Double standard privatization

DIE HARD III
Herman Tiu Laurel
11/19/2010



Given the many issues that are basic to the well-being of the Filipino people such as electricity, water, public transport and toll ways that are not being dealt with by most columnists of mainstream media, I have made it a point to focus on them through this space. But whenever I see issues covered extensively by media being obfuscated by writers who rear their discriminatory heads, then I have to step into the fray.

The Philippine Airlines (PAL) vs PAL Employees Association (Palea) strike threat is a case in point. One the chief proponents of the privatization of state assets, economic liberalization advocate Solita Monsod, takes what I see as a double standard stand on the PAL vs Palea impasse, as she uses it as another opportunity for lambasting a favorite whipping boy of the Makati Business Club, a noisy group that shares her economic views.

That the global and local airline industry is going through precarious times is not in doubt. Monsod concedes that “the global economic crisis was in full flow in 2008 and 2009, and travel was a natural victim (with)… a 7 percent decrease in worldwide demand.” She also admits the adverse impact of new restrictions on the Philippine aviation industry by the US Federal Aviation Administration (FAA) and the International Civil Aviation Organization (ICAO) after our country was downgraded due to deficiencies in our Air Transportation Office (ATO) and the Civil Aviation Authority of the Philippines (CAAP).

What is not included, though, in that litany of problems besetting PAL is the flag carrier’s history of overstaffing before privatization, which previous management reorganizations constricted by government-led compromises could not optimally resolve. What PAL wouldn’t give to get the chance that other airlines such as Cebu Pacific had, which is to start from scratch — to start on the right foot.

One setback of PAL in the past three years came from losses on its hedge against aviation fuel price spikes in 2008. PAL reportedly incurred $150 to $300 million in losses when oil prices reversed and dove instead, as the global economic downturn took its toll.

Monsod and Palea keep attributing this loss only to management and says labor shouldn’t be punished for it. I don’t think PAL ever intended to take out that loss on anyone, but that hedge was a judgment call intended for the good of the company as a whole.

Fuel is obviously a fundamental cost in any airline operation. Securing oneself against fuel price spikes, which many expected at that time, was to PAL’s interest. A case can be made that fuel prices really could have gone right through the roof. If it had gone that way, all stakeholders in PAL — management, labor, and even government — would have reaped the benefit from the hedge.

Privatization was intended to pass management of the flag carrier from cumbersome state managers to private, professional managers. I have never been for privatization of state and public utility assets. I have fought it all the past decades; but the advocates of privatization should be consistent and leave private management’s prerogative alone so long as laws are strictly followed.

PAL’s spinoff of various non-core operations comes from a tenet of good business — focus. There is clearly nothing illegal in that spinoff, and the company is complying with its obligation to provide severance pay (increased to 1.25 month for every year of service), and offers new opportunities in the new spun-off companies to retrenched employees which would most likely lead to better future compensation as the companies grow with the synergy.

Those who expect the privatized company to perform like a social welfare enterprise could propose to start getting the state and government involved again. Do what the Japanese did to save their Japan Airlines (JAL). Their government pumped in 50 billion yen to turn it around, which was justified in JAL’s case as it is a government airline.

Detractors claim that the new spinoff companies are also invariably led by one relation or another of the PAL owners, but who best to invite new capital into this unattractive industry today than those who can assure new investors the good will with the core client?

PAL’s owners have actually unburdened government of a huge weight around its neck, and PAL’s privatization is the only privatization project where the public is ahead; unlike the privatization in power, water, toll ways, mass transit system and port handling. It’s a wonder why Monsod practically never critiques these other privatizations.

The recent bus transport strike in Metro Manila highlights another double standard: The Metropolitan Manila Development Authority (MMDA) and the Department of Transportation and Communications’ view of buses as traffic jam generators, while being blind to the over a hundred thousand private cars exclusively chauffeuring students to and from school, clogging up Edsa and its tributaries.

Buses serve five times more passengers per square meter than private vehicles, having much greater positive economic and social value. Private vehicles are inefficient commuter movers; only more “sosyal.” School buses should be mandatory in Metro Manila, where a special school bus network with communication radios and trained conductors that would unclog Metro roads by over a hundred thousand cars should be established. When I proposed this to Cory Aquino’s MMDA chief Elfren Cruz in 1991, he said: “Magagalit ang mayayaman.” (The rich will get angry.)

Frankly, this crackdown on buses may have a hidden agenda — make the MRT’s new coaches (and resulting higher rates) under the multi-million public-private partnership or PPP projects more lucrative for PeNoy’s invited “investors.”

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