues grew 33%. (READ: PAL is back in the black)

“But that’s normal because it’s the (April-June) peak season,” said Jaime Bautista, who assumed PAL’s presidency role from Ang in a board election held Thursday, October 23.

Tycoon Lucio Tan was also reelected as chairman of the board and chief executive officer.

Ang resigned effective October 23.

The ‘real’ figures

Bautista said the first and third quarters of 2014, were “almost break even or a loss.”

In the last two years, he said Philippine Airlines and budget carrier Air Philippines reported a loss of $500 million, the same amount San Miguel spent to buy minority shares of PAL in 2012.

In an unaudited January to August 2014 financial statement of Philippine Airlines and Air Philippines (the latest financial statement has yet to be released) shown to Rappler, it revealed a combined earnings of $11 million from that period. In comparison, PAL Holdings reported earnings of P45.40 billion ($1,013 billion) from March to December 2013.

However, another $13.75 million of “other income” has to be deducted from its $11-million January-August earnings because the amount accounted for the lease charges of the aircraft Ang acquired under the airline’s fleet renewal program.

In that case, PAL had an excess of liabilities of more than $2 million.

In 2013, the airline’s parent company, PAL Holdings Inc., reported a net loss of P11.85 billion ($264.24 million) ending December – over 4 times its P2.74 billion ($61.15 million*) net loss in the same period in 2012, while its comprehensive net losses was at P2.7 billion($60.25 million).

From April to December, passenger volume fell to 5 million, while total expense reached P61.5 billion ($1.37 billion).

PAL Holdings Inc., the parent company of Philippine Airlines and Air Philippines Corporation (which operates PAL Express), currently finances for its leased aircraft with terms ranging from 6 to 12.3 years.

A combination of low passenger demand during off-peak seasons, fuel price fluctuations, economic slowdown, competition, security and safety risks, plus the continuous expenses due to re-fleeting caused PAL’s break even or loss periods.

Too many wings

In an exclusive interview with Rappler, Bautista lamented that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs.

This has contributed to PAL’s losses, with the company’s total long-term obligations at P26.63 billion ($594.29 million) as of June 2014.

“Before his entry to PAL, we only had around 40 airplanes. Now we have 60 airplanes. And then we’re taking another delivery of 32 airplanes in the next 3 to 4 years,” Bautista said.

In its latest quarterly report though, PAL listed 85 aircraft in its fleet. Out of the 85, it owns 33 airplanes, while the rest of the 52 airplanes either under finance lease or operating lease.

The re-fleeting program involved acquiring a mix of brand new A330s and second-hand A340s. It was meant to decrease cash flow for the airline. Instead of retaining old aircraft, operating newer airplanes would save PAL from spending more on maintenance. That, Bautista said, was Ang’s idea.

The ambitious fleet renewal program aimed at increasing PAL’s fleet to 100 planes. In May, PAL completed an order for over 70 planes, even after booking multibillion net losses.

In September last year, PAL negotiated with banks and export credit agencies to finance its $9.5-billion fleet modernization program. The airline’s financial consultant that time, Ian Reid, then declined to provide details of how much are being negotiated for the financing.

TOO MANY WINGS. Bautista laments that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs. File photo from Philippine Airlines

TOO MANY WINGS. Bautista laments that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs. File photo from Philippine Airlines

The effects of such aircraft purchases are expected to take a toll on PAL’s income for the third quarter, where PAL is anticipating to report losses. PAL has not yet released its latest quarterly report yet.

Lacking pilots

Acquiring too many wings, however, won’t help PAL fly to profitability. Bautista explained that an airplane must have 6 sets of pilot comprised of a captain and a first officer, making it 12 pilots per aircraft.

“They lack pilots when I asked how many do they have,” he said.

Every month, a leasing company also charges PAL for the excess planes – which would not have been the case if the planes had been used in its operations, said Bautista.

Financing on aircraft leases is the bulk of PAL’s capital spending, Bautista said. Lease rates are pegged at around 1%. Therefore, a $100-million aircraft’s lease rate is worth $1 million. Whether PAL uses the planes or not, leasing companies charge the airline for all leased aircraft in its fleet.

As of June 30, PAL has 3 Boeing 777-300ER ($330 million) and Airbus 320-200 ($221.7 million) under finance lease. Its 3 Boeing 777-300ERs ($330 million); 10 Airbus 330-300s ($245.6); 7 Airbus 321-231s ($120.5 million); 18 Airbus 320-200s ($221.7); and an Airbus 319-100 ($94.4 million) are under operating lease. (The prices cited are based on Boeing’sand Airbus’ latest commercial pricing.)

