Flag carrier helping PH regain Category 1 status

By Recto L. Mercene, BusinessMirror

Posted at May 25 2012 07:45 AM | Updated as of May 25 2012 07:34 PM

MANILA, Philippines - Settlement by Philippine Airlines (PAL) of its debt of P5.2 billion in navigation and landing fees with the Civil Aviation Authority of the Philippines (Caap) would pave the way for the country to regain its Category 1 status that had been taken away by international regulators.

With more money in the coffers as a result of PAL settling its indebtedness, Abner Bondoc, Caap chief financial officer, said more technical personnel, such as check pilots, safety inspectors, air traffic controllers, communications specialists and aircraft mechanics, could be persuaded to stay with Caap.

The Commission on Audit (COA) had said Caap personnel’s salaries are 80 percent below industry standard and as such, are targets of poachers from foreign airlines. Owners of “mission-critical skills” or MCS, these personnel are being offered lucrative salaries by Middle East companies which, in turn, provide manpower for European air carriers.

Lack of qualified personnel was among the significant safety concerns (SSCs) noted by the International Civil Aviation Organization, US Federal Aviation Administration (FAA) and European Union (EU).

SSCs cost the Philippines its Category 1 status.

Caap Director General Ramon Gutierrez said that if all goes well, the country would probably regain Category 1 status by the third quarter of this year or at most at the end of 2012.

Paying the debt is part of PAL’s promise to help the aviation sector regain its Category 1 status. It is also a measure of the carrier’s capability for expansion.

Bondoc also said the funds coming from the fees to be settled by PAL will help Caap maintain fiscal stability. Steady footing is crucial to Caap gaining the COA’s nod to free the authority from the Salary Standardization Law.

Last month PAL President and Chief Executive Officer Ramon S. Ang committed the resources of PAL to help the government in its effort to regain Category 1 status for the country from the FAA since such status is crucial to the airline’s profitability and eventual expansion.

Since the country was downgraded to Category 2 status, PAL has been prevented from expanding its current routes in the US. The EU, meanwhile, has banned all Philippine carriers from European skies.

Other Philippine carriers with plans to open new routes in the US are also banned, pending return of the country to Category 1 status.

With an expanded fleet, PAL said it would resume flights to Europe and bolster US services after selling a stake to San Miguel Corp. (SMC).

Ang has unveiled plans to acquire up to 100 new Boeing aircraft for both PAL and Air Philippines over the next half decade, as well as for SMC to invest in a new international airport that will have up to four runways and can accommodate up to 100 million passengers annually.

The carrier’s two main owners will provide $1 billion to help fund the fleet plan, Ang said. San Miguel will inject $750 million in PAL and affiliate Air Philippines Corp., including a $500-million stake purchase, while billionaire Lucio Tan
will deliver the rest.

PAL incurred the P5.2-billion debt over the years, when the airline was still in government hands, believing that it is entitled to free use of the country’s navigational aids, such as VOR, Instrument Landing System and Non-Directional Beacon.

Since 1998 when PAL was privatized, the navigational fees have accumulated and it was only when Ang took over this year that terms of payment were discussed with the government.

“PAL and the Caap are now into reconciling the accounts for final settlement of the debt,” Bondoc said.

The Air Transportation Office, Caap’s predecessor, was remitting its obligations to the national coffers. PAL’s payments of fees for the navigational aids then were “in the form of accounts receivable,” Bondoc said.

Under this payment mode, Caap paid the government in cash and received payment in the form of promises on paper from PAL.

With its fiscal stability under threat, the aviation body was unable to provide proper financial incentives to retain its MCS personnel.

Now that Caap is liquid, having paid P1.5 billion to the Government Office Corporate Council in excess fund, it would be able to address other SSCs, such as computerization of its accounting system.