Tuesday, 4 October 2011

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Philippine Airlines rejects striking employees’ offer to return to work

Philippine Airlines rejects striking employees’ offer to return to work

1.  Philippine Airlines rejects striking employees’ offer to return to work

The management of Philippine Airlines has warned its former employees against staging protests in front of the PAL Inflight Center building which hampers the flow of PAL’s business.

PAL President and chief operating office Jaime Bautista said the ex-PALEANs must clear the PAL Inflight Center premises because as former employees they have no legal personality to invoke a PALEA stand.

“If they are sincere in helping the airline, I urge them to cross over and sign up with the service providers,” Bautista said. 

“Instead of engaging in forms of harassment and attempting to block entrance and exits of a PAL facility, they should channel their energies into helping the company in its transition period.”

He said that PAL’s service providers - SkyLogistics Philippines and SkyKitchen Philippines - have begun accepting more applicants from outside after PAL’s retired workers did not join the two companies.

Over the weekend, PALEA urged management to delay the spin off/outsourcing until such time that the court rules on the union’s petition for certiorari and to absorb them into the workforce anew.

PAL rejected the offer, stressing that the airline’s non-core units have entered the operational jurisdiction of the service providers.

“If they truly want to help the company, they can start by recognising the spin off and consider working for SkyLogistics, SkyKitchen and SPi Global.

2. AMR Resumes Pilot Talks Amid Stock Rout

American Airlines is set to resume contract negotiations with pilots, a bellwether work group in industry labor talks, after parent AMR Corp.’s shares fell the most since 2003 on concern the company may file for bankruptcy.
Today’s discussions mark the latest effort to reach an agreement in bargaining that began in 2006. Fort Worth, Texas- based AMR reiterated yesterday that Chapter 11 protection “is certainly not our goal or our preference” as the third-largest U.S. airline seeks more productivity in union agreements.
“More and more of our pilots are worried about the viability of our company and the bankruptcy potential to affect pensions,” Sam Mayer, an Allied Pilots Association spokesman, said in an interview. American hasn’t broached the idea of restructuring in court, he said, adding, “They don’t even speak the B-word.”
AMR tumbled 33 percent yesterday following a second straight month of higher-than-normal retirements among pilots locking in pension values. Ray Neidl, a Maxim Group LLC analyst in New York, said investors reacted in part to the prospect of a recession damping air travel, hurting an already weakened AMR.
The shares plummeted so quickly that so-called circuit breakers to temporarily halt trading took effect seven times in less than an hour. About 76.8 million AMR shares changed hands, more than five times the three-month daily average.
‘People Get Nervous’
“These things start to kind of set themselves on fire, and then everyone is alerted to the breaker, and the Twitter-sphere lights up and it’s on TV and there are more eyes seeing it,” Joseph Saluzzi, co-head of equity trading at Themis Trading LLC in Chatham, New Jersey, said in an interview. “People get nervous, and they shoot first and ask the question later.”
The shares recovered slightly today in pre-market trading in New York, gaining 26 cents, or 13 percent, to $2.24 at 7:41 a.m.
AMR led stock-price declines this year through yesterday among the largest U.S. airlines, falling 75 percent, and is headed toward a fourth consecutive annual loss. The shares closed yesterday at $1.98 in New York Stock Exchange composite trading.
That gave AMR a market value of about $663.7 million, ranking ninth in the U.S. industry by that measure. That’s less than the list price of three new Boeing Co. (BA) 777-300ER jets, the largest planes American flies.
“While we generally don’t comment on AMR’s share price performance, there is no company-driven news that has caused the volatility in AMR shares,” Andy Backover, a company spokesman, said yesterday in an e-mail. “Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference.”
No Filing Planned
AMR isn’t planning a bankruptcy filing, said a person familiar with the issue who wasn’t authorized to speak publicly. The company expected to end last quarter with cash and short- term investments of about $4.7 billion, including $475 million in restricted cash, according to a Sept. 21 regulatory filing.
“We still think they need to do something drastic, however AMR management is intent on not filing for bankruptcy,” Helane Becker, an analyst at Dahlman Rose & Co. in New York, wrote today in a note to clients. She recommends selling the stock, and said she remains concerned about AMR’s liquidity.
Pilot retirements from American have totaled at least 10 times the monthly average in September and October as they sought to shelter their pensions from stock market declines.

