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Philippine Airlines to pay $117m fees after Duterte threats

President creates turbulence for flag carrier controlled by tycoon Lucio Tan

A Philippine Airlines aircraft at Manila airport

MANILA -- Philippine Airlines will pay 6 billion pesos ($117 million) to settle its arrears to the government, the flag carrier said on Friday, as it bowed to pressure from President Rodrigo Duterte.

In a joint statement, PAL and the Transportation Department said they had resolved issues regarding PAL's non-payment of aviation-related fees.

The department last week asked PAL to pay around 7 billion pesos in fees it owed to the Civil Aviation Authority of the Philippines and Manila International Airport Authority. PAL, however, bargained for a lower amount.

The settlement came just in time for the expiration of a 10-day deadline imposed by Duterte on Sept. 26 when he publicly ordered tycoon Lucio Tan, chairman and CEO of PAL, to pay airport-related fees or the airport terminal being used by the airline would be shut down.

Speaking at the anniversary celebration of the Philippine Constitution Association, a group of lawyers, Duterte told his audience to prod their clients to pay the correct amount of taxes before blasting Tan, the Philippines' second-richest man, in a televised speech.

"I will give you 10 days. Pay it. If you don't, I will destroy it. No more airport. So what?" Duterte said, referring to PAL's use of airport facilities.

PAL, a state-owned company exempted from airport fees before Tan's group took it over in the 1990s, has been exclusively using Terminal 2 for its international and domestic flights since 1999. PAL on Sept. 27 said the dispute over the "alleged unpaid navigational charges involves complex legal issues which PAL has been trying to thresh out with the [government] for years." PAL said it had won related tax cases.

The government of former President Benigno Aquino also attempted to collect fees from PAL, but it was only under Duterte's government that PAL agreed to pay. "One of the overriding reasons why PAL agreed to settle is to manifest its trust and confidence in President Duterte's administration," PAL said.

The Sept. 26 speech was not the first time Duterte had publicly criticized Tan for his alleged tax liabilities. In April, Duterte said Tan, whose holding company LT Group controls tobacco, liquor, banking, beverage and real estate assets, owed the government 30 billion pesos in taxes. The tax bureau did not validate Duterte's claims.

Duterte has said that Tan, along with another, unrelated tycoon, Andrew Tan, who chairs conglomerate Alliance Global Group, had offered to fund his campaign only when the former Davao city mayor began topping opinion surveys last year. Duterte said he rejected both offers.

Airline restructuring

The tax settlement is a blow to the airline, which is undergoing restructuring in preparation for the entry of an investor.

On Sept. 26, the same day Duterte made the threats, PAL Holdings, the listed parent of PAL, announced that the airline had secured regulatory approval to slash its authorized capital stock to 13 billion pesos from 20 billion pesos. "The move to decrease authorized capital stock will allow the flag carrier to declare dividends and attract more investors," PAL said.

PAL sees the need for a foreign strategic partner to expand overseas and improve its services, to better compete with regional airlines. The company may sell 40% of PAL Holdings, which had a market capitalization of 127 billion pesos as of Friday, company president Jaime Bautista told reporters in March.

Tan is the latest in a roster of tycoons that have drawn the ire of the country's firebrand leader. Others, however, have been forced out of their businesses.

Last year, former PhilWeb chairman Roberto Ongpin was compelled to divest from the online gaming company after Duterte singled him out for criticism.

In July, the Prieto family announced it was selling its majority stake in the Philippine Daily Inquirer newspaper -- which has been critical of Duterte's brutal war on drugs -- to San Miguel president Ramon Ang. The sale came after Duterte threatened the other businesses of the Prietos.

The Lopez family of ABS-CBN Corp., the Philippines' biggest broadcaster, has also been a target of Duterte's tirades. In April, Duterte, who claimed to have been swindled by the TV station, said he would block the network's franchise renewal when it expires in 2020.

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