The franchise is expected to boost Seair’s value, making it more attractive to potential buyers, according to an airline official and a legislator who coauthored a bill granting the franchise.
Seair owners, led by the foreign partnership of Iren Dornier and Nikos Gitsis and the Filipino group of Tomas Lopez Jr., have been trying to negotiate for a buyout of their shares with prospective investors, after their talks with Filipino-Chinese businessman Alfredo Yao fell through in May. Dornier and Gitsis own 40 percent of Seair while the rest of the shares are owned by Lopez’s group. Yao wanted to merge the operations of Seair with that of Zest Airways, formerly Asian Spirit, which he acquired in March 2008.
As this developed, a Seair official said the airline is still on an expansion mode and unaffected by the current global economic crisis which is seen dampening tourism worldwide. In its October 2008 report, the World Tourism Organization projected global tourism growth slowing down to a range of zero percent to 2 percent for 2009, from a revised growth of 2 percent to 3 percent in 2008. Average tourism growth from 2004 to 2007 was 7 percent.
Interviewed over the weekend, Seair president Avelino Zapanta said the law granting the carrier’s congressional franchise was recently signed by Sen. Manuel Villar, “among his last acts as Senate President,” and is now in Malacañang “awaiting the signature of President Arroyo.”
He said the Senate virtually adopted House Bill (HB) 3788, coauthored by Reps. Eleajandro Jesus Madrona, Ferjenel Biron, Teodoro Locsin Jr., et al.—who comprise the House Committee on Legislative Franchises—which is “more complete than that of the Senate’s bill.”
Through Committee Report 97, HB 3788 was endorsed for approval by the Senate Committee on Public Services, chaired by Sen. Juan Ponce Enrile, on August 28, “without amendment, taking into consideration Senate Bill (SB) 2376.” The latter was coauthored by Senators Ponce Enrile and Juan Miguel Zubiri. SB 2376 is likewise a proposed legislation granting Seair the “franchise to establish, operate and maintain domestic and international air transport services, with Clarkfield, Pampanga as its base.”
Seair’s congressional franchise has a term of 25 years upon the law’s effectivity.
Meanwhile, in a text message from London, Locsin said the congressional franchise “gives Seair permanency,” such that its operations cannot just be indiscriminately cancelled by any government agency without due cause.
This was echoed by Zapanta, who said the franchise gives the airline “a sense of legitimacy; that we’re not operating like a colorum anymore.” Colorum is a Filipino term usually applied to jeepneys and buses which do not have the license to ply certain routes. While it flies without a congressional franchise, Seair has a certificate of public convenience and necessity from the Civil Aeronautics Board (CAB), allowing the carrier to operate scheduled flight services.
Locsin added that with the franchise, the airline “can also borrow [loans], as well as sell its equity at a premium.”
Asked about the advantage of having a congressional franchise, considering that Seair has been operating and expanding since 1995, Zapanta explained that while “some banks will probably consider that [an airline’s franchise] before extending a loan, until you sell that airline, that value [of having a congressional franchise] is not actually manifested. It strengthens your value.”
The airline executive agreed that now that Seair has acquired its franchise, its owners could demand a higher price from potential buyers. When Yao group’s offered to buy out Seair’s owners, the latter were only offered $2 million (worth P84.63 million in May) in cash. With the congressional franchise, industry analysts estimate that Seair owners can now command even “three times that amount.”
Zapanta said the congressional franchise also gives the airline tax incentives such as duty-free importation of capital equipment and income tax holidays.
Locsin, meanwhile, said the franchise would enable Seair to continue flying, fostering competition among the airlines. “I believe that when you have more competition in the industry, it can only result in better service for the airline travelers.”
Meanwhile, Zapanta said Seair remains optimistic about the local and regional tourism market despite projections that the global financial crisis will slow down international travel beginning next year. “We’re bullish and even expanding our routes. We recently were allowed to operate in Singapore, for instance.”
On November 28, the airline will commence flights to Kota Kinabalu; in April 2009, Singapore and Macau; August 2009, Bangkok and Hong Kong, as well as Cebu and Davao; and in September 2009, “we’re looking at Inchon, Kuala Lumpur and Kaohsiung,” he added. All new flights will be out of the Diosdado Macapagal International Airport in Clark, Pampanga, which has more liberal aviation policies.
He stressed that the regional flights are “basically a Seair operation,” but using two aircraft, Airbus 320s, leased from Tiger Airways, a budget carrier based in Singapore. On July 31, the CAB approved the lease agreement between Seair and Tiger Air, two years after both carriers signed it. Local airlines had been opposing the agreement, saying it was a prelude to granting fifth freedom rights to Tiger Air, which they claimed would fly local destinations using Seair.
Fifth freedom rights allow an airline to pick up passengers from one country, transport them to another country, pick up passengers there, and fly to yet another country, like Philippine Airlines’s Manila-Vancouver-Las Vegas-Manila route.
Under the terms of its congressional franchise and in accordance with provisions in the Philippine Constitution on public utilities, Seair is also mandated to offer at least 30 percent of its outstanding capital stock to the public, “within five years from commencement of its operations.” But under the rules of the Philippine Stock Exchange, a company may list its shares in the market after three years of continued profitability. However, in certain instances, this requirement has been waived, as in the case of mining companies and small and medium enterprises.
In May this year, Seair owners rejected the offer of Yao to purchase 60 percent of the airline, because they felt it was a very low price for their shares. While the agreement between both groups was for Yao to purchase Seair for $3.75 million (P158 million then), the actual cash involved would only be $2 million.