PAL accepts $59 million charge in severance payments

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Philippine Airlines (PAL) will take a charge of 2.5 billion Philippine pesos in severance payments with the outsourcing of its in-flight catering, airport services, and call centre operations.

The funds are to be paid as severance to around 2,600 workers who will be laid off as a result of the outsourcing of the three operations, says the carrier. The announcement follows a ruling on the size of the severance package last week by the nation's Department of Labor and Employment (DOLE) - the department had initially ruled for a two billion peso charge.

"By not contesting the (department's) decision, especially the grant of additional benefits, PAL hopes to finally implement a long delayed corporate restructuring that aims to stabilize the airline's finances and eventually lead to an expansion and improvement of services," says PAL CEO Jaime Bautista.

PAL has already signed agreements with third-party service providers: PLDT e-Ventures for call centre reservations, Sky Kitchen for catering, and Sky Logistics for airport services.

"Given its recent losses and current financial position, PAL would be hard put to raise 2.5 billion pesos, but this is a bitter pill we have to swallow," he says. "PAL believes DOLE's decision is just, reasonable and humane. Since it has the force and effect of a law, we must respect the ruling."

The carrier hopes to finance the severance package with loans from government financial institutions such as the Development Bank of the Philippines or Land Bank of the Philippines. Failing this, it will seek financing from other PAL creditors.

The carrier adds that the "increased benefits will bear heavily on the airline's precarious financial position."

PAL is also involved in an ongoing dispute with its cabin crew over the carrier's retirement age and other issues. In October 2010 it appealed to DOLE for arbitration after failing to break a deadlock in negotiations with union members. A ruling is expected this month.

PAL posted a 20% fall in net profit to 1.4 billion pesos in its first fiscal quarter ended 30 June.