Regulation knows no borders

That was a hammer blow for PAL because it meant that while it could still operate to the US it couldn’t add new routes, bring on additional capacity or change the heavy metal – B747-400s and Airbus A340s – it was already flying. Because the European Union conforms to FAA standards, PAL is also prohibited from flying to European destinations. For an international carrier being limited or shut out of these vital markets has seriously curbed development. Worse, while its US operations are in limbo, American competitors have open skies access to the Philippines and can operate as much capacity as they want to and through the country.

PAL is now under the management control of local liquor tycoon Ramon S. Ang and his San Miguel Corporation – it bought a 49% stake for $500 million last year – and he has big plans for the future.

“If Category 2 is lifted by the FAA, we hope to fly to New York of course as well as major cities in Europe like London, Paris, Rome, Milan, Madrid, Frankfurt and Moscow. But we still have to patiently wait for the lifting of Category 2,” he said recently.

Indeed, since taking charge last year, Ang has instigated a major re-fleeting program, placing a A$6.9 billion order with Airbus for 54 aircraft: 34 A321s, 10 A321neos and 10 of the new higher-weight A330-300s. And he is negotiating with Boeing and Airbus for even more capacity – up to 40 planes – including additional B777-300ERs to add to the six it already has. He has also shown interest in B787 Dreamliners and B747-8 Intercontinentals. The addition of these wide-bodies makes it vital the path is cleared to European and more U.S. routes.

Why has it taken so long to fix the woes of Manila’s air safety systems? It has nothing to do with PAL, which has passed the International Air Transport Association’s (IATA) mandatory safety audit. The issue has been with the regulator and the CAAP’s woes underscore an ongoing problem across Asia. Many regulators in the region are unable to maintain staff levels or attract suitably qualified aviation inspectors for the simple reason that those personnel can get double the pay doing the same job for an airline. It has led to the ridiculous situation in a number of countries where individual airlines have more safety inspectors on their books than their regulator.

“Many regulators in the region are unable to maintain staff levels.”

Common sense suggests one answer would be for regulators to increase salaries. Vietnam did it. Its regulator last year had half the inspectors it required and the Hanoi government approved a doubling of salaries to ease the problem. In many countries, however, the pay of regulatory staff is tied to Civil Service rates and changes require statutory measures.

As for elevation to Category 1, PAL knows that an ICAO green light is not the end of the matter. It wasn’t ICAO that lowered the Philippines to Category 2. It was the FAA and it has to make the final decision. It won’t simply accept ICAO’s findings but will have to complete its own audit. The last time it did that was August last year and at that time it found the CAAP was still deficient in three areas: it lacked qualified technical personnel, qualified safety inspectors, and certain aspects of its operations were still not computerized.

As Jose Fernandez, Assistant Secretary Economic and Business Affairs of the US State Department put it during a recent business forum in Manila: “The FAA has requirements, obligations to US citizens. There is no shortcut to meeting those requirements.”

If the FAA does not grant Manila Category 1, PAL does have other options. It can apply to Europe for an exemption from its ban, similar to the clearance given to Garuda Indonesia when that country’s airlines were banned from Europe. Ang has also confirmed PAL has been in talks with Cayman Airways and the government of Cayman Islands for possible joint venture arrangements that would allow PAL to wet-lease Cayman’s aircraft to service lucrative U.S. routes.

That, however, would be an expensive exercise. Clearly, the preferred option is for the CAAP to finally meet its safety commitments.