An Act Granting A New Franchise To Philippine Airlines, Inc. To Establish, Operate, And Maintain Air-Transport Services In The Philippines And Other Countries

Case Overview and Summary

Summary of Presidential Decree No. 1590

Granting of Franchise to Philippine Airlines, Inc.
- Grants Philippine Airlines, Inc. (PAL) a franchise to establish, operate, and maintain air transport services within the Philippines and between the Philippines and other countries. (Section 1)
- PAL shall maintain scheduled, non-scheduled, and/or charter air transport services as required by traffic needs, subject to force majeure and weather conditions. (Section 2)
- PAL shall fix just and reasonable rates for passenger, mail, and freight transport, subject to regulation and approval by the Civil Aeronautics Board. (Section 3)
- PAL's aircraft, crew, and equipment shall be licensed by the Philippine government and maintained in airworthy condition per regulations. (Section 3)
- PAL may use government-owned landing and airport facilities in the Philippines, except those restricted for military or naval considerations. (Section 4)
- PAL can construct and operate wireless communication facilities for weather forecasts and aircraft communication, subject to government regulations. (Section 5)
- PAL is authorized to enter into transport contracts with the Philippine government, including mail carrying, with preferential consideration given to each other. (Section 6)
- In case of war, insurrection, or national emergency, the government can take over PAL's equipment with just compensation. (Section 7)
- PAL shall be subject to Philippine laws. (Section 8)
- PAL can exercise the right of eminent domain for its stations and structures with Presidential approval and proper condemnation proceedings. (Section 9)
- PAL shall not issue stock or bonds except for cash or property equal to par value, except for stock/property dividends. (Section 10)
- PAL shall not use labor of persons held in involuntary servitude. (Section 11)
- PAL shall hold the government harmless from claims arising from accidents or injuries caused by its operations. (Section 12)

Tax Provisions
- PAL shall pay either the basic corporate income tax or a 2% franchise tax on gross revenues, whichever is lower. (Section 13)
- PAL is exempt from various taxes, duties, fees, and charges, including those on fuel, aircraft imports, lease rentals, foreign loans, and registration/licensing of assets. (Section 13)
- PAL can depreciate assets at up to twice the normal rate and carry over net losses for up to 5 years for income tax computation. (Section 13)
- PAL shall pay the franchise or income tax quarterly and file an annual adjustment return. (Section 14)
- "Gross revenues" is defined as total income from transport, non-transport, investments, asset dispositions, and other sources. (Section 14)

Other Provisions
- The franchise is non-exclusive, and PAL shall receive terms equal to any more favorable terms granted to competitors. (Section 15)
- The franchise is subject to amendment or repeal when public interest requires. (Section 16)
- The franchise term is 50 years from acceptance. (Section 17)
- PAL can hire foreign nationals without government approval, subject to notice and registration requirements. (Section 18)
- PAL can contract foreign loans and issue bonds, which are exempt from taxes and guaranteed by the Philippine government. (Section 19)
- Lease rentals and charges paid by PAL to foreign lessors are exempt from taxes and guaranteed by the Philippine government. (Section 20)
- Outstanding obligations between PAL and government agencies can be offset against receivables. (Section 21)
- PAL cannot transfer or assign the franchise without Presidential approval, and any transferee shall be subject to the same conditions. (Section 22)
- If any section is declared unconstitutional, the remaining sections shall remain in force. (Section 23)
- The franchise can only be modified or repealed by a special law or decree. (Section 24)
- Inconsistent laws, decrees, orders, and regulations are repealed or modified accordingly. (Section 25)
- The decree takes effect immediately. (Section 26)