1.Pilot schools to be moved out of NAIA
THE CIVIL Aviation Authority of the Philippines (CAAP) wants aviation schools to transfer to regional airports to decongest from the Ninoy Aquino International Airport (NAIA).
Ramon S. Gutierrez, CAAP officer-in-charge, told reporters at the sidelines of an aviation summit last week the state-owned Manila International Airport Authority (MIAA) will take charge in the implementation of the plan.
“The plan is still in principle and we are actually expecting resistance from the aviation school administrators, owners and students as most of them are foreigners. Most of the foreign students want to attend an aviation school near NAIA because they go to their home countries from time to time,” he said.
However, Mr. Gutierrez said allowing regional airports to house the aviation schools would translate to additional revenues as most of these airports have lower flight frequencies compared with NAIA.
“This will be part of CAAP and MIAA’s immediate plans. This will give these small airports additional revenues as they only generate revenues from air navigation fees for the airports,” he said.
Mr. Gutierrez said his agency broke even last year with close to P3 billion in revenues.
“Our revenues last year will be just enough for the maintenance but will not be enough for capital expenses. It will not be enough to maintain 86 airports. We will give the schools the preference which regional airport they would want to go to,” he said.
In July last year, CAAP ordered an audit of all 63 aviation schools in the country as the agency discovered that fake licenses had been issued to some student pilots.
2. How friendly are the Philippine skies?
In an effort to enhance competition in an already vibrant airline industry, the Philippines is taking a major step towards easing restrictions within the commercial aviation sector. Government has announced that an executive order will be issued that will further liberalize the air transportation industry by allowing international airlines to use secondary gateways, a privilege previously exclusive to domestic carriers. Along with the increase in the number of stakeholders and the regulatory challenges, tax is certain to be an issue intertwined with flying in and out of the Philippine skies.
The taxation of revenues of international carriers, regardless of whether they have so-called "permanent establishments" in the Philippines, has been the subject of debate since the concept of Gross Philippine Billings was introduced by Presidential Decree (PD) 69 in 1972.
In the recent decision of South African Airways vs. Commissioner of Internal Revenue, G.R. No. 180356, promulgated Feb. 16, 2010, the Supreme Court held that "if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2.5% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% (now 30%) of such income." In so ruling, the High Court dismissed claims that international carriers without landing rights in the Philippines are exempt from paying income tax. The Supreme Court effectively reiterated its ruling in the landmark 1987 case of British Overseas Airways Corp. that offline carriers with local general sales agents are considered resident foreign corporations doing business in the Philippines, thus tickets sales are subject to corporate income tax under Sec. 28 (A)(1) of the Tax Code.
Prior to the South African Airways case, the taxation rules on foreign carriers were not as clear. Under PD 1355, which amended the 1977 Tax Code, gross Philippine billings (GPB) include gross revenue derived from the sale of tickets in the Philippines covering the carriage of passengers from anywhere in the world and cargo or baggage originating in the Philippines. In the 1997 Tax Code, however, GPB was redefined to only include the "amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document."
This new concept had raised issues on the taxability of offline carriers on their income from the sale of tickets in the Philippines through their local agents. At first blush, it appears that since these carriers do not transport passengers and cargo from the Philippines, they are not subject to tax since they do not derive taxable GPB as defined under the 1997 Tax Code. This also meant that offline carriers cannot thus be considered as nonresident foreign corporations doing business in the Philippines.
However, in the case of Air Canada vs. Commissioner of Internal Revenue, CTA (First Division) Case No. 6572, promulgated Dec. 22, 2004, the CTA held that offline carriers are considered resident foreign corporations since they are doing business in the Philippines. Citing Supreme Court rulings, the CTA reasoned that a foreign airline selling tickets in the Philippines through its local agents shall be considered as engaged in trade or business, as these activities show continuity of commercial dealings performed in pursuit of business purpose. Such ruling was sustained by the CTA En Banc in the appeal made by Air Canada (CTA EB No. 86, promulgated Aug. 26, 2005).
The Supreme Court sustained the Air Canada ruling in the South African Airways decided in 2010.
In the South African Airways case, the Supreme Court noted that there are no specific criteria as to what constitutes doing business. The Supreme Court held that the term "engaged in business in the Philippines" implies "continuity of commercial dealings and arrangements" which includes the performance of acts pursuant to the purpose and object of the business organization, such as the appointment of a local agent. Since the sale of tickets -- the activity which produces the income -- is done in the Philippines even if the carriage of person, baggage, cargo or mail is done outside the Philippines, it is a Philippine-sourced income subject to tax.
