Airways Magazine

Philippine Airlines: Asia´s oldest carrier

 Breaking News

Philippine Airlines: Asia´s oldest carrier

Philippine Airlines: Asia´s oldest carrier
June 22
10:23 2016

Published in December 2014 issue

In March this year, Asia’s oldest airline, Philippine Airlines (PAL) commemorated its 73rd anniversary at a time during which the carrier appears to be on a path toward re-establishing itself after having been considered by many within the industry to be on the brink of extinction. Re-energized with a new equity partner –the San Miguel Corporation, one of the country’s largest and richest conglomerates – PAL seems to be making a comeback, positioning itself to challenge the numerous domestic Low Cost Carriers that have emerged since deregulation. At the same time, the airline looks again to compete significantly on long-haul international routes.

By Murray E. Kirkus

ASIA’S LONGEST-EXISTING

Asia’s longest-existing airline was officially incorporated with a capital of 500,000 pesos in February 1941 under the name of Philippine Airways, with shareholders comprising a group of Filipino, German and Spanish industrialists and businessmen. Although the airline had first been registered back in 1928, it had not become a candidate for capitalization until the Philippine Aerial Transport Company (PATCO) folded and an opportunity was seen for a new carrier to fill the void. However, the new airline was never to operate as Philippine Airways after the stockholders, meeting the same month as the initial incorporation, changed the name to Philippine Air Lines, a change that was endorsed by its directors and registered accordingly. Years later, another subtle change saw the airline rebranded Philippine Airlines.

The new airline’s founding director was wealthy Spaniard Andres Soriano, who, a decade earlier, had been instrumental in establishing PATCO. Soriano, general manager of San Miguel breweries, had two years before imported his own Beech 18, and employed two American pilots ̶ Paul Gunn, a former US Navy and Inter-Island Airways pilot with 20 years’ experience, and Emil Scott, who had flown for China National Airway Corp. These two pilots and Soriano’s Beech 18 were to become the catalyst for the Philippine Air Lines’ start-up, as the airline owned no aircraft of its own.

Philippine Air Lines services began on March 15, 1941, when Soriano’s Beech 18, registered NPC-54, conveyed five passengers from Manila’s Nielson Field to Baguio in northern Luzon. PAL services were met with high demand by businessmen as the two aircraft had taken up routes abandoned by PATCO. A second Beech 18, purchased by Elizade, arrived from the USA on April 19. At that time, PAL’s only competition was the Iloilo-Negros Air Express Company (INAEC). Although Iloilo-Negros’ Sikorsky S-43 amphibian was larger and more comfortable, the Beech 18s had the edge over it when it came to speed.

At a stockholder meeting in September 1941, the airline’s capital was raised from 500,000 to one million pesos, with the Government Development Finance Corporation taking a 15% share. This increase in capital provided an early opportunity to expand the carrier’s operations; thus, Soriano placed an order for two 14-seat Lockheed Lodestars for a planned Manila–Hong Kong service; the airline’s future looked assured. However, before the new Lockheeds arrived, the war clouds rapidly gathering over the region curtailed Philippine Air Lines’ promising operations.

On December 8, 1941, less than twenty four hours after Pearl Harbor had been attacked, hundreds of Japanese aircraft targeted airfields on the main Philippine island of Luzon, destroying the majority of the US military aircraft that had been positioned there just weeks earlier. Fortuitously, PAL’s three aircraft, which were, at the time, positioned on airfields far from Manila, escaped the carnage, but were requisitioned days later by the American Far East Air Force (FAEF), halting Philippine Air Lines’ services for the war’s duration.

GROWTH AND TURMOIL

In January 1946, PAL was revived with Andres Soriano as president. He had become an American citizen during the war, which served him well when he approached the head of Trans World Airlines (TWA) seeking financial assistance for the Philippine carrier.

A deal was agreed upon for TWA to inject 2 million PHP (Philippine Pesos) into the airline for a 28% share.Five converted exmilitary Douglas C-47s were purchased and commenced flying from Nielson Field, Manila, to 15 destinations within the Philippine Archipelago, replacing the Beech 18s that had been destroyed during the war. The same year, PAL became the first Asian carrier to fly across the Pacific when its chartered Douglas DC-4s ferried American troops from Manila to Oakland, California. That December, PAL introduced a regular service to San Francisco via Guam and Honolulu. The journey took 41 hours.

