JJB speech
Rotary Club of Manila
August 23, 2007

Fellow Rotarians, distinguished guests, ladies and gentlemen, good afternoon. Thank you for inviting me to your meeting.
I must confess that when I received your invitation, even if not from my own Rotary Club, I felt obliged to accept probably to make up for my long inactivity from the Rotary due to the demands of my work at Philippine Airlines.
As a fellow Rotarian, I know you must be proud of the distinction exclusive to the Rotary Club of Manila – that of being first in Asia.
It seems we share a common pride. If you are first in Asia, we are also Asia’s first – the first Asian airline still operating in its original name.
And we have held many other firsts in our 66-year history – the first Asian airline to cross the Pacific; the first Southeast Asian airline to fly to Europe. We are also the country’s first national flag carrier; the first local carrier to introduce jet service; and many more.
Since formally reporting the $140.3 million record profit to the SEC in June and to our stockholders early this month, the jubilation in PAL has yet to subside because last year’s net income frontlined four other feats achieved by PAL.
Number one. The $140.3 million profit was the highest in the whole of PAL’s 66-year history.
Number two. The profit was the third in a row, breaking a three-decade-old cycle of periodic sharp losses interrupted by short profit bursts.
Number three. Last fiscal year was our eighth year under rehabilitation. We registered positive revenues throughout those eight years while recording net profits for six years.
Number four. The 2006 net income was six times over the profit earned in 2005.
Financial rebound
For you to appreciate the collective euphoria prevailing in PAL, you have to remember that eight years ago we almost collapsed. We were burdened by a total of $2.2 billion obligations to our creditors, compounded by destructive strikes from our pilots and ground-crew unions.
This happened while PAL was suffering from the effects of the 1997 Asian financial crisis. We were also in the midst of a massive refleeting program, involving the acquisition of 33 new airplanes amounting to $3 billion. The refleeting had to be abruptly aborted.
The company’s financial position was at its worst. PAL was hemorrhaging cash at an alarming rate. In 1998, PAL lost nearly $262 million, our largest annual shortfall. In fact, that loss was our fifth in a row. The following year, we posted another loss, bringing the cumulative deficit to almost $775 million over a six-year period.
The dissolution of the airline seemed imminent. But just before hitting the ground, we managed to put together a rehabilitation plan. The Securities and Exchange Commission approved it in June 1999 and subsequently accepted by our creditors, shareholders and labor unions. Since then, it has served as the blueprint of our operations.
Today, after eight years, PAL is back in the pink of health after undergoing very painful changes. You can say we applied the electric-shock treatment to revive a half-dead airline. And we survived those dreadful years by making very difficult decisions and with the help of everyone in PAL - from our chairman Dr. Lucio C. Tan, down to every pilot, cabin crew, ticket clerk, ramp agent, cargo loader and ground personnel.
But the story of our corporate rebound is never a reason for us to let our guard down but rather it serves as an inspiration in fortifying our secured position as clearly the country’s number one airline – notwithstanding similar claims by a competitor – as we adapt to the rapidly changing industry environment.
Our financial turnaround has emboldened us to apply for an exit from rehabilitation by yearend as we face head-on the difficult issues besetting the industry – consistently high fuel prices, the threat of terrorism, high cost of security, market volatility, currency fluctuations, epidemics and, of course, the ever-present challenge of intense competition.
Competition is PAL’s friend
I firmly believe that PAL is up to the challenge of competing in a world that is gradually moving towards full market liberalization.
Here at PAL, we view healthy competition as our friend, not our enemy.  We embrace it and capitalize on it.  
It is not true that we yearn for a return to “the good old days” of monopoly.  The Philippine Government imposed a monopoly on domestic services 34 years ago, and what did it do to PAL?  We were forced to operate unprofitable or so-called missionary domestic routes and charge artificially low fares.  We lost money year after year.  Those were the “bad old days”.
The Government eventually dismantled the monopoly in 1988, privatized PAL four years later, and deregulated the domestic aviation industry in 1995, long before many key Asian countries did the same to their own industries. 
