Philippine Airlines: Tan & SMC Battle for 100% Control

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. 

Copyright Photo: Angelo Agcamaran/PPSG
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.

44 comments:

  1. REMOVE SMC OUT OF PAL'S MANAGEMENT!
    He are the reason why many people are confuse of what PAL's direction on the business.. PAL is turning into like LCC Airline.. I hope Lucio Tan has enough money to own back that 49%share. Lucio Tan finally understand that what SMC is wrong and should turn things back around..
    In this situation, PAL building an airport should not be their first priority. Although a new Airport should be built to replace the congested NAIA but PAL has its own problems.. The Government should be the one handling NAIA or building the airport but since the Philippines Government is so corrupted.. We'll have to wait and see how all of this will go..
    I cross my fingers PAL is 100% owned by Lucio Tan.. Hope to see his side of PAL's vision.

    ReplyDelete
    Replies
    1. They do not do any strategic planning anymore. No risk analysis. No more cost-benefit analysis. all gut-feel assumptions and LCC only.
      They thought the answer is just LCC - which is not sustainable.
      Good luck to all the remaining PAL staff.

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    2. Best wishes to Lucio Tan in buying back controlling shares of PAL. PAL has been super crappy lately under the management of Ramon Ang who obviously doesn't know jack about the aviation industry.

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  2. PAL under SMC has been a disappointment and their future plans and strategies are second rate. Now that we have Cat 1, EU and ICAO back, maybe it would be best if Lucio takes it back and runs the airline

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  3. I think this comes after PAL's 93rd place in the rankings. PAL can do better. Remember back then when PAL became better without SMC?

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  4. No direction under SMC...all talk and bad decisions.

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  5. PAL is crap they need to buy newer planes and have better entertainment systems and cheap airfairs

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  6. Ramon Ang should probably divest from PAL and enroll in an English language course! A complete laughing stock!

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  7. "few interested in purchasing a stake in the carrier"? What happened to the foreign company that was supposed to be investing in PAL, just as Ramon Ang said?

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  8. So Jaime Bautista has been called to act as Lucio Tan's executive assistant? Does that mean that when the LT Group takes full control of PAL, he'll be the president again? Will that make the airliner better? I mean, how did PAL fare under him?

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    Replies
    1. He is much better than Ramon Ang. I worked with both.

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    2. Correct. In terms of attitude, Jimmy Bautista is the best.

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    3. PAL has been terrible under Ramon Ang. I'm glad Lucio Tan is taking the national carrier back. PAL has some good people that worked for the airline industry for the past 20-30 years and once the SMC group took over in 2012 they immediately axed all the veterans and replaced them with SMC people who lacks knowledge about the aviation industry.

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  9. Before, flying PAL makes me proud... But now, i cant tell the difference between PAL and CEB PAC flying on them now...

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    Replies
    1. I agree too. New aircraft with zero entertainment even for business class, skinny seats, long queues for lavatory. Yes,they offered you Ipad with a fee..... Mukhang kawawa tuloy mga pasahero.

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  10. Pal should be concentrating on international passengers not trying to offer a poorer service than cebu pacific. Cramming people in like sardines may work for a short time but the passengers will get wise in the long term

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  11. SMC has a lot drawings/planning but no action. They're taking out the veterans of the airline that know the right decisions for the airline. SMC doesn't care about PAL employees and their passengers. SMC can't handle the balance between high level of service for the passengers and profitability. All they care is about cost cutting. The top people of SMC doesn't have and any airline expertise and wisdom.

    A lot of veteran PAL employees has put PAL in their hearts and they are willing to teach the new employees the system that made PAL a great airline. Now, SMC/RSA wants them out so no one will object them for their poor decisions. I hope LT group will be back before it is too late.

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  12. No good choice here! Both have proven to be incompetent...

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    Replies
    1. The only thing that will propel PAL into becoming a truly global airline competitive with the other airlines in the region is by selling majority stake to a foreign buyer or buyers who can inject unlimited capital and resources and outside expertise which PAL desperately needed. Not like those bunch of "morons" put in there either by the LT Group or SMC who have absolutely no concept of how to operate an airline. It may seem cruel selling majority stakes in PAL to an outsider as if losing our pride to our national flag carrier but that's the only viable option available to them. Problem is - still no takers because of the massive amount involved to overhaul PAL and its operations.

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    2. Ramon Ang a CEO? Reminds me of a "magtataho" in my hometown when I was a kid.

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    3. You seem to have the finances - please buy PAL and prove that you are a competent commercial aviation planner.

      Please...

