MANILA - After incurring a $301.4-million loss at end-March, flag carrier Philippine Airlines (PAL) will take drastic measures of right-sizing its workforce and reducing flight capacity to match demand in order to survive the crisis plaguing the global aviation industry.

In a statement, PAL president and chief operating officer Jaime Bautista said the company will offer early retirement packages for its employees to reduce costs.

“We are currently reviewing our entire organizational set-up. We want to make PAL lean and mean so it will be agile and flexible enough to adapt to the new economic climate," he said, noting that "extraordinary times call for extraordinary measures."

At present, manpower accounts for 18% of PAL's total expenses and the company wants to reduce this to close to single-digit level, according to Bautista.

Bautista refused to say how many of PAL's over 8,000 employees will be retired, noting that they will be able to come up with a number in about 2 weeks.

Apart from cutting workforce, Bautista said PAL will also realign its flight capacity in favor of the domestic market due to the weakness in its long-haul operations, particularly to the US, where the financial crisis began.

He said they will cut international capacity by 7% starting this month until March 2010, effectively reducing flights to the US, Canada, Japan, Hong Kong and Australia.

For instance, he said flights to Los Angeles are now down to 7 from 9 a week while flights to Australia have been reduced to 5 from 7 a week.

But he stressed that such moves "will no way infringe on our safety compliance and standards."

"We are eyeing new destinations either through charters or regular scheduled operations. We also expect to take delivery of our brand new and fuel-efficient Boeing 777-300ERs and we are in the final stages of refurbishing our current fleet of widebodied aircraft to feature a bi-class configuration, new seats and state-of-the-art entertainment systems. All these being done to better serve our customers,” he added.

Recently, abs-cbnNEWS.com received a letter from one of its readers about PAL's cost-cutting measures. The reader, who claimed to be an employee of the airline's Network Management and Telecommunication Services department, said they were being urged to take a one-week leave per month without pay starting August 17.

PAL however refused to confirm whether this is true.

Bautista said PAL's cost-cutting initiatives were necessary as it relies only on the backing of its principal shareholders, unlike state-owned airlines which enjoy support from their respective governments in times of crisis.

“PAL must not always rely on its stockholders; it must do its part and look internally to overcome this new challenge,” he said.

PAL shareholders has approved a quasi-reorganization plan in line with its plan to lure potential investors into the company.

Under the plan, PAL will reduce its par value of its shares to P0.20 from P0.80 per share. Then it will increase its authorized capital stock from P16 billion to P20 billion divided into 100 billion shares at P0.20 per share.

"We have not talk to any prospective investor but we believe that for investors to be attracted the par value should approximate the book vaue of the shares. As of end March 2009, the book value of the shares is P0.23," Bautista said.

For the fiscal year ended March 2009, the airline posted a $301.4 million net loss, a sharp reversal of the $30.6 million net income it recorded in the previous fiscal year.

Revenues grew 14% to $1.63 billion from $1.5 billion due to acquisition of additional aircraft and growth in the domestic market.

However, the cost of operating more aircraft, which involved higher maintenance expense and compounded by record high fuel prices, raised expenses to $1.9 billion from the year-ago level of $1.5 billion. Fuel comprised 44% of the airline's operating expenses.

During the 1997 Asian financial crisis, PAL also suffered mounting losses, which forced it to retrench some 5,000 employees.

It went under rehabilitation for several years before finally turning its finances around in 2007.