Bad News Bird

ANTHONY SPAETHThe very idea of a dynamic Asia is inseparable from air travel. Corporate warriors would be steedless without business class--not to mention the vast holds underneath in which memory chips, fresh orchids and vital documents are hauled around the globe. But it's often forgotten that Asia's original dynamo in the Air Age was the Philippines. America's first transpacific route was to Manila; Philippine Airlines, or PAL, launched in 1941, was Asia's oldest national airline. Sadly, PAL's final international flight took off last week from Tokyo, touching off a national chorus of grief in the Philippines. Employees about to be laid off--they number almost 9,000 altogether--sang mournful songs, including Leaving On a Jet Plane (... don't know when I'll be back again ...). After the Boeing 747-400 landed at Los Angeles International Airport, U.S. authorities seized it on behalf of PAL's creditors.For Filipinos it was an ignoble end to a venerable symbol of national pride--although they had long enjoyed joking that PAL stood for Plane Always Late. The airline's demise also suggested that a country that arrived late to the Asian economic boom may have missed the party entirely and yet won't be spared the hangover. The regional downturn of the past 18 months--particularly a near 30% drop in the value of the Philippine peso against the U.S. dollar--along with a one-month pilots' strike, undermined PAL Chairman Lucio Tan's vow to turn the airline around. Ultimately, Tan ended up slashing routes and selling planes. Last week, he said he couldn't run PAL unless workers agreed to accept benefits cuts and abandon wage negotiations for the next decade. PAL's unions, the country's most radical, refused to pay that price, and last-minute talks led by President Joseph Estrada went nowhere. Everybody's upset, concedes Finance Secretary Edgardo Espiritu. But what can we do? PAL's union made their decision and they decided to lose their jobs.In an era of privatization, and given fierce competition in the skies among the world's airlines, the loss of one national carrier shouldn't be especially troubling. Although PAL has been in private hands since 1992, Tan's plan to rebuild the airline with $4 billion in new investments partly foundered on certain legacies of a national airline, like the responsibility of running domestic flights to far-flung island provinces at bargain fares. It also was hurt by the new era of open skies, in which the government let private airlines offer service to popular business and tourist destinations such as bustling Cebu and colorful Zamboanga. The crunch wasn't hard to foresee, although many expected Estrada to iron out some compromise, as predecessor Fidel Ramos had during a strike last year. The biggest losers are passengers, says Peter Negline, a vice president of Salomon Smith Barney in Hong Kong. It was also a serious blow to Estrada, only three months in office and faced with his first serious challenge. Last weekend, the government continued negotiations with PAL executives and the unions about how to maintain crucial commercial routes. On Saturday, Estrada announced that Cathay Pacific Airways will help fill the void by flying 10 domestic flights a day in the Philippines.PAGE 1|The airline industry's woes aren't limited to the Philippines. Indonesia's Garuda, another national carrier, is laying off thousands of employees, trying to unload aircraft and looking for someone to buy its headquarters. Malaysia Airlines has suspended service on five international routes, sold planes and deferred delivery of others, while the International Monetary Fund has instructed Thailand to sell off Thai Airways. And the downturn is hurting carriers in South Korea, Vietnam and even Japan. Hardest hit are airlines that depend on travel within Asia. According to Moody's Investors Service, traffic is down as much as 60% from a year earlier on some routes.Of course, one carrier's pain can be another's windfall. Singapore Airlines, which reported an impressive $608 million profit for the fiscal year ending March 31, now has a monopoly on flights between Singapore and Manila. It moved fast to take advantage of PAL's troubles, doubling the fare and scrapping a special rate for Philippine maids returning home. The latter measure produced some unfavorable press coverage, and the airline reversed the decision quickly. But even if those domestics get back to Manila cheaply, PAL won't be there to whisk them home to more distant provinces. Instead, some will have to take buses or ferries--along with many suddenly slower-moving business people.|PAGE 2