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    4. The hurdle to attract foreign ownership is our restrictive foreign ownership law. It left the people no choice but to patronize these big businesses owned/ran by local buwayas. That's truly anti-Filipino

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  13. In 2014 PAL dropped from 90 to 93 in the Worlds Airline list of Skytrax.

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  14. Give PAL to China, I thought Chinese always understand each other, Ang, Tan...........

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  15. Pnoy is the best to be PAL President after his presidency. At least the DAP concept is legal in businesses. LOL.

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  16. maintenance is very important and if china start the PAL maintenance my clan will not fly PAL anymore.

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  17. When SMC took over, they thought that strategic planning for an airline is the same as SMC products. Not so.

    They arrogantly increased the fleet without any cost benefit analysis. The first thing SMC did was to get rid of intellectual property rights - like Tads Aquino - and replaced her with somebody with nil knowledge on Bayesian forecasting. See what happens now...

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  18. The sad part of this saga is that neither SMC or the LT Group, on their own, is competent to operate PAL and bring it back to its former glory. If either party is looking for a White Knight to ride in to the rescue they better not hold their breath. Why would any foreign carrier choose to take a stake in PAL when it is clear that the partner they would have to work with is are not capable of running an airline. You can be almost certain that any foreign airline will stand back and wait for the day that PAL is forced to close shop due to excessive losses or whatever and then swoop in and pick up the pieces. Food for thought: if PAL closed shop - would they be missed? Yes, the flag carrier would fly no more but passengers would have plenty of first class carriers to choose from and, ultimately, that's what it's all about. If PAL can deliver what passengers want they will be able to rebuild the brand and return to profitability but, as it stands now, it's a long shot at best. I wish them luck but the ownership issues will need to be resolved, professional airline management installed and the corporate culture changed. There are examples of this type of successful turnaround - look no further than Garuda but Garuda had the luxury of (partial) state ownership and a dedication to recovery. Good luck PAL

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  19. why don't you give Mr. Ramon Ang another year (2015) or two (2016) to show how he will turnaround PAL. it is simply unwise to change horses in the middle of the stream. Afterall, Lucio Tan had his chance to directly manage PAL from 1993 to 2011. Well, what happened in those 8 years of PAL under Lucio Tan?

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    Replies
    1. It was much better than now.

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  20. I think we already know where the airline industry is going. Most international airlines are improving their IFEs and overall product. Unfortunately, Ramon Ang chose to go the other way and chose to turn PAL into another LCC. While this might work for domestic and short haul flights, I don't think it will for international and long haul segments. PAL should stop expanding routes if they are only going to offer products that are way below international standards while charging regular or even above regular fares.

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  21. PAL cannot compete head on with the likes of Cathay Pacific, Singapore Airlines, Emirates or Delta Airlines because the taipans are not willing to operate PAL as a classy airline because of the advent of LCCs. Neither Ang nor Tan are willing to spend enough to bring PAL to the level of the elites. So my guess is, whoever wins to manage PAL will not bring back PAL to its glory days. Those days are long gone.

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    Replies
    1. PAL is likely to become the Aer Lingus of Asia.. stupid lccs

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  22. SMC and Ramon Ang is the reason of making PAL worst airline. How can PAL compete other airlines with 9-abreast seats on new Airbus A330-300 even on premium economy? How can PAL compete without IFEs on its new aircraft? What is the concept of Ramon Ang doing these?
    PAL should manage by Lucio Tan management.

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  23. I think PAL should hire a foreign CEO..just like other middle eastern carriers

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    Replies
    1. They cannot hire a foreigner at PAL because it is stipulated in the Philippine constitution that a national carrier should be managed by a Philippine citizen.
      LT tried before - Cathay Pacific and LH people but they were relegated to contract advisors.

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    2. What the above person said. As a national carrier PAL must be majority owned by a Philippine national. It's under the Philippine constitution that foreigners cannot own land or a public utility company unless they are partnered with a Filipino citizens which has majority share.

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  24. Mr. Ang, you know nothing about running an airline. All your decisions since your takeover has gravely affected passengers, wholesalers, agents and even your own employees. You are as fickle as the weather and erratic in behaviour, if would be nice if, for a change, you treat people as human beings and not like your toys that you just change, throw, abuse, without careful thought. Your airline policies, sales strategies, have thus far proven to be more disastrous, chaotic and unprofitable both for you and your target market since your takeover, unless there are personal interests or benefits from the changes you have applied since. Please do us a favor and bring back to the Filipino people the pride we had in our flag carrier.

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  25. PAL should play to it's strength as a long haul carrier and not get mixed into the regional low cost (little profit) carriers. This obviously got lost on Ramon Ang.

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