“If you don’t use it, you’re wasting millions. We wanted to use (them), but we can’t find destinations,” he said.

Bautista described the re-fleeting lacking deliberation, costing the carrier money.

Realizing it added too many wings for its fleet, the Ang-led management in March 2014 negotiated with Airbus to reduce its A330 order from 20 to 15. It compensated the cutback by ordering 8 additional A321 NEO aircraft, but it did not proceed with the transaction. The Airbuses were meant to be used for PAL’s long-haul flights.

Also, part of the deal with Airbus was to purchase a $16-million Rolls Royce-made spare engine for every 5 airplanes, Bautista saidwho credited Ang for sealing a deal with the airplane engine maker as Rolls Royce’s performance is said to be superior than other brands.

PAL is also negotiating with Rolls Royce whether they could return the deposit of the excess spare engines, but Bautista said, since the transaction has been booked as a sale, Rolls Royce is reluctant to do a refund.

PAL’s fleet utilization is also low.

Their new aircraft has an average utilization of 4 hours per day, Bautista said, which is far lower than the ideal usage of 14-16 hours per day. Apart from the low usage, Manila’s congested runway has put a break on their ambition to mount additional destinations, on top of the fact that budget airlines such as Cebu Pacific, TigerAir, and AirAsia have already eaten up their share in the market.

Because of the re-fleeting program, PAL’s liabilities have reached $1.5 billion, said Bautista.

Botched deals

On top of the aircraft buying spree, there are those unprofitable ventures that PAL got into.

Ang, who is president and chief operating officer of San Miguel Corporation, hinted in 2012 that they were considering a deal with a regional airline. It would have been PAL’s first overseas venture since it commenced operations on March 15, 1941.

Then in 2013, PAL struck a $10-million deal with Cambodia’s hotel and telecommunications empire Royal Group to revive Cambodia Airlines, but it did not push through.

According to Bautista, Ang’s interest was rooted in an intention to use some of PAL’s aircraft for Cambodia Airlines. The revival of Cambodia Airlines was seen to compete against other domestic airlines in Cambodia. With the Royal Group of Cambodia, Cambodia Airlines would serve regional destinations to become the fastest growing airline.

The deal was supposed to make PAL a 49% shareholder of Cambodia Airlines. Royal Group would own the majority 51% shares.

It was reported that PAL was bound to pay a $1-million down payment in July 2013. However, Bautista said the botched deal had already cost PAL $5 million.

The Center for Asia-Pacific Aviation (CAPA) warned PAL in February 2013 against investing in Cambodia Air, describing the venture as “risky.” CAPA said, “the group is better off focusing on reducing expenditure and improving profitability of its Philippine operation.”

Bautista said PAL has fixed expenses worth $5 million payable in the next 5 years. This is because a company that has been tapped to develop the reservation system for its Cambodia operations have been contracted despite securing an airline operator’s certificate before pushing for a joint venture agreement with the Royal Group of Cambodia.

Thanks to long-haul ventures, PAL’s profit saw an upturn, except for the Manila-London service which was last serviced 15 years ago.

The slot PAL got though as it started flying again in November 2013, required the airline to arrive in London at 3:30 pm. For passengers, it meant departing from NAIA Terminal 2 at 7 am, on top of a 3-hour wait or check-in time for international departures.

“Is that a good timing for departure? It’s not,” Bautista said.

CAPA had earlier warned PAL, including Garuda Indonesia, that they would face “intense competition” from Singapore Airlines, Thai Airways, Malaysia Airlines, Vietnam Airlines, and Royal Brunei Airlines.

Apart from competing with large carriers, PAL is not a member of global airline alliance SkyTeam, which makes their European service inferior even when competing with Garuda, which joined the alliance in March this year.

Manila’s under-maintained international airport, as well as its geographical location weakens the demand for such flight.


Apart from the airplane buying spree and the unprofitable ventures, there were also other transactions that apparently, Ang did not disclose to the Lucio Tan group, Bautista said.

“In the beginning it was OK because Ang would always report to the board. After a few months when he started buying planes, he had many transactions not reported to the board,” Bautista said.

For instance, Ang terminated PAL’s contract with a call center and procured a contract with a San Miguel Corporation subsidiary, San Miguel Information Technology Systems.

In 2010, PAL outsourced its non-core airline functions such as call center reservations operations to a Philippine Long Distance Telephone Company subsidiary.

“The San Miguel call center he put up is a little bit expensive, which he promised to be cheaper,” Bautista said.


