Philippines Aviation NEWS: The truth about the PAL labor row

The truth about the PAL labor row

WHAT IS the row about between Philippine Airlines (PAL) and its rank-and-file labor union, the Philippine Airlines Employees Association (Palea)? To cut costs, the money-losing airline wants to spin off some of its non-core departments, such as in-flight catering, airport services and call-center reservations. PAL employees in these departments would be laid off but would be absorbed by the outside companies that would provide the same services to PAL on a contractual basis. At the same time, the employees would receive retirement pay averaging P1 million each. This measure has been done and is still being done by other ailing airlines of the world.
That’s not good enough for the PAL employees. They want to be retained by PAL, no matter what. But PAL is bleeding like so many other airlines because of rising fuel costs coupled with a dwindling market. Fewer people are traveling because of high fares and fear of terrorism. A number of the world’s biggest airlines have already folded up, and many more are surviving only because they are being subsidized by their governments. PAL has no government subsidy, and it is trying every means to cut costs in an effort to continue flying. The spin-offs is one of them.
Palea has filed a notice of strike but the Department of Labor and Employment (DOLE), which assumed jurisdiction of the labor row, ruled that the planned spin-off was being done in good faith and is justified by management’s prerogative to reorganize its corporate structure to ensure the viability of its operations, cut costs and guarantee its continued survival.
In 2008, the global airline industry suffered losses of $16 billion and another $9.9 billion in 2009 due mainly to the US recession and the rise in fuel prices. This forced even the global mega-carriers to seek government protection and/or find creative ways of surviving.
PAL was not immune to the global contagion. It lost $297 million or almost P14 billion in 2008 and another P14 billion during its fiscal year ending March 2009. No other Philippine company has bled that much. By February 2010, PAL’s equity position dropped precariously to $1.1 million while its debt stood at nearly $1 billion.
Because of such huge losses and other factors, such as the US Federal Aviation Administration’s (FAA) downgrading to Category 2 of the Philippines’ safety rating, the airline adopted a survival plan that included ways to cut costs and generate cash. This includes the spin-off of non-core departments of the airline. Lucio Tan has already sold his flagship company and cash cow, Fortune Tobacco, to Philip Morris, to raise funds to keep PAL flying.
Global best practices show that most airlines in the world are concentrating on their core business of flying aircraft. In Asean, for example, no airline is doing its own catering, ground handling and call center services anymore. PAL believes that third parties with specific expertise in the three businesses can do a better and more efficient job than PAL. Also, PAL estimates that it would be able to save between P500 million and P1 billion annually from the spin-offs.
All of that and DOLE’s ruling are lost on Palea. It has served notice that it is prepared to go on strike to protest the ruling. It has written a letter to P-Noy “to intervene in the PAL row in the interest of safeguarding constitutionally mandated workers’ rights in the face of corporate restructuring.” It cites, in particular, Article XIII, Section 3 of the Constitution which mandates the State to protect labor rights and security of tenure, among others.
Palea forgot, however, that businessmen have constitutionally mandated rights, too. The same section of the Constitution also commands the State to recognize as well “the right of enterprises to reasonable returns on investment, and to expansion and growth.” Moreover, Section 20 of Article II, the Declaration of Principles and State Policies, says that the “State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments.”
Given such constitutionally guaranteed rights, businesses have the right to reduce its workforce due to compelling economic factors, to carry out cost-efficient programs that would ensure return on investment, and adopt measures to make their businesses more competitive. However, this must be done in a lawful, just and humane manner, hence the need to pay retired workers the commensurate separation benefits.
Labor rights cut both ways. They can’t be in favor of the workers alone as investors are also protected by the country’s laws, specifically by the Constitution, the Labor Code and existing jurisprudence. If workers can go on strike to seek redress of abusive labor practices, entrepreneurs also have the option, as provided by law, to terminate or retrench employees to effect more economical and efficient methods of production.
This is one of the risks when you seek employment—you may lose your job due to unforeseen circumstances. In the same manner, losing an entire investment worth billions of pesos is also one of the risks a capitalist faces. It is not only the workers who suffer; investors could lose a fortune if their businesses close shop.
What will happen if there is no spin-off? PAL will be in danger of closing down and 7,500 workers will be displaced without separation pay, not to mention its adverse effects on PAL’s shareholders, the riding public and public interest.