Today, we are thriving in competition on domestic routes, and with our record-setting financial performance, I believe we have settled with finality the debate on which is the number one airline flying Philippine skies.
On international routes, we have never been a monopoly. PAL has always been competing with foreign airlines, including big carriers from well-developed countries.
In fact, we have been a monopoly-buster, breaking up cozy monopolies on certain international routes and bringing down fares. Examples are the Manila-Guam and Manila-Beijing sectors.  Later this year, our partner airline Air Philippines will break up a duopoly on the Manila-Caticlan route with new flights using brand new Bombardier Q300 aircraft, in a special alliance with PAL.
So we are out there on the frontlines of competition, fighting for a better deal for our faithful customers here and abroad.
Open skies and fair competition
We are also fighting for a better deal in the global battle over “Open Skies”.
We often hear advocates portray open skies as some kind of magic bullet that will propel the Philippines to prosperity. This confuses the issue. Liberalization is not the goal. It’s merely a tool to reach the real goal – more growth for the Philippines, more tourism, more air travelers, more revenues for the country, a healthy aviation industry.
We have therefore called on government policy makers to use the tool of liberalization wisely and responsibly, particularly in the crucial mission of negotiating aviation rights for access to international markets.
We ask that the Philippines always negotiate from a position of strength, and project the nation in a confident, optimistic and positive way.
We call for the Philippines to focus on liberalizing markets that need more access to grow.  We have been asking our government to secure more access rights to Canada, Tokyo Narita, China, Cambodia and India. We hope to expand to daily flights to Vancouver and Las Vegas by the end of 2007.  Soon, PAL will start serving Western China for the first time with new flights to Chengdu and Chongqing. Beyond that, we look forward to penetrating the U.S. East Coast and the vast market of India.
By all means, let us encourage foreign airlines to serve airports that are hungry for more tourists like Davao, Palawan, Kalibo and Clark.  But let us not make the fatal mistake of neglecting our own Filipino airlines in the process.
For instance, we have united with other local airlines in denouncing Executive Order 500 and 500-B. These executive orders are unilateral declarations of open skies that give exclusive privileges to foreign carriers to fly to Clark and Subic.  In effect, Filipino air carriers are shut out of the Clark and Subic markets.
We are now seeing evidence of the negative effects of adopting such a one-sided and short-sighted policy. Tiger Airways, Hongkong Airlines and Asiana Airlines were given unilateral permits to fly the routes Macau-Clark, Hong Kong-Clark and Seoul-Clark, respectively. But when two Filipino airlines applied for permits to operate from Clark to Macau, Hong Kong and Korea, their applications were denied by the governments of these destinations.  
This is a hard way to learn a hard lesson:  There is no such thing as “utang na loob” in international trade, certainly not in aviation politics. These governments disapproved the applications of Filipino carriers because the Philippines gave out permits to their airlines with no expectation of reciprocity, as a free and unilateral gift. 
And the loser in this transaction is Clark, and by extension the Philippines. By excluding local carriers, you are shortchanging the future of Clark.
For your information, PAL is investing as much as $50 million on permanent facilities in Clark that will create up to 5,000 new jobs, more business opportunities and more economic activity for Central Luzon. By contrast, the foreign low-cost airlines poured hardly any investment in their operations at Clark because of their no-frills business scheme.
We can humbly but confidently say that PAL and Filipino carriers play a greater and more permanent role in boosting and sustaining the Philippine economy. We contribute more in creating jobs, generating revenues and promoting RP tourism.   Foreign airlines may engage in their own promotions of the Philippines as just one of the many competing destinations that they serve, but PAL will always be 100% dedicated to selling the Philippines abroad because all our flights start and end in the Philippines. Indeed, our very existence as an airline depends entirely on the welfare of this nation.
As you can appreciate, PAL and the other Filipino airlines are not out to block these foreign airlines. We are merely asking that we be given the same access rights and opportunities that are given to foreign carriers.
That is the challenge we have hurled at our own Government.  We are not asking to be pampered or sheltered. What we need is a fair chance to compete. What we need is equal opportunity.  What we need is equal access to markets.
