Turkey Signs Air Bilateral With The Philippines

17 November 2014

Turkey has signed its first ever amendment to the Air Services Agreement (ASA) with the Philippines with no less than its Prime Minister Ahmet Davutoğlu and Philippine President Benigno Aquino III signing the instrument Monday morning.

The agreement grants Turkish Airlines (THY) and Philippine Airlines (PAL) access to both Ankara and Istanbul, and Manila and Clark three times a week from the previous once a week schedule entered at the time of President Ferdinand Marcos.

Turkish Airlines has been wanting to fly the route since 2011 but hit  a brick wall when told that there desires need amendment to the existing Air Service Agreement between the two countries. It took them three years to have the agreement signed by no less than the Chief Executive of both countries.

"Turkish Airlines wants to fly everyday to Manila," says Prime Minister Ahmet Davutoğlu.

But desires to fly daily was objected by local airlines outright prompting the Prime Minister to remark that there are solutions to the problem.

I am sure there will be a win-win solution to develop this relations” says PM Davutoğlu.

The ASA has been subject to intense negotiation since 2010 when THY decided to expand its presence in Southeast Asia. The airline wanted daily flights to Manila and fifth freedom rights either to Hong Kong or Australia, but both were denied due to strong opposition by Philippine-based carriers.

A compromise was finally agreed where additional entitlements will be added as demand increases, while code share deals with PAL sealed. 

Now, under code share arrangements with PAL, Turkish Airlines is expected to commence four times a week flight beginning summer of next year using Boeing 777-300ER planes from Istanbul to Manila which services will eventually increase to a total of six flights per week. Schedule is set to be announce soon.

“We have already started working to launch direct flights to Manila soon,” says Mr Salih Kece, General Manager of Turkish Airlines for Hong Kong, Taiwan and the Philippines.

Turkish Airlines opened Manila office in 2011 along  SGV II Building, 6758 Ayala Avenue, Makati City, Metro Manila. 

In 2011 there has been 35,000 passengers transiting between Turkey and the Philippines alone.

Air Asia To Expand Philippine Affiliate

Will Invest $500 Million More

13 November 2014

After contracting operations in the Philippines due to heavy losses, Malaysia’s AirAsia Berhad is now ready to throw in more money in its fledgling affiliates as it consolidates Zest Air and Air Asia into one big airline Zest Air Asia which is awaiting congressional consolidation approval, its airline CEO said.

“We’ve put in $100 million already in cash terms, excluding the planes. And we are committing another $500 million once we get the franchise approval. That’s over a period of three to four years,” AirAsia founder Tony Fernandes said.

“As soon as we get the franchise, we should be able to get 15 aircraft. Then I hope we can add about five aircraft a year,” he adds.

Air Asia was forced to grow its capital base and reduced its Philippine operations by 30% as compared last year after registering consecutive losses since its inception. As of the first half of 2014 it continued to operate at a loss of $14 million.

Fernandes is however bullish of the airline subsidiary operating flatly in 2014 and registering profit by 1st half of next year as it put more air time to its existing A320 fleet.

AirAsia Philippines and AirAsia Zest currently operating as AirAsia Zest has 15 Airbus A320-200s operating out of Manila, Cebu and Kalibo. It has since abandoned its fabled hub at Clark International Airport due to poor passenger traffic.

Fernandes said that they cannot secure more flights to Korea and Japan without the regulatory issues in the Philippines resolved. The fleet would at least double once the group gets the go-ahead to consolidate domestic operations, Fernandes said.

Happy To Get Out

12 November 2014

"Attempt at Hostile Takeover"

By Wilson Lee Flores

When I contacted Ramon S. Ang of SMC, he readily agreed to talk in detail about his side of the PAL divorce over breakfast. He invited three executives and a few friends from media to join, and the breakfast lasted three and a half hours. Leaving out the more acrimonious details pending the side of Lucio Tan, here are some of the thoughts of RSA on what happened.

I asked Ang his most important lesson learned from the breakup of their business partnership. He replied: “With all these experiences at PAL, what we have learned is to be more patient in dealing with anyone. Don’t be angry, kasi kung hindi ka matiyaga, yari ka (because if you are not patient, you’re gone). Be patient.”