From these rulings, it can be inferred that the courts steadfastly held to the source principle in Philippine income taxation, which contemplates the idea that an alien is subject to Philippine tax if he or she derives income from sources within the Philippines. This is not at all contradictory to the subject of tax on GPB because the situs of taxation is still the primary consideration. In case of airlines with landing rights in the Philippines, the determination of the situs of taxation is the service which is provided in the Philippines, i.e., the carriage of persons or cargo from the Philippines. For offline carriers, on the other hand, the determination of the status of tax is the place of sale of tickets, such that if the tickets are sold in the Philippines, the income from these sales is subject to tax.
International airlines that will take advantage of Government’s pocket open skies policy will be subject to the GPB tax regime since they would carry passengers from domestic locations and fly them to international destinations.
Now that the Supreme Court has clarified the rules on the taxability of foreign carriers, the willingness to open the market to cross-border investments could very well result in more revenues for Government, increased participation of foreign players and improved services from local airlines at competitive prices that will benefit the flying public.
3. P80-million fund for NAIA's VOR not included in P4-billion deal — CAAP
MANILA, Philippines (PNA) — Civil Aviation Authority of the Philippines (CAAP) Director-General Ramon Gutierrez on Thursday said that the P80-million would-be fund to purchase new aviation equipment is not included in the P4-billion aviation deal.
Gutierrez said the P4-billion aviation deal between the government and the Thales-Sumitomo Group that Senator Estrada had questioned was accorded in 1998. “Ours is different. The P80-million fund was only meant to buy a new very high frequency omni-directional range (VOR) for the Ninoy Aquino International Airport (NAIA).”
According to him, the P4-billion contract was intended for the modernization of the whole air traffic control system of the country.
He said since the CAAP has diminutive resources and cannot be able to procure such device, the Manila International Airport Authority (MIAA) will make the financial arrangement while the aviation agency takes care of the services. From its original P120-million funds they requested, the budget was slashed to P80-million.
However, the P80-million is P2-million short of the VOR’s original price in the foreign market. He disclosed that he was considering a Korean company that was offering a VOR that is worth P80-million. “But we could not grab it until we know that it is the same brand that we are currently using,” Gutierrez said.
Another foreign company has offered the CAAP of equipment leasing which cost only P50-million. “Malaki ang matitipid, sa open bidding, but, we are inclined to buy a new one because its life span is approximately 10 to 12 years.”
The old VOR made headlines when it conked out on June last year that triggered the cancellation of at least 50 domestic and international flights at the three terminals of the Ninoy Aquino International Airport.
The glitch was additional burden to the Philippines when it was working out for getting back the category 1 status after the United States Federal Aviation Administration downgraded the Philippine aviation to category 2 in 2008.
Asked if he is optimistic that the European Union would lift restrictions once the foreign evaluators resume inspection in September, this year, he said they are still preparing for such assessment.
The Philippines is one of the countries in the world that has been blacklisted by the European Community where the country’s all airlines are banned from flying to any European bloc because of “serious safety deficiencies” in the Philippines’ regulation of carriers.
4.Cebu Pacific expects to fill NAIA-3 by 2012, wants expansion
MANILA, Philippines - Cebu Pacific said it has opened discussions with government for the expansion of the capacity of the NAIA Terminal 3, the base of the Gokongwei-owned budget airline's operations in Manila.
In an aviation summit in Manila, Cebu Pacific vice president for commercial planning Alex Reyes said they have initiated talks with the Manila International Airport Authority to expand NAIA-3's capacity to 20 million passengers a year from the current 13 million.
He noted the facility is starting to look "inadequate," hence the need to firm up plans for an annex to the terminal.
"That way, T3 can accommodate not just Cebu Pacific's growth but the entry of additional foreign carriers. If foreign carriers operate at T3, we will benefit as the long-haul carriers will provide feed to our domestic network into the country's tourist spots," he said.
Cebu Pacific is one of the 2 local airlines operating in NAIA-3. The other international airlines remain wary of transferring their Manila operations to NAIA-3, a controversial but much-needed facility.
Capacity limits expansion
Reyes went on and disclosed that Cebu Pacific intends to fill up the entire NAIA 3 by late 2012 or early the next year, but the plan is anchored on the expansion of the terminal.
"First, we wish for infrastructure that stays ahead of the curve. In other words, terminals, runways, and navigation systems...that are more than adequate for the next 5 years. Having the infrastructure in place means companies will have the confidence to invest billions to further grow their business," he added.
