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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

OCTOBER 15, 1999 VOL. 25 NO. 41

Cutting the Taiwan Air Link
A bitter aviation dispute raises charges of cronyism
By YASMIN GHAHREMANI and RAISSA ROBLES Manila

Philippine President Joseph Estrada has made a big deal about the need to amend the Constitution to open more of the economy to foreigners. But last week, his government decided to close the country to Taiwan planes. It's part of his controversial attempt to save Philippine Airlines (PAL), controlled by his loyal supporter, billionaire Lucio Tan. That move has replaced the overhead rumble of flights to and from Taiwan with a disgruntled chorus of "cronyism" on the ground.

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The dispute centers on Manila's demands to renegotiate a 1996 agreement with Taipei. Under the deal, each side could fly 9,600 passengers a week between the two cities. Taiwan's China Airlines (CAL) and EVA Airways filled their seats, but PAL could book only 3,000 passengers a week. Claiming that CAL and EVA were "stealing the passengers of Philippine Airlines" with low fares, Estrada decided to give the national flag carrier "some protection." The Civil Aeronautics Board proposed the allowable traffic be cut to 3,000 for each side. Taipei offered 6,500; the CAB balked and cut air links on Oct. 1.

And that may not be the end of it: Assistant Foreign Secretary Franklin Ebdalin, a CAB member, says there is similar bargaining in store for Singapore, Hong Kong and South Korea. Besides Taiwan, they are the "biggest violators" in flying passengers from Manila to destinations beyond their home countries, says Ebdalin. "It's our patriotic obligation to come to the assistance of our flag carrier," he argues, adding that PAL helps keep fares low. "When PAL terminated flights to Singapore [during its temporary shutdown last year], Singapore Airlines doubled rates at once."

That argument is not going over well in some quarters. "PAL does not want the public to have cheap tickets, especially if offered by competing airlines," says Narzalina Lim, once the acting tourism secretary. "If this is not an insult to us passengers, I don't know what is."

The Freedom to Fly Coalition, a group of hoteliers, travel agents and other business people, warned of losing $146 million a year in tourist revenues if the 3,000-passenger limit on Taipei-Manila flights went through. And tens of thousands of overseas workers - a key constituency - would suffer most from having to pay higher fares due to limited flights. There were executive orders drafted earlier this year to require government officials as well as workers traveling to jobs abroad for the first time to fly PAL. Filipinos employed in Taiwan, who send home more than $900 million a year, could feel the pinch even more if Taipei goes ahead with threats to import Vietnamese and Nicaraguan laborers instead.

More problematic for the Philippine economy as a whole is the prospect of hampering business with its No. 4 trading partner and No. 5 foreign investor. Taiwan has threatened sanctions. It has poured over a billion dollars into its neighbor. That could slow if the island's business people feel they cannot properly run ventures in the Philippines without direct flights. This spanner in the economy comes just as the recovery is looking more fragile. Gasoline prices have risen by as much as 20% in the past year, due to a doubling of oil prices and a weaker peso. Laborers are demanding wage hikes to meet the higher costs of transport and consumer goods. To head off restiveness, Estrada has cut 13.7% off the price of "Erap rice," a cheap, tasteless grain given his nickname and sold to the very poor.

The airline dispute, which comes after another carrier, Emirates, had to curb Hong Kong-Manila flights in June, has fueled concerns over cronyism. Under the CAB's proposal, Lim charges, "PAL will be paid for not doing anything but being owned by Lucio Tan." Tan, also a Marcos-era crony, has poured millions into the carrier. But it is now $2.2 billion in debt, due partly to over-expansion.

Besides getting help for PAL, "El Kapitan," as Tan is known, has seen a longstanding $620-million tax evasion case dropped after Estrada took power. Some critics in Taipei have gone so far as to allege that Tan is doing Beijing a favor in getting Manila to scrap the aviation deal with Taiwan. They claim the Chinese promised to help Tan revive PAL and to give him concessions in the mainland.

All this comes at a time when Estrada faces challenges on many fronts: protests against his proposed constitutional amendments; resurgent communist and Muslim insurgencies; and his perceived attempts to put financial pressure on the media. The president can probably weather the aviation controversy on its own; higher airfares hardly register on the radar screens of most Filipinos. But if Manila's attempts to recast aviation pacts in PAL's favor seriously hurt tourism and investment, the price for helping Tan may prove too high for both Estrada and the Philippines.

- With reporting by Bradley Winterton / Taipei

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