RSA recounted that the “divorce” proceedings at PAL were signed at the headquarters of BDO Universal Bank in the presence of its talented boss Teresita “Tessie” Sy Coson and also witnessed by Tan’s adviser, the 93-year-old SGV Group founder Washington “Wash” SyCip. Ang explained: “My condition (was) for the sale to be signed by Tan in front of Tessie at BDO, I want her to witness the signing.” RSA also recounted that Wash SyCip not only shook his hand, but also took a picture with him (I forgot to ask if SyCip took a “selfie”).

When Ramon Ang pointed out my earlier column quoting a source claiming that he couldn’t raise the cash to buy out Lucio Tan from PAL, thus causing Tan to instead buy him out, he said: “No such thing, because ang San Miguel kung tumawad, may pera (if San Miguel negotiates, we have the money). Never did we negotiate without the money.”

On why San Miguel agreed to sell its PAL stake, Ang compared the situation to an unhappy marriage: “I’m happy to get out. Hindi na maayos ang samahan (Our relationship wasn’t good anymore), after one year, there was an attempt at a hostile takeover.”

On the possibility of Tan getting a foreign airline like Etihad or others to quickly put in new investments into PAL, Ang said: “If a foreign partner, it will take years of due diligence.” In contrast, in the same way with seemingly easier philanthropy, self-made people like both Ang and also Lucio Tan are so much faster in deciding risk-taking ventures like RSA’s shaking hands with Tan in 2012 to seal the PAL partnership.

On rumors that Manny V. Pangilinan of the multinational First Pacific Group might be invited to be the new strategic partner of Tan in PAL, Ang said: “Kung mabola ni Lucio Tan si MVP (If Lucio Tan can bluff MVP into it), with two or three months, kaya daw ni Washington SyCip eh (Washington SyCip supposedly can do it). PAL would need $1 billion from First Pacific… His possible strategic partners, maybe Etihad, Hainan Airlines or First Pacific Group.”

On allegations that RSA has earned commissions due to massive purchases of planes, Ang responded: “Lucio Tan personally signed the new plane purchases, but I signed only as a witness, so those plane purchases were not done singlehandedly. Also commissions can be given usually via agents or brokers.”

RSA also shared a photocopy of a three-paragraph letter from Airbus senior vice president Contracts Christophe Mourey of France, stating that on PAL’s purchase of 54 aircraft signed on July 4, 2012, they “have not paid, agreed to pay, authorized the payment of or caused to be paid directly or indirectly in any form whatsoever any commission, percentage, contingent fee, brokerage or similar payments of any kind, in connection with the establishment or operation of the Agreement referred to above to any employee of the other party or to any person or entity in the other party’s country or elsewhere.”

One of the best ways to recover and move on from a soured relationship is to get busy with new things.

In the case of Ramon S. Ang and San Miguel Corp., he said that among their new projects will be new infrastructure to support Philippine economic development, oil exploration and drilling in the Middle East and Africa (Petron is controlled by SMC), new investments to support the modernization of GMA-7, his multibillion-dollar bid for Britain’s famous biscuit giant which produces Jacob’s crackers, his rapidly-expanding Eagle Cement, possible new moves in the mobile phone sector with new technologies, the building of new power plants, etc.

RSA still dreams of helping the national government build a totally new and world-class $10 billion airport with four runways.

Whatever business or personal misunderstandings between the two titans of Philippine business, what is important is that all’s well that ends well. Both have parted ways cleanly, not a single centavo is owed by either to the former partner, and the country’s flag carrier as well as Asia’s first airline PAL has emerged from the two-year strategic partnership in better shape than ever to face the exciting future.

I wish Ramon S. Ang of San Miguel and Kapitan Lucio C. Tan of Philippine Airlines great success, because their risk-taking spirit, sense of adventure and investments as well as philanthropic acts have had a positive impact on Philippine progress. Not all separations or decouplings are bad; sometimes they are beneficial for both sides. I believe good things fall apart so better things can fall together. - Star

Decoding PAL Conflict

12 November 2014

By Tony Lopez

The parting of ways September this year between San Miguel Corp. Vice Chair and President Ramon S. Ang (RSA) and taipan Lucio Tan over ownership and control of Philippine Airlines has been followed by recrimination between the two powerful business groups each of which until early September owned 49 percent of PAL. 

