Facts about the PAL spin off/outsourcing program

As part of its restructuring efforts in response to cut-throat competition in the global airline industry, your flag carrier Philippine Airlines (PAL) will spin off/outsource three non-core units (airport services, inflight catering services and call center reservations operations) effective October 1, 2011. The program will affect close to 2,400 PAL workers who are assured of a generous separation package and job offers from third party service providers.

Rationale
In the last decade, PAL and other international carriers have been adversely affected by global economic upheavals, acts of terrorism, excessive liberalization, pandemics, stiff competition from mega carriers and the emergence of budget carriers. To adjust to these new realities, airlines worldwide adopted new business models to survive. Most, if not all airlines, adjusted through cost cutting and outsourcing non-core functions. To remain competitive and ensure long-term survival, PAL was forced by circumstances to adopt leading airline practices, especially in view of the following:

• PAL lost $312 million in two fiscal years (2008 & 2009)
• While PAL reported modest profits of $72.5 million in 2010, PAL again posted a loss of $10.6 million for Q1 of its current fiscal year (April-June 2011) due to
  • weak demand as a result of lingering world economic condition
  • high fuel prices
  • effects of the devastating natural calamity in Japan
  • economic effects of social/political unrest in the Middle East and North Africa
• Effects of the US FAA Category 2 downgrading of the country's civil aviation regulators which limits PAL's operations to and from the United States
• European Union blacklist on all Philippine carriers from flying anywhere in Europe
• Cut throat competition due to budget carriers and state-sponsored open skies policy

Legal Basis
The spin off/outsourcing has been declared FOUR TIMES as a legal and valid exercise of management prerogative -

• twice by the Department of Labor and Employment (DOLE): June 15, 2010 by acting Labor Secretary Romeo Lagman and on October 29, 2010 by Sec. Rosalinda Baldoz
• twice affirmed by Office of the President, Malacanang: March 25, 2011 and August 11, 2011

The Spin Off / Outsourcing Process

1. Notices of Separation have been issued to affected employees. Their last day of work with PAL is on September 30, 2011.
2. Third party service providers will absorb ALL affected employees who signify intention to join them by September 9, 2011.
3. Separation pay and other benefits shall be given not later than October 15, 2011 after computing employees' salary and accountabilities as of September 30, 2011.
4. Full implementation of the spin off / outsourcing program will start on October 1, 2011.
5. PAL management notified the regional offices of DOLE (Manila/Pasay and Cebu) regarding its spin off/outsourcing program, the effectivity date as well as a list of affected workers.

Service Providers
SkyLogistics Philippines, Inc. will take over airport services (ground handling), while SkyKitchen Philippines, Inc. will handle inflight catering services. Both companies are owned and managed by Manny Osmena, a Cebu-based businessman.

SPi Global, a subsidiary of PLDT, will handle call center reservations operations.

Separation Benefits
PAL workers affected by the spin off/outsourcing will all receive a generous transition package, which includes:

• 125% of the employee's monthly basic salary for every year of service (which is 25% more than what is prescribed in the PAL-PALEA CBA)
• P100,000 gratuity pay
• 100% commutable-to-cash accrued vacation and sick leaves
• trip pass (free tickets) benefits depending on years of service
• guaranteed salary for one year, of whatever salary is given by the service provider to workers who accept the employment offer of the service provider; and
• medical and hospitalization benefit for one (1) year for those who will join the third party service providers

Note* PAL will spend close to PHP 2.6 billion to cover the transition benefits package of affected employees. Components of the said package are higher than industry rates and more than the prescribed benefits under the Labor Code.

Assurance
PAL would like to assure the public that your airline is exerting all efforts to ensure smooth implementation of the spin off/outsourcing program. Contingency measures are in place to minimize passenger inconvenience. Streamlining the airline's manpower is critical to remain competitive in a harsh industry environment.

PAL is seeking the understanding of its workers, clients and partners as it undertakes this difficult and painful spin off/outsourcing program. No airline, or company for that matter, wants to be remembered for severing ties with its workers. However, PAL must adapt to new realities to remain competitive. After all, its continued operations ensure that separated workers would still have jobs, albeit with a new company. A stronger and leaner PAL also means more secure future for its remaining 5,000 employees, better and more efficient service to its 10 million customers and continuing service as the country's national flag carrier.