PAL's Labor Woes: Then and Now

http://www.abs-cbnnews.com/insights/08/05/10/pals-labor-woes-then-and-now

Philippine Airlines is no stranger to labor disputes and pilot exodus. But it seems the Aquino administration is. The current high-profile issue of pilots leaving for greener pastures abroad is actually old news.

The 1998 labor issue of PAL easily comes to mind and, wittingly or not, it clouds the way we evaluate the 2010 version. After all, that labor issue 12 years ago has become a landmark retrenchment-related case, and one of the most celebrated in the Philippines. (Read: Retrenching workers? Don’t repeat PAL’s mistake [12] )

It also had a colorful cast: Lucio Tan, one of the country’s richest, and former President Joseph Estrada, who mediated the dispute. But while the interplay of politics and business was a major component then, the bigger factor now is the business, more than the political, environment that PAL is in.

In 1998, PAL dismissed about 5,000 pilots, flight attendants, and other airline employees who went on strike following a series of layoffs. At the time, the strike threatened to paralyze PAL’s operations.

It was a national, not just a mere labor, issue since the strike had an impact on the entire local aviation industry in the country. PAL, then considered the only flag carrier (literally and figuratively), had a virtual monopoly, thanks to decades of being a government-owned airline that shunned competition. While it was eventually privatized, its cozy relationship with the powers-that-be allowed it to remain the only major local airline servicing domestic routes and short- and long-haul destinations abroad.

Fast forward to 2010. The local airline industry has drastically changed after the Ramos-era industry deregulation has taken root. Gokongwei-led Cebu Pacific Air, which transformed into a budget airline in 2004, has already overtaken PAL. Citing figures from the Civil Aviation Board, Cebu Pacific claims that it is now the largest Philippine airline (note small caps in “airline”) after it breached the 50% market share last year. (Read press statement here [13].)

It said it flew 2.45 million domestic and international passengers from January to March this year. During the same period, PAL flew 2.34 million total passengers. The 110,000 margin maybe a slim one, but it is a sign of the times: PAL no longer dominates the Philippine sky.

PAL initially faced the headwinds after its near-death experience in 1998 following its hubris days and the Asian financial crisis that forced it to its knees. It was successfully released from receivership in 2007—nine years after it was on the brink of financial collapse. Sydney-based Center for Asia Pacific Aviation even named it the “Airline Turnaround of the Year” in 2007 for restructuring its operations and cutting costs. (Note: PAL was given exclusive use of the Terminal 2 at the Manila airport after this was included as one of the conditions of its rehabilitation.)

While it was restructuring, however, PAL’s domestic operations were limited to just the key and established domestic destinations. Its previous missionary routes have been snapped by other domestic carriers like Sea Air and Zest Air. Both mount flights to Caticlan, the jump off point to tourist haven, Boracay island.

In the world of aviation, domestic flights are key since international airlines are not allowed to fly passengers within the domestic territory. In industry parlance, this is called anti-cabotage. International airlines can only bring passengers into and out of the designated gateways in the country—such as the international airports in Manila, Clark, Cebu and Davao—but local airlines are the ones that fly passengers from those “drop-off points” to and from local destinations.

Since are we are nation of more than 7,100 islands, which make contiguous land trips impossible, and people now have access to budget air fares that can go as low as P1 (base fare, promo), and our passenger shipping industry has a tainted safety record—we like to fly.

In 1998, we had to fly PAL. This 2010, PAL is just one of the choices.

Pilot resignations

But that’s just the domestic playing field. Far beyond the influence of PAL, or even Lucio Tan, was how the global aviation industry has changed. And that’s where the current issue of pilot resignations in PAL figures.

The problem of pilot resignations is not a PAL monopoly. It’s a global phenomenon that was a direct result of the soaring capacity growth. Just take note of those news tidbits about orders from different airlines for the much-publicized new variants of Boeing and Airbus, not to mention the release of Airbus A380 and Boeing’s 787 Dreamliner, both giant double-deck, wide-body planes that can accommodate 500 to over 800 passengers. These airlines are likely adding aircraft faster than pilots can be trained to fly them. That means a dogfight for scarce pilots.

And in a typical supply-demand imbalance, pilots and other qualified staff usually leave for better offers in numbers larger than ever. Usual destinations of pilots who resign due to higher pay offer are carriers from China, India, and the Middle East. The 25 pilots that haphazardly resigned from PAL were reported to have found new employment among airlines from the Middle East, apparently a favorite since salaries are tax-free. However, previous pilot exodus that hurt not just PAL, but also Cebu Pacific, was due to poachers from China and India. In India, pilot shortage due to the rapid increase of airline players became so severe that one cargo operator, Blue Dart, said it lost 80 pilots from June 2004 to April 2005.

PAL, too, has been vocal about its own problems on the exodus of key personnel. In fact, when PAL’s management embarked on a grand $1 billion expansion program after being released from receivership in 2007, it had to put on hold the delivery of the bigger and more cost efficient aircrafts it has ordered because of the alarming rate that it was losing pilots and mechanics to foreign airlines.

In a 2006 forum of local aviation officials in Manila, PAL president Jaime Bautista was quoted as saying that some 140 senior pilots and over 1,900 aircraft mechanics had left for higher paying jobs overseas in the last 5 years. From 2003 to early 2006 alone, Bautista had said it had lost 78 of its senior pilots to foreign competitors. The past resignations, however, did not come in one blow, as it did now.

Nonetheless, any professionally-run company should be prepared—operationally and financially—for the worst. Best practices show that companies must have redundancy plans in place, even taking in to account the resignation of its key people.

Is PAL prepared for these resignations?

Management seems to have been counting on the 180-day lead time that a resigning pilot should observe, as required by a government regulation designed to allow the airline to find suitable replacement. PAL officers have also cited that the contracts signed during their expensive pilot training bound them to a lock-up period with the company so they can serve out PAL’s investment on them. Legal cases against the pilots are already being pursued by PAL.

Any incident not according to the company redundancy plans—something not limited to resignations, but includes being caught in the middle of an unexpected war and even natural calamities—is truly disruptive.

These are disruptions, it seems, that affect PAL as a company, but is it disruptive enough for the entire Philippine economy that high level government intervention is needed?

After all, this is year 2010, not 1998.