The conflict apparently stemmed from two factors: one, the strategy on how to make the national flag carrier grow and return to sustainable profitability, and two, how to finance such growth strategy.  PAL had to have scale and critical mass to be efficient and profitable and it had to have full financial backing like infusion of massive equity.

The San Miguel group bought for $500 million 49 percent and full management control of the national flag carrier in 2012.  According to sources, SMC actually acquired more than majority control of PAL, up to 70 percent, but RSA had the graciousness to agree to Tan’s request that he be made to appear still owning 49 percent to justify his holding the title of chairman.   In return, RSA would exercise full and tight management control.

As president, RSA designed PAL’s basic strategy which was to expand it while reducing its crippling fuel cost which was eating 55 percent of operating costs, thus returning the carrier to immediate profitability.

To cut fuel cost and enable PAL to service more destinations, RSA thought of ordering as many as 70 aircraft, including 64 Airbus jets.   The strategy had the full backing of PAL’s board in which Tan’s people were amply represented, equivalent not just to the taipan’s 49 percent equity, but the majority of the directors.

The new planes consume at least 30 percent less fuel than PAL’s fleet of aging aircraft then.  The math was quite simple: 30 percent of 55 would mean an 18 percent increase in profitability.   At the same time, PAL would recapture its old glory, take back markets it had conceded to rivals (like the Middle East, home to millions of OFWs), return to old destinations (like Paris and Rome), and open up new services (like London, Toronto, Perth, and New York).

At the same time, RSA tightened on supplies, services and other costs, including the controversial ban on free upgrades.  Most business class seats, he noted, were occupied by people who were upgraded.  But this rattled people’s nerves, especially the many friends and relatives of the Kapitan.

To finance PAL’s expansion and aircraft acquisition, RSA relied on San Miguel’s Triple A credit standing and solid reputation. Up to $850 million in such financing and guarantees were lined up.  This explains why when Tan decided to buy back San Miguel’s 49 percent, he paid, sources said, not just $500 million but also refunded the $850 million, for an effective acquisition cost of $1.35 billion.

Up to late 2013, RSA was actually the one wanting to buy Tan’s 49 percent and the latter agreed to sell.  By mid this year, however, Tan had changed his mind.  He wanted to buy back SMC’s 49 percent.  This desire later turned into a hostile bid.

Tan’s long-time finance whiz, the affable Jimmy Bautista took over from Ang as PAL president on Oct. 23.   A self-taught jet pilot and a car aficionado, Don Ramon completely severed ties to PAL and apparently to Tan.  He fretted over PAL’s future.

Back to his old job, Jimmy Bautista concluded that RSA had ordered far too many planes than PAL could possibly deploy and finance.  When Jimmy left as president in 2012, PAL had only about 30 planes.  Today, PAL has 45, mostly brand-new. Plus plenty of debts.

Reports online and print media quoted him as saying PAL’s refleeting as “lacking deliberation” and “risky”.  There were also allegations about lack of pilots to man the new planes, the eventual reduction in the number of Airbus 330 planes ordered, the wisdom of the Cambodia Airlines deal, and a $5 million expense for the reservation system of Cambodia Airlines for the next five years.

What is clear, however, is that the massive PAL refleeting under President Ang was approved and signed off by the PAL board which was majority controlled by Tan’s men.  Also, PAL commissioned the services of a foreign consulting agency, jointly chosen by the SMC and LT (Lucio Tan) Group, to review PAL’s business plan and recommend how to return to profitability.   This is the same consulting firm the LT Group got in 1998 to help PAL with its rehabilitation then.

The refleeting was anchored on PAL’s expansion as well as replacing PAL’s old planes – B747s, Airbus 319s, A330s and 340s, whose age, poor condition due to high cycle time and improper usage previously made their operation costly and inefficient and contributed to frequent breakdown and poor service to the flying public.

As to pilot shortage, PAL, in fact, had a surplus but they were pilots for the old planes like the B747s.   They had to be retrained to fly the new Boeing 777s or the Airbus A-330-300s.  There was never an instance PAL canceled a flight because there were no pilots.

