Andrzej Jeziorski/MANILA

Philippine Airlines (PAL) has thrown into question Cathay Pacific's attempts to acquire a controlling stake in the debt-ridden carrier, by restarting talks with Northwest Airlines.

Northwest has previously shown interest in PAL, as has Singapore Airlines, but talks with all other interested parties had been suspended under an exclusivity agreement with Cathay, while the Hong Kong carrier prepared to submit a rehabilitation plan to the Philippines Securities and Exchange Commission on 7 December. Senior Cathay executives admitted surprise at PAL's move, which appears to violate the agreement.

Nevertheless, Cathay engineering director Derek Cridland insists that talks remain on track. "PAL is serious with us, and we are serious with them," he says.

Cathay has offered to invest up to $100 million in PAL, with a further sum - understood to be around $50 million - expected to come from the Philippine carrier's current majority shareholder, Lucio Tan. Cathay has a team in Manila carrying out due diligence at PAL, which has to be completed as one of a series of preconditions on any investment.

Industry observers are interpreting the PAL move as an attempt to put pressure on Cathay to compromise on the issue of employment cuts at the airline, following repeated guarantees from Philippine Government officials that no more redundancies would follow the rescue of the beleaguered airline. PAL's workforce has already been reduced from its original 13,000 employees to 8,500, and plans are understood to be afoot to cut this further to about 5,000.

Cathay chairman Peter Sutch says, however, that any attempt to force the Hong Kong airline to negotiate "-with one arm tied behind its back" would make it impossible to pursue its plans.

The Hong Kong carrier is legally allowed to take up to a 40% stake in PAL, and the Philippines Government has agreed to give up its 14% stake.

Cathay is also insisting on being given management control of the airline, which has been in receivership since June, with debts exceeding $2.1 billion.

Source: Flight International