The troubles of flag carrier Philippine Airlines (PAL) cast dark clouds that could cause turbulence in the next few years. Monday's tragic hostage taking highlights the country's problem with peace and order, one of the many problems the company has had to deal with in its seven-decade history. PAL has lost over $300 million in the last two years because of a combination of low demand, restrictions to its expansion to lucrative routes in the United States, and a bad hedging decision that led to the airline paying a lot of money for oil that got cheap. The company's biggest challenges are the low grades given to the Philippines by several international aviation bodies, mainly the US Federal Aviation Administration (FAA) and the International Civil Aviation Organization (ICAO). “The Philippines is in an aviation crisis,” PAL president Jaime Bautista said. “We have two basic but very serious problems that involve our aviation authorities.” In 2008, the FAA downgraded the Philippines to category 2 status, mainly because of deficiencies in the now-defunct Air Transportation Office (ATO). “What this means is that we could not expand our operations in the US,” he said, noting that this derailed the company's earlier plans to start flights to San Diego or even some in the east coast - New York or Chicago. The downgrade also meant that PAL would not be allowed to use its two brand new and more efficient Boeing 777 aircraft for flights to the US. The acquisition of the new aircraft, ordered during the airline industry's boom period before the 2008 fuel crisis, were part of PAL's route expansion program. Another blow to PAL's plans was the Civil Aviation Authority of the Philippines' (CAAP) failure to pass a recent audit by ICAO that raised significant safety concerns over the country's air travel industry. CAAP was formed to replace ATO as aviation regulator so that the category 2 status given by the FAA on the Philippines could be lifted.
