The recent bestowal on Philippine Airlines of a four-star rating and the 2nd Most Improved Airline Award by the world’s top airline rating organization are the latest events in the life of this country’s flag carrier.
It has been a long, challenge-filled and exciting life. It all began in 1946, barely one year after the end of World War II when Col. Andres Soriano, fresh from a stint as an aide to President Manuel Quezon, decided that the newly independent Republic of the Philippines needed an airline for its reconstruction and development. Philippine Airlines began its life with a small fleet of DC-3s, the workhorses of World War II, and operated out of Nichols Field.
Its only domestic competition was FEATI (Far East Air Transport Inc.), which had been organized by the Araneta and Lopez interests. Given the largely colonial complexion of the East-Asia Pacific region, the only significant operating airline was Australia’s Qantas.
Having achieved steady growth in the late 1940s and early 1950s, PAL decided to expand its international presence. The airline had been flying to Honoluu and San Francisco for some time. It had also been flying to Hong Kong and Tokyo. Now it commended flights to three Westers European cities (Madrid, Rome and London).
The Western European routes appear to have been unprofitable, for they were abandoned in the mid-1950s. PAL now concentrated on its US West Coast and East Asian routes.
In the meantime the Philippine Government, through GSIS (Government Service Insurance System) had acquired an equity interest in PAL. In time it would become a controlling interest. On the private-equity side, the Soriano interest had been acquired by a group led by Benigno Toda.
The government’s entry was to prove to be both a boon and a bane to PAL. In the end it proved to be more of a bane.
The government presence in PAL meant access to government—especially GSIS—funds for operations and greater leverage in the acquisition of international routes. But it also brought in politics, more specifically Imelda Marcos-era politics. Before long, the flag carrier began to be used, domestically and internationally, for political purpose, and its receivables from the government started to build up. The exit of the Toda group, and the takeover by GSIS, has never been satisfactorily explained, but a story that has refused to go away has it that Mrs. Marcos got very upset with Mr. Toda when PAL sent Malacañang a bill for the former First Lady’s use of PAL aircraft.
PAL’s balance had deteriorated during the Marcos era, and the two decades following the Edsa Revolution were a time for balance-sheet strengthening and operational rationalization. Longstanding management and legal problems—in particular, labor problems—had to be addressed resolutely if Asia’s oldest airline was to be able to enjoy the fruits of its longevity.
When the GSIS’ interest was eventually put up for sale, the best offer was made by Lucio Tan, who had risen to taipan status on the back of his tobacco (Fortune Tobacco) and banking (Allied Banking Corporation) businesses. Whether it is now possible to say “The rest is history” is not a matter of certainty.
Suffice it to say that PAL has made much headway since the Tan takeover. The 4-Star and 2nd Most Improved Airline awards attest to that. So does the recent acceptance by the airline of its first Airbus A-350-900 and Airbus A321-neo. In the estimation of president Jaime Bautista, the A-350-900 is “the world’s most advanced commercial aircraft.”
The airline industry is extremely complicated, and the PAL story is an excellent case study worthy of inclusion in the syllabus of any business school. Having dealt successfully with headwinds, forced landings and route changes, this country’s flag carrier now appears capable of sustained flight.. Next stop? 5-Star status, which is targeted for 2020.
