Cathay Pacific Airways' plan to take control of Philippine Airlines (PAL) faces collapse after talks broke down over critical labour and financing issues, senior Philippine Government officials said. Ronaldo Zamora, executive secretary to Philippine President Joseph Estrada, said yesterday that PAL chairman Lucio Tan 'is in America now and he is restarting the discussions with Northwest Airlines'. Northwest was one of the original PAL suitors, sending a team of executives to Manila to conduct preliminary due diligence last month. It reportedly dropped out of the bidding because it was unwilling to put up cash to help re-capitalise the Philippine carrier. Swire Group general manager for corporate communications Andrew Herdman denied talks had broken down. 'As far as we're concerned negotiations are continuing, although we are monitoring the situation,' he said. 'We're still continuing our due diligence . . . and are working together with PAL to submit a corporate rehabilitation plan to the provisional receivers by December 7.' Mr Zamora said the talks have been disrupted by 'what appears to be a huge disagreement'. Mr Tan has pledged not to lay off any more of PAL's 8,000 remaining workers to avoid further antagonising its powerful labour unions, but Cathay Pacific reportedly wants the number trimmed to 5,000. PAL's labour unions won a 20 per cent stake - along with voting rights and board seats - in the carrier in October in exchange for a 10-year suspension of its collective bargaining agreement. Mr Zamora quoted Mr Tan as saying that 'he could not accept' Cathay's alleged desire for further layoffs, despite the general consensus that the airline was overstaffed. He said Cathay Pacific's plans 'included the removal of many pilots [allied] with Mr Tan'. When PAL's labour disputes peaked last summer, about 200 pilots supported Mr Tan, saying they agreed with his proposals to restructure the airline. 'So Mr Tan was saying he had an obligation to the pilots,' Mr Zamora said. Last night, Mr Estrada said he had 'reminded' Mr Tan he wanted him to save the jobs of PAL workers 'at all costs'. However, sources inside Cathay Pacific said it was not clear what significance Mr Estrada's latest statement had, as it contradicted his earlier position of essentially brokering the Cathay deal. 'The situation seems to be becoming not entirely clear,' a source said. One aviation analyst said he doubted whether Northwest was still interested in PAL: 'I wonder if it's not just a ploy to get a better deal from Cathay.' No PAL official, including spokesmen, would go on the record yesterday to comment on the reports or on Mr Zamora's statements. However, one source said: 'It appears Northwest does not want to invest that much. What they're proposing is to manage PAL for one year, then to decide, after that period, whether or not to infuse capital into PAL. 'Cathay, meanwhile, seems to have the money available, but have too many demands.' However, the source said that PAL management was hesitant to agree to Cathay's demands. Cathay is now reportedly looking at an infusion of US$75 million to $100 million into PAL, but only if this will be matched with an equal investment by Mr Tan. It is also understood that Cathay wants Mr Tan to guarantee his end of the re-capitalisation plan. Mr Zamora said Cathay was given first crack because 'it wasn't that large, their culture is similar to ours'. 'Now it turns out that analysis was wrong,' he continued. 'Northwest is four times larger than Cathay . . . and maybe they won't push for layoffs.'
