The boardroom battle for control of Philippine Airlines is finally over but the carrier's ambitious expansion plans now face the threat of intensified competition as the country's independent carriers seek to expand their international presence.
PAL chairman Lucio Tan cleared the final hurdles in his three-and-a-half year campaign to take control of the airline when he convinced the Philippines Securities and Exchange Commission to lift a year old injunction obtained by the minority Ayala shareholder group.
This cleared the way for a vote on Tan's plan to dissolve PR Holdings, the company through which he controlled PAL, convert its shares into PAL stock, and simultaneously authorise a doubling of the airline's capital.
Shareholders approved the plan by the requisite two-thirds majority and had two weeks to subscribe to the new rights offering. Tan had already secured a commitment from government shareholders to waive their subscription rights and boosted his holding from 34 per cent to at least 57 per cent.
This figure could yet rise after the dissident minority shareholders, the Ayala group and Bank of the Philippine Islands, passed up the new offering. If, as expected, Tan takes up those shares his final PAL stake would approach 70 per cent.
After securing control of PAL, Tan now faces the prospect of intensified competition on international routes from an array of startup carriers after the government approved a multiple designation policy. With PAL now embarked on a US$4 billion fleet modernisation and restructuring programme, the upstarts realise their own expansion plans depend on seizing authorised but unused frequencies now, while PAL is still weak.
This window of opportunity will shrink as PAL's new aircraft start to arrive from next year. Indeed, the carrier is accelerating its refleeting by wet leasing aircraft despite opposition from its unions.
The main battleground is 17 unused Manila-US frequencies following a renegotiation of the bilateral last year. The two largest independent carriers, Cebu Pacific and Grand Air, have already applied and PAL is seeking to block the move by adding its own application. Grand already operates A300 services to Hong Kong and Taipei but PAL argues that Cebu has not met the requirement for an international licence and must continue to serve domestic missionary routes.
The third domestic force, Air Philippines, is also seeking regional international authorities. The carrier aborted plans to sell a 20 per cent stake to Gulf Air and is now seeking to acquire 15 B737-200s from United Airlines. These aircraft were to have been acquired by the US leasing firm, Interlease, before the deal soured in September.
David Knibb
Source: Airline Business