1947 saw the airline introduce DC-4 services to Rome and Madrid, making PAL the first Southeast Asian carrier to fly into Europe. The following year, a move was made from Nielson airfield to the former US Army Air Force base at Nichols airfield, which became Manila’s international airport and serves the city to this day.

As the country’s sole air transport provider, PAL’s expansion moved ahead. A fleet of 42 newly acquired C-47s and nine small, single-engine Noorduyn Norsemen aircraft served domestic routes while PAL continued to expand internationally with DC-4s and DC- 6s. Nevertheless, the airline’s financial position failed to improve.

In 1958, PAL entered the turbo-prop age with the arrival of the first of four Vickers Viscounts for domestic services. A Convair phase-out began that year. In 1959, five Scottish Aviation Twin Pioneers were ordered, as were two Fokker F27 Friendships and the first pure jets, two Douglas DC-8s. That same year, PAL was designated the country’s national flag carrier in recognition of its importance to international commerce. All the while, it had been returning modest profits.

Two fatal accidents involving DC-3s occurred in 1960, prompting a Senate inquiry into PAL’s operations. The following year, Andres Soriano took responsibility for the crashes and resigned as president. When it was finally released, the Senate committee report praised the airline’s operation but was critical of the lack of air traffic control procedures and installations, which the government had failed to provide.

A new president was appointed but the airline’s profits were again in a steady decline. Over the ensuing two years, numerous clashes among management and executives heralded a further period of instability.

By 1964, PAL had become almost wholly government-owned. In 1965, Rubicon, a company owned by the family of PAL Chairman Benigno Toda Jr., won a bid to privatize the airline, which once again reverted to majority private ownership. In May, its first pure jet domestic service began with a BAC 111-400, which proved to be ideal for the airline. PAL operated nineteen units over the following 25 years.

The mid 1960s saw a new phase in which PAL experienced varying degrees of competition by industry newcomers. Three new airlines challenged the incumbent’s dominance in the marketplace, but only one represented any real threat. Filipinas Orient Airways (FOA), with its fleet of twenty aircraft, including DC-8s, Caravelles, YS-11s, and DC-3s, was a force to be reckoned with until martial law was introduced in 1972 and FOA was ultimately merged with PAL under the country’s new oneairline policy. Air Manila Inc. (AMI), which had appeared on the scene in 1963, appeared to be an aggressive challenger, but its expansion stalled after one of its Lockheed Electras crashed in Guam during a charter to the USA.

AMI was later also absorbed by PAL under the one-airline policy.

[tribulant_slideshow gallery_id=”355″]

HIJACKING AND BOMBINGS

A volatile period in the company’s operation began in 1967, when it lost two F27s and a chartered Indonesian F200 in fatal accidents. The latter crash was particularly devastating as a number of the airline’s pilots and management personnel were on board. Nevertheless, operations continued. Toward the end of that year, three more F27s, a BAC 1-11 and four DC-3 replacements in the form of Hawker Siddeley 748s were introduced into the fleet.

Early in 1968, DC-8 services to Tokyo and, later the same year, to Saigon were added to PAL’s international destinations and an additional six aircraft, including another DC-8 and more HS-748s, were acquired.

In April 1969, services to Rome were finally reintroduced, but long gone were the DC-4s, their replacement being DC- 8s. That same year, a Manila–Amsterdam route was initiated, and four more HS- 748s were added to the domestic fleet. However, the decade ended badly for PAL, with yet another fatal crash. On September 12, a BAC 1-11 on a domestic flight crashed near Antipolo, killing all on board except one flight attendant. Alarmingly, worse was to follow.

