The three year feud over control of Philippine Airlines appears to have ended in a deal that should leave the current chairman and chief executive, Lucio Tan, firmly in charge.

At a special board meeting in late December, the warring parties agreed that Tan could take up an entire private offering of new shares in PAL worth 5 billion pesos ($191 million), while the various government shareholders would waive their rights.

In return Tan has agreed to dissolve PR Holdings, the company that holds a majority of PAL's shares and in which Tan has a razor thin controlling stake. The shares of PR Holdings will now be reissued as stock in the airline itself, doubling Tan's stake in PAL and giving him a decisive majority.

The only question that remained unresolved at presstime was the value of the holding company shares. That value will set the rate for converting those shares into PAL stock.

The struggle for control of PAL has its roots in the airline's partial privatisation in 1992, which divided the government's majority stake between the airline and holding company. That division gave Tan a chance to control the carrier by taking a majority stake in PR Holdings, even though his overall stake in PAL amounted to less than 34 per cent.

When the latest dispute over the strategic direction of the carrier came to a head last March, the government sought to dissolve PR Holdings and reassert its majority control.

In December, both sides finally concluded they might have more to gain through compromise. Earlier that month the Philippine Supreme Court upheld a Securities and Exchange Commission ruling preventing Tan from recapitalising the airline, which the government shareholders feared would allow Tan to gain direct control of PAL.

That left the SEC to rule on the government's original request to dissolve the holding company, which it had sat on for 10 months. If the SEC ruled in favour, the government parties would be back in control of an undercapitalised airline with an ageing fleet and projected 1995/6 year-end losses of $65 million. If the SEC left PR Holdings intact, Tan would retain control but remain unable to inject the capital PAL sorely needed. An SEC ruling either way offered little hope for the airline.

Tan may now seek a partner before investing the entire $191 million in new capital. Albert Cheok, a member of the family that owns Bangkok Bank, has been mentioned as a possible investor.

Tan has already demonstrated his confidence in reviving the carrier's fortunes by moving ahead with a $3 billion fleet renewal programme. This includes ordering four A340-300s, eight A330-300s, 12 A320s and eight Boeing 747-400s.

David Knibb

Source: Airline Business