VZCZCXRO2204
OO RUEHCHI RUEHDT RUEHHM
DE RUEHML #0335/01 0300920
ZNR UUUUU ZZH
O 300920Z JAN 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4978
INFO RULSDMK/DEPT OF TRANSPORTATION WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEATSA/TSA WASHINGTON DC IMMEDIATE
RHMCSUU/FAA NATIONAL HQ WASHDC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHKO/AMEMBASSY TOKYO IMMEDIATE 3042

UNCLAS SECTION 01 OF 02 MANILA 000335 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/MTS AND EB/TRA 
FAA FOR TOKYO 
SINGAPORE AND TOKYO FOR FAA 
COMMERCE FOR BERLINGUETTE 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EINV ETRD RP
SUBJECT: Airlines Jostle for Terminal Space and Lower Fees 
 
REF:  A) 06 MANILA 3743 
 
 B) 06 MANILA 3596 
 
Sensitive but Unclassified - Protect Accordingly 
 
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Summary 
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¶1.  (SBU)  In a highly advantageous deal for the national carrier, 
the Philippine Government agreed to let Philippine Airlines (PAL) 
shift its international and domestic operations to the 
long-mothballed new terminal and to allocate remaining space to 
foreign carriers.  The government is planning a trial run for March 
2007 but continuing legal battles over payment and ownership and 
necessary construction work will delay full terminal use.  U.S. 
carrier Northwest Airlines (NWA) is seeking GRP financial protection 
in case structural defects or court orders interrupt service but is 
anxious to reserve gates for its twice daily flights to and from 
Japan and the U.S.  NWA is also protesting the capricious doubling 
of fees assessed airlines for the overtime, meals, and transport 
costs of Customs officials at the airport.  End Summary. 
 
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PAL Moving Operations to New Terminal 
-------------------------------------- 
 
¶2.  (SBU)  In a meeting January 12, Northwest Airlines (NWA) General 
Manager Todd Anderson told econoffs the Manila International Airport 
Authority (MIAA) is letting national carrier Philippine Airlines 
(PAL) move all its domestic and international operations to the 
long-mothballed new terminal, Terminal Three.  MIAA is preparing for 
a trial run in March 2007.  Anderson heard reports that PAL had 
simultaneously agreed to pay MIAA about three billion pesos ($60 
million) to cover its arrears on landing fees, although there are no 
commitments in writing yet.  Speculation has it that Asian Emerging 
Dragon Corp. (AEDC) may also withdraw its court case seeking control 
of Terminal Three as part of this deal.  AEDC, like PAL, is owned by 
Philippine-Chinese magnate Lucio Tan. 
 
¶3.  (SBU)  Anderson complained that MIAA planned to give top 
priority in allocating space at Terminal Three to those airlines 
using PAL's ground handling service.  (Note:  Embassy understands 
that MIAA will also use conventional criteria such as passenger and 
cargo capacity and flight frequencies.  End note.)  Airlines, such 
as NWA, that use other baggage handling companies, may be relegated 
to the deficient Terminal Two vacated by PAL.  Anderson commented 
that excluding NWA from Terminal Three would put the company "in a 
very untenable and uncompetitive position."  NWA does not want to 
move to Terminal Two.  Even though it is a newer facility than the 
decrepit Terminal One, it does not have sufficient space to handle 
overseas luggage or to efficiently process passengers through 
immigration, customs, quarantine, and security. 
 
¶4.  (SBU)  The airlines had collectively insisted on guarantees 
against disrupted operations from MIAA as a pre-requisite for 
relocating to Terminal Three.  Their demand was the result of 
uncertainties caused by continuing legal squabbles over ownership 
and payment and a partial ceiling collapse last March that suggests 
there may be structural defects in the terminal (Ref A).  Anderson 
said PAL broke ranks with the Board of Airline Representatives (BAR) 
over the demand for financial guarantees, in order to move all its 
operations under one roof. 
 
¶5.  (SBU)  In a separate meeting, BAR Chair and PAL VP for Marketing 
Felix Cruz said the move to the new terminal was a part of the 
national carrier's Government-approved rehabilitation plan.  He 
likened the savings of operating from just one terminal to the 
equivalent value of two planes.  He said BAR was still advocating 
for a standard leasing agreement with uniform conditions for all 
airlines. 
 
¶6.  (SBU)  Anderson said NWA is otherwise faring well in the 
Philippines.  During the build-up to the Christmas holidays, it 
filled over 92% of its 820-plus seats on twice daily routes to and 
from Japan and the U.S., as compared to about 88% throughout Asia. 
It cannot accommodate a third flight to Manila per day, however, 
because of less hefty demand during off-peak seasons. 
 
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MANILA 00000335  002 OF 002 
 
 
Customs Fees Doubled 
-------------------- 
 
¶7.  (SBU)  Airlines are also seeking repeal of a Customs Order 
dramatically increasing the rates charged for aviation services, 
according to NWA Finance Manager Ceazar Veneracion.  He told 
econoffs that airlines pay overtime, meals, and transport for 
Customs, Immigration, and Quarantine officers at the airport.  These 
assessments were valid when offices for these services were not 
located at the airport and officials had to make special trips after 
hours to accommodate international flights.  Now that agencies have 
full-time staff right at the terminal, the airlines should be 
excused from these fees altogether, he said.  "These services are 
the government's responsibility."  Instead, the Customs Order 
effectively doubled the assessment, raising the annual overtime 
charge from 115 million pesos in 2005 to 230 million pesos ($4.8 
million) in 2006.  The BAR argues the rate increases are 
inappropriately justified by the depreciation of the peso even 
though none of the services incur foreign currency expenses. 
Veneracion said the airlines protested the increase to the Bureau of 
Customs and are awaiting its response. 
 
¶8.  (SBU)  According to Veneracion, the increase is ill-timed 
because the airline industry is still reeling from the higher fuel 
costs and SARS.  Many airlines have ceased flights to the 
Philippines in recent years because of the low rate of return.  BAR 
is seeking permission from the Philippine Civil Aeronautics Board to 
charge $1 for each ticket to pass these costs to passengers. 
Veneracion said the consumers of these services should pay for them, 
not the airlines.  He said the Board has deferred its decision in 
order to study its jurisdiction over the matter.  In the meantime, 
the airlines are worried that other agencies drawing stipends from 
the airlines may soon impose new and heavier fees. 
 
¶9.  (SBU)  MIAA General Manager Alfonso Cusi told econoffs that he 
supported reforming the airline assessments, but said it can only be 
changed by legislation.  Cusi said the Philippines is one of the few 
countries in the world to charge such fees.  He is discussing other 
options with the Department of Transportation and Communications, 
such as embedding costs into terminal fees or ticket prices. 
 
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Comment 
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¶10.  (U)  The Embassy is encouraging the Philippine Government to 
use a transparent process in assigning terminal space.  We support 
NWA's efforts to operate from the new terminal and to seek fair 
resolution to the disputed airport fees. 
 
Kenney