In March 1970, air services to Saigon, which had begun two years earlier, were suspended. In April, an HS-748 on a flight from Cauayan, Northern Luzon, to Manila blew up in mid-air. It was suspected that a provincial pólice commander on board had been the target. In May, an F27 was lost in a weatherrelated accident and, the following month, another aircraft was bombed, killing two passengers. In July, an F27 landing incident killed one passenger and destroyed the aircraft. Two months later, a 22-day strike by Philippine Air Lines Employee Association (PALEA) and ALPA members brought the airline to its knees. Had those events not been enough to cripple the carrier, just days short of Christmas 1970, two thirds of PAL pilots walked off the job, resulting in hundreds of cancelled flights and in the holiday plans of thousands of passengers being disrupted. However, Philippine Airlines was not prepared to capitulate to adversity, soldiering on with reduced services.

In September 1972, President Ferdinand Marcos declared martial law, introducing curfews and travel restrictions, which resulted in further economic problems for the airline. PAL had already sold off the building which housed its Manila headquarters, as well as disposing of a number of Fokker F27s in order to raise capital, as losses continued to mount. Around this time, the airline leased two DC-8s to enable it to compete on Pacific routes, and the last of its aging DC-3s were phased out. The following year, after Marcos issued his Letter of Instruction 151, nationalizing the airline industry, the Philippine National Bank (PNB) took over management and operational control of PAL and the country was once more effectively reduced to one airline.

In the midst of all this, in October 1973, a BAC 1-11 flying between Davao and Manila was hijacked by three passengers and ordered to be flown to Hong Kong. Hostages were taken and a standoff ensued. PAL’s President, Benigno Toda Jr., offered himself as hostage in lieu of the passengers but, before this Exchange could take place, a resolution was negotiated and the hijackers surrendered without bloodshed.

With its now monopolistic position, PAL’s financial situation began to improve, as the airline generated modest profits over the ensuing years. However, in 1980, the balance sheet revealed a huge loss of almost 385 million PHP, partially attributable to the crash of one of its DC-10 aircraft in Chicago the previous year and the subsequent grounding of the remaining DC-10 fleet.

In 1981, PAL’s fleet was comprised of 40 aircraft: four B747-200s, four DC-10- 30s, two Airbus A300 B4s, two B727s, 12 BAC 1-11-500s, nine YS-11s and seven HS-748-2s. These served 22 cities within the Philippines with international operations stretching to 17 countries. That year, the airline’s losses topped 595 million PHP.

Following the assassination of presidential hopeful Benigno Aquino and the unprecedented turmoil which followed, the airline’s financial woes intensified.

The accumulated losses for the 1985-86 fiscal years approached 2.6 billion PHP, as the airline suffered through the country’s political turbulence.

The people’s power finally toppled the Marcos regime in February 1986, and a new PAL president, Dante Santos, was appointed. New aircraft, in the form of Boeing 737s, Fokker 50s and Shorts SD-360s, were acquired, but the SD-360s, replacements for the HS- 748s, were not popular with passengers as they lacked pressurization and had limited baggage space.

A spate of accidents was to befall the airline the following year. In June, an HS-748 on a flight from Manila to Baguio collided with Mt. Ugo. In December, a Shorts SD-360 hit Mt. Gurain in the Lanao del Norte province. There were no survivors from either accident. An A300 overshot on landing in Manila, causing substantial damage although no one was seriously injured. Then a BAC 1-11 experienced decompression at cruise altitude, and a B747 ran off Hong Kong’s Kai Tak airport’s runway after a brake failure.

THIRD PRIVATIZATION AND A BOMBING

Despite seemingly never-ending disorderwithin the airline, the early 1990s were a gainful period for the carrier, which returned a profit of 1.1 billion PHP for the year ending March 31, 1992 – its best ever to that date. However, changes were in the air.

In February 1994, PAL’s 12th president, Jose Garcia, was appointed at a time in which important change within the Philippine airline industry was gathering momentum. Previously, in 1988, President Corazon Aquino had revoked the one-airline decree promulgated by former President Marcos, clearing the way for new carriers to enter the market. Now, six years later, PAL was for the first time staring down the barrel of significant competition.

