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Government Allocates ₱700M To Airline Relief

16 September 2020


The Government of the Philippines has allocated about ₱700 million as initial aid to Philippine-based carriers affected by the covid19 pandemic, after the Bayanihan to Recover as One Act (Bayanihan II), was signed by President Rodrigo R. Duterte on Sept. 11.

Bayanihan 2 provides a ₱165.5 billion fund, including ₱140 billion in regular appropriation with ₱25.5 billion in standby funds.

Congress has set aside ₱9.5 billion for the recovery programs of the Transportation department. Of that amount, ₱2.6 billion is dedicated to assist the critically hit businesses in the transportation industry.

Credit accommodations will be provided by Land Bank of the Philippines and Development Bank of the Philippines, both government financial institutions (GFI) that will guarantee the loans.

Secretary Arthur Tugade disclosed the funds provided to support airlines are not bailouts but government guarantee of the loans they will secure from GFIs.

The Transport Department (DOTR) said the Bayanihan II law directs them to “provide direct cash or loan interest rate subsidy” and “grants for applicable regulatory fees.” The department is likewise directed to “allow substitution of refund option to travel vouchers, provide grants for fuel subsidy and/or digital fare vouchers, as may be necessary.”

According to Air Carriers Association of the Philippines (ACAP) Executive Director and Vice-Chairman Roberto C.O. Lim, each airline is expected to receive about ₱140 million loan assistance under the current law this year.

Lim supported Secretary Tugade's claim that it is not bailout but assistance to airlines in need, as he explained that DOTR is mandated by law to waive fees.

“That will be a good assistance. ACAP carriers pay around ₱500 million per month in fees. A waiver as distinguished from deferral will help,” Mr. Lim added.

ACAP is composed of Philippine Airlines, Inc. (PAL), Cebu Air, Inc. (Cebu Pacific), Philippines AirAsia, Inc., Air Philippines Corp. (PAL Express), and Cebgo, Inc.

Mr. Lim said that air, land, and sea sectors are expected to get around ₱700 million each.

Small independent airlines will also be beneficiary of this stimulus package says Tugade.

A separate ₱10 billion economic stimulus package under the ₱1.3-trillion Accelerated Recovery and Investments Stimulus for the Economy Act (ARISE)is pending in Congress for approval.

ARISE sought to create a sovereign wealth fund for investment in the airline industry.

Department of Finance (DOF) official said the proposed Accelerated Recovery and Investments Stimulus for the Economy (ARISE) bill cannot be funded this year.

Finance Secretary Carlos Dominguez III said ARISE could be implemented next year because this measure will exceed the financing program set by economic managers.

The House of Representatives earlier approved the ARISE bill, which needs about ₱1.3-trillion budget. The Senate’s version, in turn, requires about ₱140 billion.

Dominguez however cautioned legislators on the approval of stimulus measures that the government cannot finance or are unsustainable, as these will just push the government’s budget gap wider.

“What we cannot fund for borrowing is additional spending over and above the budget and, by the way, in our borrowings, we have done it very conservatively,” he said.

“We have achieved very low rates and we have achieved extended terms. So, that is the situation that we are at and people should understand that is a constitutional limitation.” he adds.

For this year, Dominguez said that the government can finance a budget deficit of up to 9 percent of GDP, which will put the country in the median of comparable countries in Southeast Asia and East Asia, among peers with similar credit ratings, and among other emerging market economies.

The DOF said decisions for the provision of the credit should not only be coursed through Departments but determined and managed solely by government financial institutions, which “possesses the expertise on such functions rather than the various executive agencies with different mandates.”

Dominguez also disclosed that government will be infusing more capital to government financial institutions, such as Land Bank of the Philippines (LandBank), the Development Bank of the Philippines (DBP) and the Philippine Guarantee Corp., to enable them to assist micro-, small- and medium-enterprises and other companies affected by the pandemic.

“Right now we are suggesting that the Landbank of the Philippines and the Development Bank of the Philippines organize a new GOCC [government-owned and -controlled corporation] that will be capitalized and will be empowered to make investments in companies that are that important to the national interest and that need injections of capital in the form of preferred shares, in the form of ordinary common shares or whatever,” he said.

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