That motive, not inside knowledge about a pending bankruptcy, is driving the heightened rate of pilots’ departures, the APA said in a statement late yesterday. The stepped-up pace probably also reflects more pilots nearing the mandatory-retirement age of 65, up from 60, the union said.
Pilots are usually the focus for airline-industry labor agreements, helping set the stage for other accords. Negotiations with American’s three major work groups are so bogged down that federal mediators are no longer participating.
Unions for the pilots, flight attendants and ground workers want to recoup at least part of the $1.6 billion in annual concessions made to avert bankruptcy in 2003, while American has said it has an $800 million-a-year labor-cost disadvantage to rivals that reorganized in court over the past last decade.
AMR isn’t stoking any Chapter 11 concerns, according to a report yesterday from Daniel McKenzie, a Rodman & Renshaw analyst in Chicago. He raised his rating on the stock to “market outperform” from “market perform,” citing the plunge in the shares and no sign of a bid for court protection.
“Communication from union leaders to the rank and file make it clear management is not using the threat of bankruptcy in negotiations,” he wrote.
David Swierenga, a former chief economist at the Air Transport Association trade group who now runs consultant AeroEcon in Round Rock, Texas, also suggested that yesterday’s selling went too far.
“There is nothing in the fundamentals that singles out American right now,” Swierenga said in an interview.
AMR equity investors weren’t swayed by those arguments as they drove down the shares to the lowest since March 2003, when American was trying to win the employee givebacks that staved off bankruptcy that year.
Debt holders reacted to the perception of increased risk. The cost to protect against an AMR default soared, with credit swaps jumping 12.1 percentage points to 64.8 percent upfront, according to broker Phoenix Partners Group. That means it would cost about $6.5 million initially and $500,000 annually to shield $10 million of debt from default for five years.
“AMR Corp. (AMR) stock and bonds are in the worst tailspin since 2001 over the past week on fresh concerns that the company is edging alarmingly close to bankruptcy,” Vicki Bryan, a senior bond analyst at Gimme Credit LLC, said in a report. With the U.S. recovery seemingly stalled, AMR “will likely feel the pain faster and more deeply than most of its larger peers.”

3.  PAL may drop some domestic flights to focus on int'l routes

MANILA, Philippines - Tycoon Lucio Tan’s Philippine Airlines says the flight cancelations due to last week's strike and a continuing shortage of manpower may lead it to drop some domestic flights and focus on international routes, which make up almost 80 percent of revenue.

The cancelations started September 27, when some ground crew members staged a sudden strike to protest their retrenchment on September 30. PAL retrenched 2,600 airport services, call-center and in-flight catering employees on that date, turning over their jobs to outsourcing companies as part of a plan to improve profitability. Cancelations have continued because the outsourcing companies are understaffed.

PAL has asked sister carrier Air Philippines Express, also owned by Tan, to take up the slack and this may be more than temporary, President Jaime Bautista said.

"Recent experience may lead us to that thinking. Most of the canceled flights are domestic flights," Bautista said in an ABS-CBN News Channel interview. "We have asked our sister airline to have more flights on the destinations we have canceled. That may be a good start."

"If we do that, we will continue to serve certain cities in the Philippines. PAL will continue to service Cebu, Davao, Puerto Princesa, Cagayan de Oro, maybe on lesser frequencies. So we won’t totally abandon domestic routes.'"

PAL may make the shift because it is a full-service airline and the domestic market has become a budget market where Air Philippines Express and rival Cebu Pacific are more competitive, he said.

"We are a legacy carrier. We provide all the amenities, which are very expensive. The domestic market in the Philippines is really a low-cost market."


Bautista said after only about 30% of employees covered by the retrenchment signed up with the outsourcing companies by an internal September 9 deadline, the deadline was extended to September 30. He said the airline counted on most employees eventually signing up but few did. He said following the September 27 strike, even employees who intended to sign up were pressured not to.

In a phone interview, PAL Employees Association (PALEA) secretary general Bong Palad estimated just 7% signed up and 20% accepted PAL’s P100,000 severance package. He said if there were more who wanted to sign up, they changed their minds after PAL and the airport security forcibly removed the strikers.

Bautista declined to say whether it was a mistake to give employees until the last minute to sign up with the outsourcing companies. He said part of the reason for the extensions was the government order requiring the outsourcing companies to absorb all interested employees had no deadline.

"We did tell them but it will take them time to train," he said. "They did train, but other positions need longer training."

Operations will normalize by next month, after which PAL will take steps to repair the damage caused by the cancelations and delays, which affected up to 10,000 passengers a day, Bautista said.

"The brand has been affected," he said. "It will take time to recover trust of the riding public. We will start working on improving the service. We will implement some promotions, very attractive fares."

Cebu Pacific

PAL, for decades a near monopoly, has seen its market share whittled since tycoon John Gokongwei’s Cebu Pacific took wing in the mid-1990s. By last year, Cebu Pacific made P6.9 billion as sales rose 25% to P29.1 billion. PAL made P2.6 billion as sales rose 16% to 74.6 billion.

Outsourcing will save PAL $10 million to $15 million a year, but assuming there's profit this year, it won't be as much as last year's $72 million, according to Bautista. It lost $10 million in the first quarter of this fiscal year (April to June).

PAL’s crown jewel is its Philippines-to-US service, where Cebu Pacific doesn’t compete, and which makes up a third of revenue. Bautista says it may not be as easy for Cebu Pacific to compete with it there as it has been elsewhere.

"The low-cost operattion will be very difficult to become a long-haul operation. You will have to provide meals, you wd have to provide in-flight entertainment systems. If and when Cebu Pacific operates international long haul, they will have to adopt some of the practices that we have been implementing.''


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