Turning PAL around

The colorful history of Philippine Airlines took another major turn just before the Lenten break. San Miguel Corp., led by the aggressive 58-year-old businessman Ramon Ang, bought a 40-percent stake in, and obtained management control of, the airline.

PAL, Asia’s first airline, was a source of national pride in the 1960s, until the global crisis in the 1970s and government mismanagement clipped its wings. Hopes that it would again fly the skies profitably were revived when it was sold to taipan Lucio Tan in the 1990s. But a series of economic crises and protracted disputes with labor unions shackled PAL once again.

Will Ang succeed in turning the ailing airline around this time?

Gauging from San Miguel’s acquisition moves in the past few years, Ang has expertise in taking advantage of synergies among the companies under his supervision. And PAL seems a perfect fit to the group. San Miguel owns Petron Corp., which can help the airline with its fuel requirements. (Aviation fuel makes up half of PAL’s operating costs.) PAL can also benefit from Petron’s network of fuel storage facilities like depots and logistics systems nationwide.

San Miguel has ventured into infrastructure and now owns the Caticlan airport, the gateway to the world-famous Boracay Island. There are plans to expand the airport so it can accommodate international flights and boost tourist traffic. As a San-Miguel-owned firm, PAL will benefit tremendously from this expansion, as it likewise will from San Miguel’s participation in the Aquino administration’s Public-Private Partnership program to redevelop the Ninoy Aquino International Airport in Pasay City and the Clark International Airport north of Manila.

With the San Miguel group having about 17,000 employees, it can only be expected that they, as well as its executives, will patronize PAL as they do other San Miguel products like beer. Add to this potential market the vast clientele of San Miguel who just might be enticed to use the airline as well.

And speaking of synergies, there is also a plan to integrate PAL’s popular Mabuhay Miles loyalty program with similar programs of San Miguel companies such as Petron. The case of Bank of Commerce is a testament to the benefits of such synergy. The erstwhile banking arm of San Miguel is expanding its network by simply putting ATMs in major Petron stations. Those gas stations already carry products from San Miguel’s traditional food and beverage units; some even offer broadband Internet subscriptions to another San Miguel subsidiary, Wi-Tribe Philippines. The list goes on, with San Miguel having interests in real estate, telecommunications, mining, power and infrastructure. What can this cross-selling scheme do for PAL but work wonders?

Ang is not exactly new to the airline industry. Few know it, but the CEO of the country’s biggest conglomerate is a licensed pilot. In an earlier conversation with members of Inquirer Business, Ang cited just one measure that could boost efficiency at the airline. “I want all PAL aircraft to have software that will monitor how well pilots fly the planes,” he said. This monitoring software will help determine how faithfully pilots follow prescribed power settings at different stages of a flight—much like moderating the pressure on a car’s accelerator, instead of constantly revving it up. “How well the pilots fly the plane and how efficient they operate it will have a direct bearing on their pay,” Ang said. “You can bet you’ll see improved profitability there.”

Yes, PAL faces sunny skies with the entry of a new investor—and not just an ordinary investor, but one that has displayed a particular acumen in making companies better, organizationally and financially.

The only sticky point that can be seen so far is the precarious labor-management relations that Ang will inherit once he takes over management of the airline. His people skills will definitely be put to the test in PAL. While it appears that the employees of the companies within the San Miguel group are satisfied with Ang’s brand of management, PAL’s case is an entirely different thing altogether. The other companies in the group are making huge profits, making it easy for Ang to cascade part of any windfall down to the ordinary workers. PAL, on the other hand, is losing money, big money. How Ang will deal with the airline’s labor unions will indeed be worth watching.