PAL had to reduce its A330 order, from 20 to 15, and in their place, order eight additional A321 NEO planes.  This is called right-sizing.  Calibrating planes to market requirements is standard in the airline business.  Air Asia, for instance, deferred some of its A320 aircraft order.  Emirates canceled all its Airbus 350 plane order.

I find RSA’s entry into Cambodia brilliant.  With only one major attraction, Angkor Wat, Cambodia has now almost the same number of tourist arrivals as the Philippines, which has myriad of attractions.  Also, Cambodia was to use some of PAL’s new planes and PAL would park some of its new planes in Cambodia. Besides, PAL did not spend the $5 million for Cambodia Airlines reservation system, only $1 million.

Airlines now and then invest in other airlines.  Air Asia Malaysia has airlines in Indonesia, India, Japan and the Philippines.  Jetstar Airways is in Jetstar Pacific in Vietnam, Jetstar Asia, and Jetstar Japan. Etihad has investments in Virgin Australia, Jet Airways in India and Alitalia in Europe.

And yes, RSA did make PAL profitable again. - MST

While PR Holds A321 Delivery, 5J Cheerfully awaits their planes next year

10 November 2014

Michelle Eve de Guzman
Low cost carrier Cebu Pacific (CEB) is expecting delivery of 41 new Airbus aircraft in the next seven years to support their long haul and short haul expansion plans.

And while its bigger competitor is looking for destination to fly their new planes, CEB already has plans where to go says Michelle Eve de Guzman, CEB Marketing Communications Manager, during a press briefing at the Seda Abreeza Hotel in Davao City.

De Guzman said Cebu Pacific is expecting delivery of 10 Airbus A320ceos, 30 Airbus A321neos, and one Airbus A330 from 2014 to 2021.

The additional Airbus A330 is intended for another destination in the middle east to be launch in 2014 and will be used occasionally for domestic and regional runs that will see it heading also to Australia. It will have the same single class product with seating capacity of 436 passengers.

SMC Fights Back LT Group Accusations

8 November 2014

“Because we have the money,
By Lorenz S. Marasigan

In a tit-for-tat war, San Miguel Corporation is fighting back accusations hurled by the Lucio Tan Group that their investment with the airline are overambitious.

THE group of tycoon Lucio C. Tan does not have enough capital to support the funding requirement that Philippine Airlines (PAL) will need for further route expansion to complement the massive fleet-modernization program that San Miguel Corp. (SMC) initiated in 2012.

An executive of the diversified conglomerate made this statement late Thursday, following a negative comment from aviation think tank Centre for Asia Pacific Aviation (CAPA), which noted that the food-to-infrastructure firm made a wrong decision in expanding the capacity of the airline.

The industry expert advised PAL to clip its oversupply of “wings” to reduce its chances of ending the year in the red.

But the decision of SMC to aggressively expand the fleet was doable back then, said the company official, who spoke on condition of anonymity.

“We initiated the ‘overambitious’ refleeting program, because we have the money to complement it with a massive route expansion,” the highly placed source said.

The executive reckoned that the LT Group is finding it hard to supply the new aircraft with new routes as it does not have a huge war chest to fund the needed expansion.

“They see it as inappropriate because they don’t have the money to finance the needed expansion,” the company official pointed out.

The SMC official said the new management of the legacy carrier should stop blaming the diversified conglomerate for the massive fleet modernization, as this was appropriate when the food-to-infrastructure firm was still at the helm of the airline.

“They have to pay $500 million in loan, on top of the $800 million they paid us for the buyback transaction. The $500 million is part of the working capital, it has either to be refinanced or paid internally to the bank they tapped. They don’t have enough working capital to expand,” the source said.

The carrier’s fleet expansion was part of then-PAL President Ramon S. Ang’s strategic plan of launching operations in Europe, the United States and other long- and medium-haul flights.

For now, PAL President and CEO Jaime J. Bautista said these plans would have to be shelved.

“We want to focus on profitable routes, and the US is a very promising route for PAL, especially now that we are out of Category 2 and we are operating our new Boeing 777-300ER, which will result in very efficient operations in terms of fuel consumption and maintenance,” he said.

SMC officially exited the flag carrier in October, concluding the over $1-billion buyback transaction launched in September.

