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Conflicting
Signals
By Michael Alan Hamlin
May 10, 1999
So Avelino Zapanta quit Philippine
Airlines (PAL) when Lucio Tan stepped down as chairman because,
"I did not really like the prospect of working with foreigners
or under foreigners." Oh that’s just great. A little bigotry
always goes a long way in internationalizing corporate culture in
a global marketplace, focusing on performance rather than entitlement,
and instilling investor confidence. No wonder Alex Barrientos, president
of the Phlippine Airlines Employees Association thinks Mr. Zapanta
is, "excess baggage."
That’s according to a report
last week in Asiaweek, in which Mr. Tan is said to have told a saddened
Mr. Barrientos, "What is important, sad or bankrupt?"
Well, how about both being important?
PAL is pretty sad, and it’s very bankrupt, and likely to stay
that way, especially if Messrs. Tan and Zapanta insist on staying
in the cockpit. The warped reasoning Mr. Zapanta uses to weirdly
rationalize his brief departure from Asia’s oldest and likely
most abused airline is symptomatic of PAL’s problems.
Strangely, or perhaps not so strangely
in the context of the administration’s value system, President
Joseph Estrada publicly at least continues to sing praises to his
"heroes," as if losing millions of pesos every month was
something commendable. Is this the example the private sector is
supposed to follow?
That signal should be at least as
important to Mr. Estrada as domestic and international perception
of the PAL quagmire and the potential — even probable —
closing of the airline. It’s important to look at the total
message the administration is sending with its frequent statements
of public support and strained efforts to find some sort of solution
to this mess. If PAL were to close, the reality is that the gap
would be quickly closed, and without government intervention. Yet
the administration appears not only determined to prop up a lost
cause, but to inhibit better financed, better managed airlines from
serving the market.
The excuse for drawing out this sad
and inexplicable saga is that Mr. Tan inherited major problems when
he took over the airline. And indeed, it was overstaffed, rampantly
corrupted, and extraordinarily inefficient. But remember, Mr. Tan
not only willingly bought into the airline — so eager was he
that he did it secretly — but consolidated control by pouring
billions of dollars into re-fleeting and modernizing it. Mr. Tan
understood the challenges, and accepted them. No one forced him.
While that was a gamble, it’s
also business. The Asian financial crisis has shown very clearly
that the business sector should bear the burden of its own poor
decision-making. There’s no justifiable excuse for helping
out Mr. Tan.
The administration also blames the
previous administration’s open skies policy for a decrease
in PAL’s traffic. This is pure doublespeak. Out of one side
of the administration’s mouth are regular pronouncements about
the importance of liberalizing the economy and stimulating competition
for the benefit of consumers. But out of the other side of its mouth
it’s saying that liberalization is bad for PAL (and a few other
stunted sectors). That’s just not the case. What has been bad
for PAL is bad management.
Developing relationships with labor,
even under hugely difficult circumstances, investing in equipment
and technology, and reengineering business processes to enhance
productivity and efficiency is first-line management. If you can’t
do these things, you lose. Mr. Tan — and his management team
— has repeatedly demonstrated that he cannot do these things.
So why is he back in charge?
Securities and Exchange Chairman
Pefecto Yasay, Jr. said in a statement that, "No one in his
right mind would put US$200 million into a firm and forfeit his
right to manage it." From my perspective, no one in his right
mind would put US$200 million into this sinkhole, and so far all
other investors appear to agree. I don’t see anyone stepping
up to the table. And we don’t see the color of Mr. Tan’s
new money yet either.
The choice for government therefore
seems clear: First, Mr. Tan is on his own. If he somehow makes the
airline profitable, then he really will be a hero, and that’s
a column I would love to write. But he should become a hero on his
own, not by relying on a charitable president whose own credibility
is at stake. If the President’s friendship is truly reciprocal,
Mr. Tan should think about that, too. In other words, why is Mr.
Tan asking Mr. Estrada to pay the price he undoubtedly will for
prolonging this agony?
And if Mr. Tan doesn’t make
PAL work, at least the whole painful ordeal will at long last be
over.
Two, government, rather than inhibiting
competition, should provoke competition, to assure that domestic
and international travelers and business benefits from world-class
airline service, at long last. That’s far more important to
local and international investors than keeping a severely handicapped
PAL limping along. Propensity for perpetuating horrible problems
is not an expertise we should be quite so actively communicating.
A friend in a position to know told
me this week that the Philippines is poised in many respects to
benefit substantially as Asia emerges from its debilitating financial
crisis. But it is sending very mixed signals about how serious the
country is about taking on a serious role in the second chapter
of the Asian Miracle. In the first chapter, the Philippines was
a bit player. There’s only one guarantee that won’t be
the case in the second chapter.
That guarantee is performance. And
that’s the bottom line for PAL, and the Philippines.
Copyright © 1999 The Events
& Awards Managers of Asia and
Hamlin-Iturralde Corporation. All rights reserved.
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