THE WORK AHEAD. “We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” PAL President Jaime Bautista says. Photo by Mick Basa / Rappler

THE WORK AHEAD. “We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” PAL President Jaime Bautista says. Photo by Mick Basa / Rappler

Bautista said their return “means more work.”

“We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” Bautista said.

To address the issues causing PAL to hemorrhage money over the expensive re-fleeting program, Bautista said an aircraft leasing company has been engaged to help sublease the excess jets.

However, as potential buyers know why PAL is selling the unutilized Airbuses, Bautista said the airplanes would be subleased at a lower price. PAL has already subleased some of its airplanes to VietJet, he added.

Another 10 units of Airbuses for PAL will arrive next year. Another 10 units will arrive in 2017, and another 8 units in 2018. For the hard-pressed airline, it means another chain of challenge.

The Japan International Cooperation Agency (JICA) has showed the Philippines that it would need to pour P436 billion ($9.72 billion)to replace the old and congested Ninoy Aquino International Airport.

A better airport, one that could accommodate more aircraft and passengers, is what the flag carrier is wishing for.

“That’s the reason why we are not able to maximize utilization of airplanes because of the limited infrastructure facilities,” Bautista said.

The ambitious re-fleeting program would have not jeopardized PAL’s business performance only if the volume of aircraft ordered per year harmonized with the rate of how the market grows annually.

“It’s just [about] timing. The market grows an average of 6% to 7% a year. But the increase in our capacity is almost double in the last two years. So that’s the challenge,” Bautista said.

The challenge to expand their market, however, will be a turbulent ride.

One of its operations, the Cebu hub which served flights between Cebu and other destinations in Visayas, have been stopped because budget carriers that have turned into formidable rivals in the industry have eaten up PAL’s market share.

“We have to stop it to reduce losses or else we continue to lose money. We have to be very careful in mounting more flights,” he said.

PAL’s long-haul service will also experience a slight shrink, as Bautista said the incoming management is not keen on expanding in Europe.

This time, PAL wants to make its presence strongly felt in the US and the Middle East.

Now 57, Bautista, a certified public accountant who started his career with the country’s largest auditing firm Sycip Gorres Velayo & Co., and helped Tan in many of his major business deals, is looking to improve the airline’s cash flow.

“How can we operate without acquiring more equity from the owners or borrowing money from the banks? How can we have a positive cash flow? We have to be very creative in thinking of plans to generate cash,” he said.

Despite what happened with the San Miguel group, Bautista thinks a partnership is still an option.

“I personally think there’s a need for PAL to look a strategic partner. And we will recommend to the owners that we should go toward that direction of getting a strategic partner,” he said.

A strategic partner could be a carrier anywhere in the world as long as it “should have airline operations,” Bautista said.

The aviation business in general is a difficult one, especially for Asia’s oldest commercial carrier which history included the Asian financial crisis, its $2-billion debt that led to its closure in 1998, and the rehabilitation plan it sought for in 1999.

In 2000, PAL made a drastic turnaround from an unfortunate streak of 6-year loss. But a year later, the September 11 attacks happened and demand for flights dropped. Few years later, it went through turbulence again, including the global recession in 2009, which spiked jet fuel prices, hurting its operations. In 2010, PAL announced it would let go of its non-core airline services, which earned ire among its more than 3,000 affected employees.

“This year should be a good year only if we’re not burdened by the overcapacity of our planes. That’s the problem that we [are dealing with],” said Bautista.

Analysts have continued to point out that PAL would still be a risky venture: it’s capital-intensive, with jet fuel prices and competition among budget airlines already a serious trouble. Ramon Ang’s exit was a right move, they said, and many have wondered: why, despite previous pronouncements that Tan would leave its airline business, would it want to have a troubled airline back?

“Mr. Tan thinks PAL is a very important asset of the country …. And it will take a guy like Mr. Lucio Tan, who is willing to risk a big amount of his fortune [to make it work],” said Bautista.– with reports from Mick Basa and Lynda C. Corpuz/Rappler.com

Air Asia Revives CRK-KUL Route


Budget carrier AirAsia has revived flights from the Clark International Airport, but it did not use its Philippine subsidiary that stopped flights from the gateway in Pampanga province early this year.

The carrier said in a statement that the new service, using the Malaysian carrier’s flagship AirAsia Berhad, would fly four times a week between Clark and Kuala Lumpur, Malaysia.

Clark International Airport Corp. president and CEO Emigdio Tanjuatco III said in a statement that the return of Air Asia to Clark was more than welcome.

Clark Airport has struggled in luring large numbers of passengers, and subsequently, major carriers, due to its distance from Metro Manila.

Tanjuatco also hopes that Air Asia Philippines will transfer its operations to Clark Airport.