For PAL, the year 1994 literally ended with a bang. On December 11, Flight PR434 departed Cebu with 293 passengers and crew bound for Japan on its second leg of a Manila – Tokyo flight. 38 minutes after take-off, a small bomb planted beneath seat 25K exploded, tearing a hole in the floor and severing a number of control cables in the cabin roof. Despite the damage and partial loss of control, the Boeing 747-200 was successfully guided, using engine thrust as steering, to Naha Airport on Okinawa Island, where it was landed without further incident. One passenger was killed in the blast and 10 others injured.

An immediate investigation launched into the narrowly avoided catastrophe by the Philippines National Police found that the bomb had been planted on the Manila – Cebu leg of the flight and was to be the forerunner to a plot, known as Operation Bojinka and masterminded by Ramzi Yousef, to bomb twelve airliners over the Pacific Ocean on the same day. Yousef, at that time, was wanted for the World Trade Center bombing of the previous year. The plot was thwarted when, a month after the PAL 747 blast, a bomb factory in Manila exploded, killing several Al Qaeda operatives. That year, Philippine Airlines generated a sizeable 451 million PHP loss.

In an effort to revive its declining image, fresh capital was injected to restructure the airline. In the following year, the board finally approved the purchase of 36 new aircraft, including B747-400s, A340-200s, A330-300s and A320-200s. These new aircraft, with their improved engine efficiency and lower operating costs, were essential for PAL to compete with its rivals.

1997 saw the airline’s long-running ownership struggle settled and the approval by the Security Exchange Commission (SEC) of a 10 billion PHP recapitalization fund, with guarantee of a further 20 billion if required. In March, to coincide with its fleet replacement program, a marketing and advertising campaign re-launched PAL as ‘Asia’s Sunniest Airline’; however, three months later, the Asian financial collapse ravaged the region, putting new aircraft purchases beyond the airline’s financial resources.

On its 58th anniversary, March 15, 1999, PAL executives negotiated a deal with major creditors in Hong Kong and the US. The same day, services to Xiamen were restored after a nine-month absence. Around that time, PAL approached the SEC with a revised rehabilitation plan requiring an infusion of US $200 million. The following month, PAL announced its greatest annual loss ever, 10.1 billion PHP on an income of just 18.5 billion. More than 600 pilots and hundreds of cabin crew were laid off while almost half of its 14,000 ground staff were retrenched. By this time, PAL’s fleet had been reduced to 21 aircraft.

[tribulant_slideshow gallery_id=”356″]

REHABILITATION, NEAR-DISASTER AND SALVATION

Remarkably, PAL’s turnaround was relatively swift. From a record financial loss in 1999, the airline announced a profit of 46 million PHP, the first in seven years, for the year ending March 31, 2000. Tan, true to his word, had produced the 200 million USD required for revitalization, and agreed to place another 100 million USD on escrow. This effectively gave him a 90% share in the airline.

However, by this time, PAL was facing increasing competition from a number of newly established, budget domestic carriers the airfares of which it could not hope to match. To meet these competitors head-on, a consortium headed by Lucio Tan under the name PAL Holdings Inc. purchased budget carrier Air Philippines, integrating, to some extent, its operation with that of PAL. The flag carrier’s website sold tickets on the budget airline and PAL Mabuhay Miles members could redeem credits for flights on either airline.

Two profitable years were followed by one in which PAL lost 1.6 billion PHP, much of which was attributed to the events of September 11, 2001, and their devastating aftermath, which affected the aviation industry worldwide. To stave off further losses, fleet utilization was increased following the termination of leases on three B747-200s. But the airline’s fortunes continued to fluctuate as the 2003 SARS virus impacted passenger numbers.

In 2008, PAL set up a small low-cost carrier based at Mactan airport, Cebu. Known as PAL Express, this new offshoot was equipped with a fleet of Bombardier Dash 8 Q300s and Q400s and flew secondary routes from Cebu, providing a no-frills service.

Meanwhile, budget carrier Air Philippines had been experiencing its own troubles. In August 2009, the airline ceased flying amid mounting debts, to be revived only two months later to opérate on behalf of PAL Express with its fleet of Bombardier Dash 8s. The following March, Air Philippines, rebranded Airphil Express, again began flying in its own right. The airline had two new Airbus A320s and took over the PAL Express fleet, which was also rebranded.

