MANILA, October 18, 2004 (STAR) By Mary Ann Ll. Reyes - Flag carrier Philippine Airlines (PAL) is undertaking a multi-billion peso re-fleeting program until 2006 by replacing 13 of its existing aircraft either through leasing or the outright acquisition of new planes.

"We are looking at acquiring half of the 13 and leasing the rest. But we want to keep our options open. We have to study carefully the economics of acquisition and leasing," PAL president and chief executive officer Jaime Bautista said.

He pointed out that PAL cannot operate at the current capacity, especially since the market is expanding.

This year, with the term of lease of one of the aircraft units expiring, Bautista said the immediate solution is to enter into a short-term lease contract for the first and then decide later whether to lease or acquire.

Most of the planes scheduled for modernization and upgrade are leased by PAL for a period of three to five years, all expiring between now and 2006. Next year, another three aircraft are scheduled to be replaced. "By 2006, all the 13 will be replaced," he disclosed.

PAL has already received proposals from Airbus and Boeing but company officials would not disclose the terms of the proposal.

Bautista explained that there are advantages and disadvantages to leasing aircraft. The risk in the case of leasing, as when the value of the plane goes down, is less but the cost of leasing is higher. The lease charges can also be more expensive than depreciating the cost of new planes.

Earlier, Air Philippines Corp., another airline company controlled by business magnate Lucio Tan, completed its refleeting program with the arrival of two of its newly leased 118-seat Boeing 737-200 aircraft. Bautista used to head Air Philippines.

Air Philippines is the country’s third largest airline after PAL and the Gokongwei-owned Cebu Pacific Air. It began a modernization program in Oct. 2003 to improve operating efficiency with newer airplanes that would allow it to operate new routes for domestic and charter operations.

Bautista said Air Philippines and PAL are strengthening their alliance to improve domestic and overseas coverage. The two airlines have a code-share scheme, a practice in which an airline endorses a passenger to another airline on a route the former does not operate.

Bautista said Air Philippines’ refleeting would not involve a big capital outlay but only "several millions of pesos" for spare parts.

Reported by: Sol Jose Vanzi

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