“We also hope based on the conversations with [AirAsia Philippines CEO] Maan Hontiveros that they are very impressed with the new developments at the airport and that they will try to convince their Manila operations to transfer at Clark,” Tanjuatco said.

“I think this is a positive development for Clark Airport. On our part, we will try to keep them satisfied, make sure that all their concerns are addressed and build a better relationship with Air Asia,” Tanjuatco said.

In the same statement, Hontiveros said “that this is a very good positive development for both Air Asia and Clark Airport.”

“We are very happy as well as the passengers who are excited [about] the return of Clark-Kuala Lumpur flights at Clark Airport and we will continue providing a much better travel for our passengers taking their flights at Clark,” Hontiveros said.

Air Asia Berhad flies four times weekly via Clark-Kuala Lumpur using its Airbus A320 aircraft. More than 100 passengers departed from Clark Airport to Kuala Lumpur in Malaysia during the re-launching of the international flights at Clark.

Clark Airport is also host to other air carriers such as Cebu Pacific Air, Asiana Airlines, Jin Air, Dragonair, Seair-International, Tiger Air and Qatar Airways.

Source: Miguel R. Camus, PDI.

ICAO-Sanctioned Airport Design Best for PH

Philippines stands to gain from airport design following the design requirements of the International Civil Aviation Organization (ICAO), considering that the Southeast Asian nation aims to have 10 million tourists starting 2016.
Aside from improving safety and security of passengers and airport staff, improving an airport design will boost efficiency and will make the process of travelling more enjoyable, the Australian embassy in Manila said in an emailed statement Tuesday.
“This will be particularly beneficial as the Philippines prepares for the projected influx of around 10 million foreign visitors in 2016,” Australian Ambassador to the Philippines Bill Tweddel said.
In this light, the Philippine Office for Transport Security has partnered with Australia and Korea for a workshop on how airport design can help improve security, the embassy said, noting the Philippine government has recently allocated significant funding for the upgrade of 24 airports and the refurbishment of several international terminals across the country.
“These works are required to incorporate new aviation security standards and infrastructure,” it added.
The Australian Department of Infrastructure and Regional Development is hosting the forum in a bid to provide information to airport operators and Philippine authorities on the ICAO requirements for airport design.

ICAO is a United Nations specialized agency that develops international standards and recommended practices for civil aviation.
Incheon International Airport Corporation Security Screening team deputy director Jonathon Lee, an expert in security by design and an ICAO universal security program auditor, is conducting the workshop.

The work done by ICAO and other convention signatories provides examples of best practice to ensure a consistent approach to security measures can be implemented across aviation transport network, the Australian embassy said.

Last month, the Wall St. Cheat Sheet, a US-based website, listed Ninoy Aquino International Airport as among the world’s worst airports.
The Guide to Sleeping in Airports travel site community also voted NAIA Terminal 1 as the world’s worst airport in 2011 and in 2013 and the worst airport in Asia in 2012. – Kathryn Mae P. Tubadeza/VS, GMA News

LT Buys Out Minority Investors of Philippine Airlines

MANILA (Reuters) – Philippine Airlines (PAL) owner Lucio Tan plans to buy out minority shareholders in parent PAL Holdings Inc at a discount to the listed firm’s current market price, a senior airline official said on Friday.

The voluntary tender offer comes hard on the heels of business tycoon Tan’s $1 billion (621.85 million pounds) deal to acquire San Miguel Corp’s 49 percent stake in PAL Holdings. With a free float of 10.22 percent and a market value of $3 billion, PAL Holdings controls around 90 percent of Asia’s oldest airline.

The tender offer price, which will be announced next week, will be lower than current levels, PAL General Manager Jaime Bautista told Reuters by telephone.

“We are already in control but if the minority is willing to sell, we will commit to buy them out at the same economic terms that was agreed with San Miguel,” Bautista said, adding the tender offer will be completed next month.

The valuation used to acquire San Miguel’s shares is lower than the present market price, Bautista said. Following a brief trading suspension early on Friday, shares in the thinly traded stock rose as much as 3.3 percent to 5.60 pesos ($0.1247) apiece, in a largely flat market.

In a stock exchange filing, PAL Holdings said it has received a notice of voluntary tender offer from two Tan-led companies.

Last month, the Tan group purchased San Miguel’s 49 percent stake in Trustmark Holdings Corp, which owns 89.78 percent of PAL Holdings.

The flag carrier is considering delaying delivery of Airbus planes it has on order as it reviews operations after the Tan group resumed management control.

(Reporting by Neil Jerome Morales; Editing by Michael Perry and Kenneth Maxwell, Reuters)