President Aquino earlier identified tourism and infrastructure as the target drivers for economic growth in the coming years, with an aim to double Philippine tourists to 6 million by 2016.
"This is a welcome development for commercial airlines, but it will be an added strain on our airport infrastructure," said Reyes.
By the end of 2011, Cebu Pacific is expected to operate a fleet of 37 aircraft, from 32 today. Between 2012 and 2014, it will take delivery of an additional 16 Airbus A320 aircraft.
Reyes said other airlines are also growing and beefing up their fleets.
"We are going to see much busier skies around the country. If we don't act quickly, we will see grid lock on our ramps, on our airways, in our terminals."
Open skies
Aside from improvement of the physical structure, Reyes stressed the need for "soft" infrastructure at NAIA-3. These are rules, procedures, and highly skilled aviation personnel who manage the airways and check whether everyone is operating under international safety standards.
"By soft infrastructure, we also mean the air rights or entitlements between our country and our major trading partners. Today, there are no more air rights available between Manila and the major capital cities such as Tokyo, Singapore, Jakarta, Kuala Lumpur, Bangkok, as well as Hong Kong. This means no new international services can be started between Manila and those cities, which are a major source of tourists for the country. Removing constraints such as the lack of air rights will boost the growth rate of the industry," he said.
Most of the over 3 million tourists and Filipinos working overseas arrive in the country through the Manila airport, still the country's main gateway.
However, aside from the capacity of the 3 airport terminals handling international flights at NAIA, the capacity of the existing runways has also stifled the capacity growth of the airport.
Ninoy Aquino International Airport, which was named after the late father of President Benigno Aquino III, is located right smack in the middle of the metropolis, making runway expansions impossible.
President Aquino is set to finalize an open skies regime within the month. This aviation policy allows for a relaxed regulatory environment that paves the way for more international airlines to mount flights to the Philippines sans the usual bilateral air agreements with other countries.
However, Manila airport will not be included among the secondary international airports that will be part of the open skies regime.
The fate of the Manila airport -- and NAIA-3 terminal in particular -- will be partly dependent on how the Aquino government will support the open skies policy with the necessary infrastructure, including roads and rails, to make visits to the the country's capital stress-free.
Controversial NAIA-3
The dramatic business growth of the Gokongwei-led budget carrier reached a tipping point when it consolidated its local and regional flight operations at NAIA 3.
It took the risk when the controversial terminal facility opened at half of its 13 million capacity in July 2008 despite the legal, financial, structural and safety issues that hounded it.
The risk paid off. Two years after, it clinched the top spot in the domestic airline market from decades-long industry leader Philippine Airlines.
There were instances when Cebu Pacific would be reminded of the many issues that haunt NAIA-3. It has received eviction notices from Piatco, the Filipino-German consortium that built NAIA-3.
After German airport firm Fraport AG won a favorable decision from an international arbitration court in December, the German ambassador to the Philippines echoed Piatco and said the NAIA-3 concessionaires -- including Cebu Pacific -- are illegal tenants.
The Gokongweis remained determined to stick it out at NAIA-3.
Cebu Pacific Air chief executive officer Lance Gokongwei had even earlier said that the Gokongwei group, through parent firm JG Summit, is interested in bidding for a contract to operate NAIA-3.
Despite its budget and no-frills business model, Cebu Pacific seems bent on not letting go of a key terminal originally designed to cater to the needs of legacy airlines.
Budget airlines' needs
CEO Lance Gokongwei had said that some of the country's airports in destinations outside Metro Manila have yet to fit the requirements of a budget airline operations.
Reyes echoed this during the summit. "We have about 85 airports around the country. Often, what we find is that the basics just don't get done. We find perimeter fences unfinished. We find safety markings incomplete. We find x-ray machines that breakdown more often than they should."
"When our perimeter fences are not completed, when airport security is compromised because of budget constraints - these are unacceptable for an industry that prides itself in putting the safety of the riding public above all else," he added.
"We do look for simple terminals requiring little maintenance - warehouse-type single-storey structures such as the Budget Terminal in Singapore - that can comfortably move thousands of passengers in a day. These are the types suited for Philippine conditions.
"We are also in need of airports with night-landing capabilities, especially for the fast-growing tourist spots such as Naga, Butuan, and Legazpi. More night-capable airports will mean airlines can schedule flights beyond sunset, helping to decongest Manila's runways during the noon to early afternoon peaks.
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