A report in the Philippine Inquirer has revealed that the existing alliance between San Miguel Corporation and the Lucio Tan Group, which jointly owns Philippine Airlines, is about to end. Insiders have suggested that the two sides are encountering management differences and no longer share the same vision, which will ultimately lead to one group buying out the other and regaining full control of the national flag carrier.
|Image Source: Boracay Informer|
While Ramon Ang and San Miguel Corporation have been reporting that Lucio Tan intends to exit the airline business putting up his 51-percent PAL stake up for sale, the Lucio Tan group have been pooling funds to purchase back the 49-percent stake that was originally sold to San Miguel Corporation with the intention of reclaiming complete management control of Philippine Airlines.
The San Miguel Corporation became a strategic partner in 2012 when it purchased a 49-percent stake in Philippine Airlines for $500-million to support the carrier's modernization and re-fleeting program. However, industry sources have revealed that San Miguel Corporation is also willing to sell back its interest in PAL to the Lucio Tan group "at cost" and has been willing to do so from as early as last year.
The key issue that remains is whether the Lucio Tan group will be able to raise the money required to buy back the 49-percent stake from San Miguel Corporation. Although SMC signed a $500-million deal to purchase part of Philippine Airlines and its sister carrier, PAL Express, industry sources suggest that Tan's group will require at least $1 billion to obtain full control from San Miguel Corporation in order to cover the cost of buying back the shares held by SMC plus the advances made on behalf of PAL for the acquisition of several new aircraft under Ang's ambitious re-fleeting program.
If Tan cannot raise the necessary funds required, the San Miguel Corporation will be the one to buy out the Tan family's remaining 51 percent stake. Sources familiar with the discussions refer to it as a "buy-me-out-or-I-buy-you-out" situation, suggesting that, "it will happen very soon," which will leave only one group in control of the carrier.
The efforts to regain control of Philippine Airlines by the Lucio Tan group is being conducted outside of the publicly-listed LT Group Inc, and is primarily being backed by Tan's first family. To boost the initiative further, Tan has re-enlisted former PAL President Jaime Bautista to act as his Executive Assistant in his role as the airline's chairman. It remains a possibility that the Tan group may borrow money in an effort to raise the necessary capital.
As for Ang, sources indicate that he is aware of the attempt of the Tan group to regain control of PAL, but his attitude has remained "wait-and-see" to determine if Tan will be able to raise the $1 billion. Meanwhile, Ang continues to prepare for the possibility that San Miguel Corporation may end up buying out the Tan group.
Industry sources have suggested that the animosity between Tan and San Miguel Group started as early as when Ramon Ang took over management of Philippine Airlines. An unidentified source commented on the Philippine Flight Network website that Tan has not agreed with a number of the decisions made by Ang including the contracting of annual aircraft maintenance to facilities in China, rather than using the local Lufthansa Technik operation, which Tan is a minority owner of.
In addition, other industry sources suggest than Tan is also upset about a generous early retirement option that is being offered by the Ang management team to PAL employees, which Tan feels is front-loading expenses and weeding out long-term PAL veterans.
Concerns have also been raised about the aviation supply arrangement with Petron Corporation, which is controlled by San Miguel, and the leasing of a large number of aircraft. SMC suggests that the initiatives were merely to create synergies and improve operating efficiencies at Philippine Airlines, but such moves have been interpreted differently by members of the Tan group. Moreover, there have also been issues pertaining to privileges that were lost by the Tan family when SMC assumed management of PAL.
However, the San Miguel Corporation insists that their primary focus in all decision making has always been on restoring the carrier to profitability. While this story is far from unfolding, it is becoming clearer as to why the Tan Group originally wanted to divest its share of Philippine Airlines as Tan likely does not believe in the direction that Ang is steering PAL in. But with few interested in purchasing a stake in the carrier, Tan is left with no choice but to take control back.
As for Ramon Ang, it seems that he would be equally as happy to divest of San Miguel's interest in the carrier, now realizing that restoring a national carrier to profitability is anything but easy. Ang previously suggested that the corporation would be willing to let go of its interest in PAL should it win the opportunity to construct a new international airport for Manila.
While this battle continues to unfold, the only people that seem to truly be losing are the passengers. This has been reflected in a number of the decisions that have been made recently at the carrier that has drawn mixed reviews from industry critics and passengers. Philippine Airlines recently recorded a dismal performance at the annual World Airline Awards, ranking 93rd out of 100 airlines worldwide. Meanwhile, an announcement on the lease or purchase of additional long-haul aircraft is likely not to take place until the issue of control is resolved.