Why does World Billionaire Lucio Tan Have Such a Troubled Airline?

By Raissa Robles

Why is world billionaire Lucio Tan having continuous labor trouble but only in one of his companies – Philippine Airlines?

Why is the trouble with PAL erupting again at the start of a new presidency, just like it did when Joseph Estrada assumed office in 1998? Is there a ploy to make the new government look helpless once more and to extract concessions from this situation, just like Lucio Tan was able to do with Estrada?

To read about the July 22, 1998 PAL strike and Estrada, click on this link.

Forgive me. I’m highly suspicious of recent events involving PAL. Its pilots resign en masse and PAL management simply cancels flights, stranding hundreds of angry businessmen all over the Philippines.

Could that be regarded as an abandonment of its legislative franchise or a hostage-taking of the new government? Failure to resolve this soon would reflect badly on the new government.

Lucio Tan – with an estimated net worth of US$1.7 billion (or 78 billion pesos) according to Forbes’ March 2010 rich list – cannot resolve this problem to ensure his airplanes continue to fly. Or is the plan NOT to let his airplanes fly?

The salaries that the pilots were earning are peanuts to Lucio Tan.

You know how big a US$1.7 billion fortune is? It’s really hard to imagine. But let’s compare. Last year, the Philippine income tax collection for the first six months totaled 67.5 billion pesos. Lucio Tan’s fortune is a bit more than that – 78 billion pesos.

In 1998, PAL workers and PAL management agreed to a 10-year moratorium on strikes and CBAs. The truce ended in 2008. Now workers are restive again. The workers’ union, PALEA, filed a notice of strike due to PAL’s ”intended mass lay-off of unionmembers and officers by April 2010, illegal outsourcing of regular positions, direct negotiations with union members, unresolved issues during preventive mediation, and non-compliance of pay scale review during settlement of the wage distortion.”

PAL president Jaime Bautista had announced last year that the global industry downturn forced them into cost-cutting mode. I would readily believe that if I hadn’t done an investigative report of PAL before. But more on that later.

The troubles in PAL have to be taken in a larger socio-political and economic context. Because this is not just labor trouble and this is not just anybody’s airline. This is Lucio Tan we are talking about.

The man who used to be a regular visitor to Malacanang Palace late at night during Estrada’s time. As Aprodicio Laquian, Estrada’s former chief of staff, wrote in his tell-all book “The Erap Tragedy: Tales from the Snake Pit” about Lucio Tan:

"He was a frequent guest in state diners and other formal fucntions in Malacanang. A slight ever-smiling man, Tan, in his simple clothes and quiet manner did not convey that he was probably the richest man in the country. (He often said he was already bankrupt)."

PAL has been one of the companies I’ve unfortunately had to follow as a reporter because it kept cropping up as an item and I’m really, really tired of it.

First of all, Lucio Tan DID NOT EVEN HAVE TO BUY THIS airline. In fact he was barred from participating in the public bidding for PAL. But he used a dummy – Antonio “Tonyboy” Cojuangco – yes, Gretchen’s dearest – to acquire it. Later, Tonyboy had to confess the airline didn’t really belong to him but to Lucio Tan.

As Grace Ong writes in her very extensive report on how Lucio Tan distorted and obtained government policies favoring PAL:

"Lucio Tan’s hidden shareholdings of PAL (via Tony Boy Cojuangco) and eventual takeover of PAL should itself be a study of how key privatization of lucrative state enterprises had not been based on very transparent and accountable processes."

I would suggest you take time out to read the report entitled: The political economy of corruption: Studies in transparent and accountable governance by Emmanuel S. de Dios and Ricardo D. Ferrer. You can click on this link.

The section written by Ong tells you how Lucio Tan extracted huge concessions for PAL from then President Joseph Estrada at the expense of Filipino overseas workers, Philippine tourism, investments and well, all of us basically.

Lucio Tan funded Estrada’s 2010 presidential campaign and with good reason. There is no love lost between Lucio Tan and President Benigno Aquino’s late mother, Corazon, whose administration sequestered shares:

1. in his tobacco firm (Fortune),
2. bank (Allied) and
3. piggery (Foremost Farms)

because these formed part of the ill-gotten wealth of the Marcoses. He served as the Marcos family’s dummy. Imelda Marcos herself claimed that Lucio Tan’s fortune was really theirs. She called Lucio Tan a magbobote. The Marcoses turned out to be the dummies in this transaction.

Lucio Tan’s billion dollar fortune was built on ill-gotten wealth and his ill-gotten wealth cases remain pending to this day.

So when PAL accuses the resigned pilots of committing breach of contract I have no sympathy for PAL even though I believe in honoring contracts. Because I know Lucio Tan’s history and how he made his fortune on a mountain of our heartache. Lucio Tan lived off the fat of Marcos’ dictatorship. His pigs thrived and wallowed in it. Oh, I’m talking about his company Foremost Farms.

PAL’s claim of being unable to afford better pay for its personnel because it is not that profitable is all baloney. The reason why it is not that profitable is that in 1998 and 1999 Lucio Tan peeled away PAL’s “non-core” but very profitable units that did in-flight catering, groundhandling and aircraft maintenance not only for PAL but for foreign airlines as well.

With the Estrada government’s cooperation, these PAL services were allowed to be spun off to companies fully-owned or partly-owned by Lucio Tan. In the process, Lucio Tan got rid of those troublesome unionists.

