Philippine Airlines (PAL) intends to terminate 2,600 regular employees and then rehire them through an outsourcing company as contractuals retaining only rank-and-file workers. This action will substantially cut PAL’s salaries expenses and increase profit margin. However, Philippine Airlines Employees Association (PALEA) opposes this management decision.
PALEA held a protest inside the airport to show resistance of what they call an illegal termination and implementation of outsourcing scheme. PALEA claims that PAL’s action is a manifestation of corporate greed as the Company had presented P3 billion comprehensive income in the fiscal year of 2011. PALEA established a protest camp located in front of PAL to express continuing resistance of the illegal termination and contractualization scheme.
In my opinion, the PALEA failed to emphasize a significant fact: PAL which was incorporated in 1941 was suffering from losses since Cebu Air challenged the Company’s market share 1997.
PALEA argued that PAL’s action is a manifestation of corporate greed because despite a 3 billion net income in 2011, PAL still aspires for higher profit by cutting employee costs. PALEA failed to emphasize is that PAL has been suffering with negative or low free cash flows (cash flow from operations less cash flow from investing), and has accumulated a deficit of 257 million in 2007 and despite the capital restructuring initiated by the company that wiped out these deficit in 2008; the Company still accumulated a deficit of 14 million as of 2011. One may argue that the Company is already in the course of turning the operations around since in 2011, PAL already presented 3 billion net income. Although the number is encouraging, the profit margin generated by PAL is only 4% which is less than half of Cebu Air’s 9% profit margin. One unfavorable increase in the prices of fuel will surely drag PAL back to losses.
I recommend that PAL management should encourage teamwork between them and employees before deciding in terminating and contractualization of the employees. The decision of terminating and rehiring them as contractuals might substantially decrease costs but employee morale will be greatly compromised. The management should set profit goals to achieve every quarter and present plans and strategies on how to achieve these goals. The formulation of the plan should also be in consideration of the employees’ suggestions to make them feel part in facing the daunting challenge of turning PAL’s operation around. To make sure that the Company is on track of these goals and employees stay motivated, constant monitoring of the progress should be put in place.