VZCZCXRO6340
RR RUEHCHI RUEHDT RUEHHM
DE RUEHML #1135/01 0720809
ZNR UUUUU ZZH
R 130809Z MAR 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC 9900
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUCPDOC/USDOC WASHDC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBJ/AMEMBASSY BEIJING 5659
RUEHKO/AMEMBASSY TOKYO 2544

UNCLAS SECTION 01 OF 02 MANILA 001135 
 
SIPDIS 
 
Sensitive 
SIPDIS 
 
STATE FOR EAP/MTS 
TREASURY FOR OASIA 
TRANSPORTATION FOR FAA 
SINGAPORE AND TOKYO FOR FAA 
COMMERCE FOR BISBEE 
 
E.O. 12958: N/A 
TAGS: EAIR ETRD BEXP RP
SUBJECT: PAL intends to lease a few Boeing planes 
 
 
Sensitive but Unclassified - Not for Internet - Protect 
Accordingly. 
 
REF: A)  05 MANILA 5937 
     B)  05 STATE 199212 
     C)  05 MANILA 5276 
 
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Summary 
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¶1.   (SBU) Philippine Airlines (PAL) CEO Lucio Tan recently 
told the Charge that he intends to lease two or three wide 
body Boeing planes.  He said that he wants to test them out 
before making a decision on re-fleeting for his North 
American routes, citing reservations over the safety of the 
twin engine aircraft.  He showed interest in the Cape Town 
Treaty, which could give the Philippines preferential EXIM 
Bank financing for any aircraft purchases or leases, and 
said he would encourage GRP ratification.  He also said that 
PAL is struggling to retain its pilots and has cut routes to 
stay competitive.  His comments suggest that PAL is 
struggling financially and may be considering more 
profitable long-range routes.  End Summary. 
 
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PAL to 'try' twin engine 
------------------------ 
 
¶2.  (SBU) Tan told the Charge that he intends to lease two 
or three wide body Boeing 777-300ER planes based on his 
positive experiences with the older 737 and 747 models and 
would consider purchasing more in the future if the first 
few proved effective.  Tan appreciated the fuel efficiency 
and large baggage compartment of these planes but still 
questioned the safety of extended twin engine operations 
(ETOPS).  He was eyeing GE Commercial Aviation Services 
(GECAS) for the lease because it could offer earlier 
delivery positions than Boeing could offer, although Boeing 
sales representative Ray Lau told econoff, "I know exactly 
what Lucio Tan's itches are and Boeing is prepared to deal 
with them."  Tan showed interest in the preferential 
financing terms that could follow Philippine ratification of 
the Cape Town convention and said he would urge GRP 
officials to sign it (refs A,B). 
 
¶3.  (SBU) Tan mentioned the need for PAL to acquire a 777 
flight simulator to orient pilots to the new planes.  He 
said that his pilots either fly Airbus or Boeing and many 
are accustomed to the Boeing planes.  FCS Counselor followed 
up by introducing PAL President Jaime Bautista to American 
flight simulator company representatives at the Asian 
Aerospace trade show in Singapore February 21-26. 
 
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Leaving on a jet plane? 
----------------------- 
 
¶4.  (U) Tan talked about PAL's struggles to maintain 
employees and to stay competitive.  He said that other 
airlines are poaching PAL's pilots and mechanics, enticing 
them away with more competitive salaries that are 
unencumbered by income taxes.  He mentioned that PAL pays 
pilots 300,000 pesos ($5770) per month gross and only 
200,000 pesos ($3850) net after taxes, while Middle Eastern 
companies offer 500,000 pesos ($9615) tax-free.  He also 
said that airlines from other countries mandated no less 
than six months' resignation notice as a way to mitigate 
attrition.  According to Tan, the Board of Investments (BOI) 
is studying how to offer more competitive compensation 
packages or equalize the labor issues. 
 
¶5.  (SBU)  With the exodus of qualified staff, the company's 
cost of service rises while it struggles to compete with 
subsidized Middle Eastern airlines and regional low cost 
carriers.  According to Tan, the loss of pilots is so 
critical that it is affecting the company's ability to fly 
certain routes.  He said the company has lost one-third of 
its pilots and is now flying with 400 pilots, which 
contributed to the recent decisions to suspend flights to 
 
MANILA 00001135  002 OF 002 
 
 
Kuala Lumpur, Riyadh, and Laoag (Northern Philippines). 
This is particularly frustrating to Tan, given the financial 
investment and time it takes to train these pilots.  "We 
become a training ground" for these companies, Tan 
complained. 
 
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Comment 
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¶6.  (SBU)  Tan was vague about whether his plans were to 
purchase or lease any planes.  In a subsequent discussion, 
his assistant told emboffs that Tan feels "his arm is being 
twisted" to buy Boeing, perhaps by GRP officials trying to 
leverage Tan's outstanding taxes or bid to operate the new 
Manila airport terminal (ref A).  Tan made it clear that 
leasing a few planes is a better option for PAL than 
purchasing planes or making any large commitments right now. 
After assurances from the Boeing sales rep and the CDA, Tan 
may be less concerned with the safety of the twin engine 
than using his apprehension as a negotiating chip in the 
debate over the disputed $114 million (ref C).  PAL may be 
interested in wide body planes to expand flights to the West 
Coast and tap the Filipino-American market to counter its 
difficulties competing in other markets.  If so, the Boeing 
777 would be a good fit and we will continue to encourage 
its purchase. 
 
JONES