The year 2010 heralded another plethora of problems for Asia’s oldest airline, which recorded losses totaling 312 million USD in the two years prior to March 31st.

In October, ground staff began a strike action that severely disrupted the airline’s schedule. The following month, the Department of Labor and Employment (DOLE) approved the retrenchment of 2,600 employees. Plans to increase longhaul operations had also been thwarted by both FAA restrictions and a European blacklisting of Philippine registered carriers.

Disruptions continued throughout 2011, as PAL employees tried to protect their future with the airline ̶ picket lines and strikes were all too frequent. In November, the PAL ground crew unión appealed to the government to intervene and prevent the airline from terminating employees and outsourcing work to service providers, as it had done with the cabin-crew dispute. But their quest was to no avail. Because of continuing industrial action, PAL was forced to reduce services and, with no end to the dispute in sight, it postponed delivery of four new B777-300ERs. Once again, the airline’s future looked grim.

Initial hints of further changes being in store came early in 2012 with the airline’s 76-year-old chairman and majority shareholder Lucio Tan announcing that he was willing to sell PAL if the price was right. Tan indicated that talks were already underway with a number of potential investors whose identity remained undisclosed at the time, although it was widely speculated that one of the Philippines’ largest conglomerates––the San Miguel Corporation (SMC)––was the forerunner in any purchase negotiations.

It therefore came as no surprise when, in April 2012, SMC President Ramon Ang announced that his company had signed an agreement to take a 49% stake in the airline. Starting from then, with a capital injection of 1 billion USD, a eet refurbishment program was initiated with ­rm orders placed for 64 new aircraft and options held on 36 more. In the ­rst quarter of the 2012  13 ­scal year, PAL returned a modest PAL returned a modest pro­fit of 11,4 million USD and Ramon Ang expected the ­nancial situation to continue to improve. “We are con­dent we can deliver,” he told journalists. Sadly, this did not prove to be the case and, despite the airline’s restructuring its balance sheet, it slipped back into the red.

In March last year, Airphil Express  the airline that had evolved three years earlier from PAL Express and operated by a company headed by Philippines Airlines CEO Lucio Tan  was once again integrated into Philippine Airlines operations, its eet of Airbus A320s and Dash 8s was repainted in PAL livery and operated as Philippine Airlines/PAL Express. Four months later, the longawaited lifting of a ban on ying in EU airspace was approved after a delegation of inspectors from the European Union Air Safety Committee expressed satisfaction with the airline’s improved safety measures. By year’s end, PAL had resumed fights to London and, last February, after an absence of 16 years, it recommenced flying into Paris from Manila. New routes to the Middle East and Asia were developed and its eet of aging Boeing B747-400s were progressively replaced by new B777-300ERs.

The reinstatement of the Philippines’ civil aviation status to category one by the FAA in April this year it had been downgraded to category two in 2008 over safety concerns also gave PAL a much sought-after opportunity to expand its North American operations. The airline maintains that this will improve its overall performance and, assisted by a new generation of fuel-e‑cient aircraft, propel it towards sustainable pro­tability. Through war, martial law, bombings, hijackings, corruption, ­nancial troubles and strikes, Asia’s oldest airline has, against all odds, struggled for more than seven decades and survived. On its 70th anniversary, many PAL aircraft were painted with the slogan “Asia´s first, shining through”. Perhaps this is finally beginning to happen.

Comments
0

About Author

Airways

Airways

A Global Review of Commercial Flight since 1994: the leading Commercial Aviation publication in North America and 35 nations worldwide. Based in Miami, Florida.

Related Articles

0 Comments

No Comments Yet!

There are no comments at the moment, do you want to add one?

Write a comment

Only registered users can comment.

Current Issue

Cart

Subscribe to our weekly Newsletter

Polls

Would you feel safe flying on a Boeing 737 MAX once the grounding is lifted?

View Results

Loading ... Loading ...

@airwaysmagazine

Airways YouTube Channel

Polls

Would you feel safe flying on a Boeing 737 MAX once the grounding is lifted?

View Results

Loading ... Loading ...
0