The government of Philippine President Ferdinand Marcos has taken over the national airline - without paying a cent so far to its former owners-after getting a $3 million bill for flights by Marcos' wife, government and business sources say.
The story of how Marcos seized Philippine Air Lines, with annual revenues or about $150 million, from Philippine entrepreneur Benigno Toda Jr. goes to the heart of Marcos' success as one of Asia's most powerful leaders and an influential figure in the development of U.S. strategic and economic interests in this part of the world.
Justifying each deal in terms of national development, he has transferred to his government or to his friends the country's more crucial economic power centers-electric utilities, news media, transportation, banking and now Toda's airline. All the takeovers have displayed Marcos' skill at using the unspoken threat of his martial law power. rather than his actual military weight.
Toda, who had acquired Philippine Air Lines because of his political favors to an earlier Philippine president, suggested a price for purchase of his 1.78 million shares in the company. Marco reportedly promised to pay but did not respond to Toda's offer. Six months later. Toda is still waiting on his private island off the Philippine coast for Marcos or his agent to resume the negotiations.
Meanwhile, he tells friends he is thinking of selling the island fast before Marcos finds way to acquire that, since a Marcos friend has already taken over a neighboring island from the Lopez family.
The relationship between Marcos and Toda had for years appeared to be cordial and Marcos was an occasional visitor to Toda's island. Then in early 1976 rumors began to circulate that Imelda Marcos had run up an enormous unpaid bill for several charter flights overseas.
Marcos' wife is also governor of greater Manila and a key foreign policy negotiator for her husband but many of the flights involved a mix of pleasure and business airline officials say. PAL officials said she owed about $6 million for flight services, including the cost of keeping the DC-8. she ususlly used idle for weeks waiting for her to complete visits to Middle East, European and U.S. cities.
She once insisted on flying out of London after the night noise curfew and thus forced the airline to pay a large fine, PAL officials said.
One day, according to a witness to the conversation, Marcos approached Toda in church.
"Benny, what does my wife owe PAL?" he reportedly asked.
Toda looked at the first lady, standing beside Marcos, and said: "Nothing, Mr. President."
Marcos insisted: "No, I demand to know. You send me the bill."
So Toda sent a bill for $3 million. One top airline official said it was only about half what could have been charged, "but Mrs. Marcos never forgave Toda."
Soon after, a Manila daily, the Evening Post, began a series of articles alleging management abuses at the airline - a situation that the Manila press, totally controlled by Marcos, had up to then ignored.
The Post's publisher and editor-in-chief is Kerima Polotan, the author of Imelda Marcos' official biography. Much of the material for the stories appeared to come from Marcos aide Juan Tuvera, who is a government representative on the PAL board and Polotan's husband.
Another paper, the Times-Journal, controlled by Imelda Marcos' younger brother, later joined the Evening Post in exposing the airlines' late departures and in alleging siphoning of company funds. The other Manila papers ignored the story.
Last October, Marcos asked Toda to come to the palace. In a back room where he tolds confidential conferences, according to a source close to Toda, Marcos asked, "Benny, are you prepared to transfer control of PAL to the government and not exercise the rights of your shares?"
"Of course, Mr. President," Toda said according to the source. Marcos reportedly promised that the government would buy Toda's shares at a mutually agreeable price, but he did not respond to the price Toda suggested.
Those close to Toda say he was smart enought to realize he would do himself no good putting up a fight against a president holding full executive and legislative powers-and the right to appoint all judges.
Asked earlier this month when Toda would he paid, Marcos said: "I do believe he has been paid." An official of the Government Service Insurrance Corp., the government financial institution that formally took over the airline, later said no payment had been made.
The airline takeover, like many other Marcos maneuvers, seems a combination of the best and worst motives, a mix of the personal wrath of the powerful first lady, Imelda Marcos. and the indignation of government officials who saw Toda milking the airline's profits in a style favored by many businessmen here, whether in Marcos' camp or not.
Philippine Air Lines (PAL) was founded just before World War II by the Soriano family, the makers of San Miguel beer and one of the wealthiest families in the Philippines.
In the early 1960s, the government of President Diosado Macapagal took control of the airline and made Toda chairman of the board, in return for the assistance he had given the relatively poor Macapagal in his presidential campaign, according to PAL Executive Vice President Rafael Loga.
Toda purchased 75 percent of the stock, leaving the government with most of the rest. In the 1970s the airline's international flights prospered but it continually asked for fare increases to meet what it said were losses in domestic flights.
Toda was reaping large personal profits through exclusive contracts awarded to small companies of his that provided management services, ground transport, spare parts, insurance and janitor services to the airline. This is a favorite device of Philippine businessmen who control large, profitable enterprises.
The airline sought to buy more planes and improve service, and was stymied by the government's refusal to provide the same generous loan guarantees it had given Philippine firms favored by Marcos.
Marcos' aides have praised the takeover as the only way to improve the airline's menagement and profitablitiy. They say PAL must keep pace with the country's rapid construction of hotels-many controlled by Marcos' friends-and other tourist attractions. Some businessmen with independent, profitable companies say the incident, and others like it, make them uncomfortable.
So far, Marcos has deflected criticism his business dealings have brought.
When some American newspapers and magazines and Rep. Clarence Long (D-Md.) began to investigate the profits made by Marcos' friend Herminio Disini in a contract for a Westinghouse nuclear plant, Marcos quickly divested Disini of three companies. They appeared to be the least profitable of the 40 or so in the Disini conglomerate.
Marcos ordered an investigation of the Westinghouse deal in early January, but he indicated to reporters this month the results would be a long time coming.
With fewer and fewer rivals for power in the Philippine economy, Marcos has become increasingly adept at holding American multinational corporations at bay. Some faced with the prospect of unfriendly regulatory action by Marcos have agreed to sell out to Filipino businessmen, including many Marcos friends.
One of Marcos' most ambitious takeovers has left Citibank, a major U.S. bank looking for someone to pay off a $3 million loan. When Marcos closed down the news media empire of his political enemy. Eugenio Lopez Sr., and jailed Lopez' son for an alleged assassination plot, the elder Lopez signed away to the government or to Marcos' friends and relatives the $400 million Manila Electric Co., The Manila Chronicle Newspapers and a network of six television and 21 radio stations.
The Lopez family received little for its $20 million interest in the electric company. It got irregular rental payments for the newspaper, which are now about $1.4 million in arrears, according to Lopez family members.
The elder Lopez died in the United States in 1975. Eugenio Jr. escaped last year and went to the United States, where he was granted political asylum.
For the TV-radio network, the Lopezes said they received nothing.
Marcos said last year that Roberto Benedicto, his friend and former fraternity brother who took over management of the network, and the Lopezes had a lease agreement. Benedicto, in an affidavit last year denied he was leasing the facilities. He said the network had been "sequestered" by the government.
That apparently left no one legally obilged to pay back the $3 million Citibank had lent the Lopezes, bank officials said.
If there is an outright government takeover of the network, said government press official Greg Cendena, "We would hope to repay the debts."