State aid as obstacle to equal opportunity
You are aware of the raging debate in the World Trade Organization (WTO) negotiations over free trade. The developed Western countries that are trying to force a free trade regime are the same countries that are trying to protect their rich farming industries by preserving their agricultural subsidies. 
The same twisted notion of fairness applies to the open skies debate in the aviation industry. 
As a classic example, the United States has an open skies agreement with the Philippines that assures US airlines of unlimited rights to fly to, through and from any point in the Philippines. But Philippine carriers are restricted to only a handful of US gateways under certain limitations.  We have been urging our Government to negotiate for a removal of these existing barriers and restrictions so that we can compete fairly and freely. 
In practice, however, US carriers have not come in droves, as pro-open skies advocates had predicted, to bring in the tourists and investors.  On the contrary, it is PAL that has been aggressive in tapping the US market. PAL offers more than double the number of flights, routes and US gateways than our US competitors today. And we want to further expand this in the future. The US airlines may not relish more aggressive competition from PAL, but that is no excuse for their Government to hold us back by denying us fair and equal access to the RP-U.S. market.
And we must not forget that the US government has granted more than $15 billion  in financial aid to various American airlines in the aftermath of 9-11.  In this respect, the US is not alone.  Many countries, including the fabulously wealthy states of the Middle East and a number of our richer neighbors in Asia, have propped up their airlines through state ownership and subsidies.  Such subsidies and state aid seriously distort competition and have created an uneven playing field. 
However, in an echo of the WTO controversy, the countries that shelter their  relatively richer airlines with subsidies and state aid are, in many cases, the same countries that are trying to force an open skies regime that preserves their one-sided advantages.
Since PAL was privatized in 1992, we have been operating on our own without government subsidies.  While state-owned or state-subsidized carriers are cushioned from business failure, PAL has no room for error; we either sink or swim on our own merits.  We have nonetheless succeeded in overcoming great turbulence and attaining financial stability.   
So we believe that we have the credentials and the moral authority to join the call for the abolition of these subsidies that distort free airline competition.  The abolition should begin with the open skies arrangement contemplated for 2008 in the ASEAN region, where PAL is the only privately-owned national flag carrier.  Ultimately, this should apply to all international air routes if indeed we are to have healthy and fair competition, where the opportunities are open to the airlines of all countries, not just the privileged few.  
Expansion and Growth
While confronted by unfair competition and lack of equal opportunity, we refuse to be cowed into inaction, not when we are enjoying the momentum of a financial rebound. Instead, we train our sights on future prospects.
Using our improved financial condition as springboard, we intend to move forward with cautious optimism. We shall consolidate our gains to achieve sustained profitability and productivity.
Even before we get approval for an exit from receivership, we have started moving towards the goal of sustained growth by expanding our operations and modernizing our fleet of aircraft. We are presently taking delivery of 20 brand-new Airbus A320s and Airbus A319s. We have already ordered six Boeing 777-300ERs for delivery starting 2009. By year 2012, our total fleet shall expand to 43 aircraft.    
You can expect the launch of new services to more destinations in the US West Coast, the US East Coast, China, India, Japan, Korea and other parts of Asia. We will be introducing exciting enhancements in our customer service such as state-of-the-art Mabuhay Class seats and many more.
Our strategy for expansion, as enunciated by our Chairman Dr. Lucio Tan, shall be four-pronged, namely -

• increase in revenue;
• improved operating efficiency;
• focused risk management; and
• improved cost control

These strategies will ensure that profitability will be sustained for the long term.
In closing, PAL has just emerged from a very crucial phase of our history. As we move out of receivership, we enter a new chapter – that of sustained growth and profitability.
We will ride on the momentum of renewed stability in delivering more than what our passengers expect; trying to outdo ourselves in pleasing the customer.
Let me share with you what Dr. Tan and I told our shareholders last month –
“We now need to establish a regime of breakthroughs. It is not enough to simply continue as before. The future is coming at us ever faster and we no longer believe we can survive with small steps. Our proven ability in dealing with challenges should help us find ways to break out of the intuitive linear view.”
In short, watch out for us. We are just beginning.
Thank you and good afternoon.