San Miguel Equity Investments Inc., a unit of the food-to-infrastructure firm, sold its 49-percent stake in Trustmark Holdings Corp. to the billionaire last month.

The group of the taipan owns 88.23 percent of the airline through Trustmark, which holds an 89.78-percent stake in listed PAL Holdings Inc.

The group of the taipan is currently revisiting the massive re-fleeting program struck by SMC with France’s Airbus. It has a price tag of $9.5 billion, involving the delivery of 84 airplanes from Airbus, comprising of a mix of A330s, A321s and A320s.

As of end-June its fleet is composed of 85 aircraft composed of six Boeing 777-300ER, four Boeing 747-400, five Bombardier DHC 8-400, four Bombardier DHC 8-300, 10 Airbus A340-300, 18 Airbus A330-300, seven A321-231, 28 Airbus A320-200 and three Airbus A319-100.

PAL Holdings successfully executed an income backflip, after it posted a net profit of P1.49 billion in the second quarter of 2014 from a net loss of P1.08 billion in the same three-month period in 2013.

In the same comparative periods, revenues of the airline operator rose by 47.4 percent to P27.30 billion from P18.52 billion, while operating expenses climbed by a slower 31 percent to P6.04 billion from P19.47 billion.

PAL Holdings shares ended Friday’s trading at P3.65 apiece, crashing by 8 percent or 33 centavos from P3.98 each on Thursday.

Laguindingan Airport To Start Night Flights By November 13

5 November 2014

The Civil Aviation Authority of the Philippines (CAAP) will open Laguindingan Airport to night traffic effective November 13, 2014 as the aviation regulator winds up testing of the airports US$13.4 million  navigational equipments.

"We will issue the appropriate NOTAM (Notice To Airmen) once inspection is completed tomorrow," says CAAP Director William Hotchkiss.

Hotchkiss said standard guidelines for arrival and departure procedures to be used by airlines, general aviation and military at Laguindingan airport are already ready for release based on the results of the final inspections with the airport officially rated and certified for all weather flights a week later.

The newly installed navigational equipments which are undergoing inspection and verification include the airside lighting systems, such as runway lights, ramp, taxiway, approach, beacon and apron lighting systems. 

A separate re-verification and re-inspection procedures was made to Precision Approach Path Indicator(PAPI) , Instrument Landing System (ILS), and the Very High Omni-range/Distance Measuring Equipment (VOR/DME) as they are the most important instrument when approaching the airport under poor visibility.

Safety oversight team from Air Navigation System (ANS) are currently doing final checks and calibration of all the navigational instruments to ensure the airport complies with international safety standards.

A separate team from  Air Traffic Service (ATS) are also conducting orientation to Air Traffic Controllers assigned at Laguindingan airport.

"We are already doing Performance Based Navigation (PBN) and we are training our ATC personnel there to conduct correct procedure in guiding planes in and out of the airport," Hotchkiss added.

Laguindingan Airport was opened in June 15, 2013 operating under visual flight rules restriction as the airport's navigational component was not yet operational.

As of October 2014, the airport was already serving 1.8 million passengers per annum, beyond the Laguindingan’s rated terminal capacity. By 2017, passenger traffic is expected to balloon to 2.6 million according to DOTC funded studies.

Terminal Expansion

With the airport finally completed, the Transportation Department (DOTC) plans to bid out a P14.6-million enhanced operations and maintenance (O&M) contract for Laguindingan Airport in December 2014 as they draw technical plans for its expansion slated to start next year to address the congestion at the airport which designed capacity was made in 2006.

“Due to years of delay, Laguindingan was already at capacity by the time we opened it last year. To spare future administrations from similar issues, we are incorporating an infra expansion component into the operations contract that we will bid out in December,” DOTC Secretary Joseph Emilio A. Abaya said in a statement Tuesday.

Abaya said the contract is a 30 to 35-year Enhanced Operations and Maintenance (Enhanced O&M) concession, scheduled for award within the 3rd Quarter of 2015. It is meant to maintain the airport’s facilities and services at international standards.

The Enhanced O&M’s infra or civil works component will entail the development and expansion of the cargo terminal building, runway extension, and the construction of a new passenger terminal building (PTB) which is readied for bid next year and will be done in three phases beginning in mid-2016.