In the last 11 years, in-flight catering, ground handling and aircraft maintenance were all consolidated by Lucio Tan under his company called MacroAsia Corporation or MAC. Last year, MacroAsia earned a record one billion pesos in operating revenues.

Contrast that to PAL Holdings, Inc, owner of PAL. Its consolidated revenues last year were a measly 51.2 million pesos.

To help you understand what I’m droning about, here’s a chronology I researched and drew up years back in order to help me make sense of PAL and Lucio Tan’s actions that I believe actually hurt PAL:

March, 1997 – PAL buys 70% of holding firm MacroAsia Corporation for P700 million (US$18.5 million then).

March 1998 – PAL reports record 8.08 billion pesos net loss for its fiscal year ending March 1998, and said it wasn’t able to make payments on about $2 billion of debt

May 18, 1998 - PAL sells MacroAsia shares as a bloc to Tan-owned companies. Sale price and buyers not disclosed.

June 1998 – PAL pilots go on strike. PAL lays off 5,000 of its nearly 14,000 workers.

July 22, 1998 – The 8,000-member ground crew of PAL goes on strike to demand reinstatement of the 5,000 laid-off workers. President Joseph Estrada steps in. The government still owns around 18% of PAL, while Lucio Tan was estimated to own 70%.

Sept 1, 1998 - MacroAsia-Eurest Catering Services, Inc. (MECS), a Tan-owned company, starts commercial operations by catering the in-flight food for Singapore Airlines and Air Macau. After PAL closes down, MECS approaches PAL’s catering clients and gets nine of its clients. MacroAsia nets 114.32 million pesos in just four months of operation from September to December 1998.

Sept. 23, 1998 - PAL management closes down airline after talks with the unions collapse and goes under rehab with the Securities and Exchange Commission (SEC).

October 1998 – MacroAsia Airport Services Corporation (MASCORP) leases ground handling equipment from PAL for one year starting November 15, 1998 at a monthly rate of 369,600 pesos renewable yearly.

1999 – NAIA Terminal 2 starts operations and PAL has exclusive use of it.

Feb. 1999 – Lucio Tan starts 100% control and management of Air Philippines, the second biggest local airline accounting for one-third of domestic flights.

April 19,1999- ground-handling operations of MacroAsia-Ogen Airport Services (MASCORP) starts.

April 30, 1999 – PAL debtor US Ex-Im Bank withdraws its conditional approval of PAL’s rehab plan. According to then SEC chairman Perfecto Yasay, the bank complained that “the PAL insolvency process lacks fundamental attributes of transparency, fairness and predictability.”

Writing later in his book, “Out of the Lions’ Den”, Yasay said Ex-Im Bank “found the majority shareholder, Lucio Tan, lacking the skills, industry, experience, credibility, and respect to lead PAL or be involved in the management of the company.”

June 15, 1999 – Ogden Aviation, world’s largest provider of aviation services, signs joint venture agreement with MASCORP and buys 30% of it. On August 9, 1999, SEC approves its change in name to MacroAsia-Ogden Airport Services Corp.

July 2, 1999 – US Ex-Im Bank demands “open and fair auction process for the sale of PAL’s valuable non-core assets”.

March 24, 2000 – SEC approves PAL sale of maintenance and engineering department to a yet-to-be formed joint venture of Lufthansa Technik Philippines and Macro Asia Corp.

May 14, 1999 - MASCORP obtains Air Philippines as client. It earns 54.2 million pesos in eight months of operation servicing Air Philippines and all chartered flights of International Business Aviation Services, Philippines. Now has 6.5% of market, compared to MIASCOR’s (Manila International Airport Service Corp.) 61.3% and PAL’s 19.4%.

July 2, 1999 - MacroAsia incorporates Airport Specialists’ Services Corp. as a fully-owned subsidiary of MASCORP “to manage and promote, service and/or provide manpower support for any and all groundhandling requirements or private, military and/or commercial aircraft maintenance, maintenance of ground support equipment, ramp handling, aircraft cleaning, cargo receiving…

By this time, MacroAsia is also now the second largest in-flight caterer (with 17% of the market), next to PAL (with 73%). As of Dec 31, 1999, it has Singapore Airlines, Air Macau, Cathay Pacific, Lufthansa, Qantas, Saudia Airlines, Emirates, Pakistan Airlines, Canadian Pacific, China Southern, Federal Express, Air Philippines – all former PAL clients.

January 21, 2000 – MacroAsia Properties Development Corporation (incorporated June 4, 1996) applies with Philippine Economic Zone authority (PEZA) to operate a 23-hectare Special Economic Zone at the Philippine Airlines Technical Center inside NAIA.

April 6, 2000 – PEZA approves MacroAsia Properties Development Corporation’s proposal to operate a Special Economic Zone inside NAIA. Locators enjoy tax incentives to provide aircraft maintenance, repair and overhaul services to foreign and domestic airlines.

April 6, 2000 – Estrada’s trade secretary Jose Pardo announces that Lucio Tan is willing to sell PAL to clean up his own “crony” image

April 24, 2000 – Lucio Tan tells reporters he is talking with Lufthansa AG for the latter’s possible purchase of PAL

August 2000 – Philippine government loses its 25 billion pesos tax evasion case against Lucio Tan dur to late filing.

August 4, 2010 – Lucio Tan still owns PAL and recently said it’s not for sale.

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