The alliance between the San Miguel conglomerate and Lucio Tan group in Philippine Airlines is at risk of breaking up, with one group likely to buy out the other and consolidate control of the country’s flag carrier soon.

For several months now, the Lucio Tan group has been pooling funds to buy back a 49-percent stake in PAL and reclaim management control from San Miguel Corp., which came in as a strategic partner in 2012 to support the carrier’s modernization and refleeting program.

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Industry sources privy to the discussions said SMC president Ramon S. Ang, for his part, had agreed to sell back the conglomerate’s interest in PAL “at cost” as early as last year.

But if Tan’s group could not raise the money to buy back this stake, SMC would be the one to buy out the Tan family’s remaining 51-percent stake instead. It will be a “buy-me-out-or-I-buy-you-out” situation, leaving only one group at the helm of PAL, the sources said.

“It will happen very soon,” said one source familiar with the discussions.

SMC signed in 2012 a $500-million deal to buy into PAL and its affiliate budget carrier Air Philippines Corp., now rebranded as PAL Express, through several layers of holding companies.

The initiative by the Lucio Tan group to regain control of PAL is being done outside of publicly-listed holding firm LT Group Inc. (LTG) and mostly backed by the tycoon’s first family. The stake in PAL was among the assets that the Tan family did not infuse into LTG when it converted in 2012 what was previously a holding firm for liquor business under Tanduay Holdings into the umbrella group for its cigarettes, liquor, banking and property businesses.

Industry sources said that to boost this initiative to regain control of PAL, the flag carrier’s retired president Jaime Bautista was summoned back to act as executive assistant to Tan, who is still the airline’s chair. As one option, one source said the Tan group plans to tap some borrowings to raise the money.

Based on an estimate by people familiar with the business, Tan’s group would need to raise $1 billion to wrest control of PAL from SMC. This would include the cost of buying back the shares of SMC plus the advances made for the acquisition of many new aircraft under an ambitious refleeting program initiated by Ang.

While Ang had long been aware of an attempt by the group to reclaim PAL, sources from the SMC group said his attitude was that of a “wait-and-see” stance on whether the Tan group could in deed raise $1 billion to do so.

They said that Ang, in the meantime, was likewise bracing for the possibility that SMC would be the one to buy out Tan’s stake in the flag carrier. It was earlier reported that SMC was set to buy out Tan’s remaining stake in PAL.

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One recent trigger for the potential Tan-SMC break-up is a generous early retirement option recently offered by the Ang-led management to PAL employees, which the tycoon felt would not only front-load expenses but also weed out long-time lieutenants in PAL, industry sources said.

There were likewise some issues raised on the aviation supply arrangement with SMC-controlled Petron Corp. and the leasing of a big number of aircraft. Industry sources said that on the part of SMC, initiatives were only being undertaken to avail of synergies and improve PAL’s operating efficiency which, however, were interpreted differently by some people within the Tan group.

Finally, there were issues on certain Tan family privileges that were lost since the SMC management took over.

Other industry sources said that from the perspective of SMC management, on the other hand, the task at hand is to bring the carrier back to profitability.

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