Storm clouds are threatening with turbulence the viability of Philippine Air Lines (PAL), the only flag carrier in the Association of Southeast Asian Nations (Asean) that has not received any government subsidy, with the looming open-skies policy that is about to be embraced by the regional bloc as a way to whip up tourism business within the region.

Unfortunately, there are interests outside the government trying to force-feed the idea in the name of liberalization.

What is apparent in the open-skies-due-to-liberalization policy is that PAL, which is just about ready to take off from its eight-year receivership, will be competing with a clipped wing. This is so because the flag carrier has neither received, nor will it receive, subsidies from the government, as what other regional carriers get from their respective governments.

By foisting open skies on the local aviation industry, PAL will be buffeted by strong winds that would result in its emergency landing, a far costly maneuver.

Imagine seeing hundreds of pilots and ground crew personnel, as well as the PAL rank-and-file, being jettisoned from their workplace due to the ill effects of open skies, where foreign airlines that get government subsidies are allowed to run full throttle on the unsubsidized PAL operations.

The open-skies policy should not even be allowed to be part of the agenda of the country’s aviation authorities since it is anchored on a basically wrong premise.

Proponents of open skies believe that with competition comes lower air fares that would redound to the benefit of the air-riding public.

There is no question about this. However, one flaw sticks, though: for competition to be really fair, there should be a level playing field.

In short, there is no level playing field that is present insofar as PAL is concerned vis-à-vis other regional carriers. To open the skies to PAL’s competitors without taking out the subsidies that the other airlines receive smacks of duplicity and, taken with the new buzzwords of corporate governance and transparency, suffers from credibility issues.

Where is transparency, when a regime of open skies is allowed without PAL getting subsidy? In terms of corporate governance alone, the other airlines would have to be found guilty of “fudging the books.”

With the subsidies, the other carriers would be able to reduce their costs, but only because they are not reflecting the subsidies that they get from their respective governments. In a sense, this is fudging of the books, since the other carriers would be able to “transfer” part of the costs to the subsidies that their respective governments accord them. This is undue advantage, pure and simple, where other governments give financial aid to their unprofitable carriers so they can continue flying.

The Malaysian government bailed out its floundering flag carrier, Malaysia Airlines. It even piloted a government takeover that resulted in a huge 51.8-percent increase in domestic fares.

The Singapore government extended war-risk insurance coverage to its flag carrier, while Thailand offered standby credits to Thai Airways to shore up the company’s financial position.

Outside the region, there have been instances of out-and-out government help, some masked in financial legerdemain. The US Congress authorized a $5-billion grant to cover the costs of a four-day shutdown of airline operations in the US due to so-called lost business. On top of this, the government offered $10 billion in loan guarantees.

This help would be similar to the Philippine Congress authorizing the grant of millions to PAL for business-opportunity losses arising from cancelled flights due to typhoons Chedeng, Dodong and Egay.

Other cases of subsidies include the Swiss government’s $2.65-billion help to Swissair after its collapse, even with a $281-billion emergency loan; the injection of $428 million to keep Air New Zealand flying; the European Union rescue aid to Sabena Airlines; the $110-million financial assistance extended to the Korean Air to cover for the insurance policies and increased costs in the wake of the September 11 bombings; and the UK government’s compensation package of 40 million pounds for UK airlines hurt by the September 11 attacks.

In view of these government subsidies that regional and other carriers receive, PAL should similarly get the same form of help before the government can entertain the liberalization of the aviation industry.

For starters, PAL should get financial assistance by way of lower interest rates to enable it to fund its refleeting program and allow it to charge the government for lost business opportunities arising from, say, the cancellation of flights due to the approach of typhoons. When subsidies or grants are put in place, then and only then can the government embrace the open-skies policy.

E-mail: hugagni@yahoo.com

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Storm clouds are threatening with turbulence the viability of Philippine Air Lines (PAL), the only flag carrier in the Association of Southeast Asian Nations (Asean) that has not received any government subsidy, with the looming open-skies policy that is about to be embraced by the regional bloc as a way to whip up tourism business within the region.

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