MANILA – Philippine Airlines may lower its 2008 growth targets, a report said yesterday, after US authorities downgraded Manila 's air safety rating, effectively putting the carrier's expansion plans on hold.

The US Federal Aviation Administration has reduced the Philippines ' rating to Category 2 from Category 1, saying the Air Transportation Office here failed to meet international safety standards.

President Gloria Macapagal-Arroyo yesterday named Transportation Secretary Leandro Mendoza as concurrent ATO chief and gave him a "three-month deadline to take care or to address the administrative and technical issues" raised by the FAA, presidential spokesman Ignacio Bunye said.

The president's actions should remedy whatever technical deficiencies there are, Bunye said.

Last year as it emerged from eight years of receivership, PAL increased its load factor by 77 percent and carried 7.4 million passengers, more than half a million above target.

"We are working on revising our projections this year because of the FAA decision," PAL president Jaime Bautista told Thomson Financial in an interview Thursday.

PAL's load factor is up to 80 percent this year, said Bautista.

Its US operations, it is the only Filipino airline that flies to the United States , account for 30 percent of revenue and it has projected that this would increase to 40 percent with planned new services.

"That FAA downgrade, however, means our capacity to operate will be limited. Our existing US flights are not affected, but our planned flight expansions may need to be delayed. Even with new planes, we cannot fly these to the US ."

The FAA decision prohibits PAL from increasing its flights to the US from 33 a week and from changing the type or number of aircraft used on these services.

Bautista said PAL is to take delivery of five Airbus 320 aircraft this year, while six new Boeing 777-300ERs are to come in between 2009 and 2011.

PAL plans to use the smaller Airbus 320s to boost flight frequencies to US territories in the Pacific and use the wide-bodied Boeings to expand its US continental routes as well as Hawaii .

PAL now flies direct to San Francisco and Los Angeles .

It plans to fly to San Diego , Chicago and New York , homes to large expatriate Filipino communities.

PAL has been urging the ATO to "rectify the assessed deficiencies in its air safety oversight functions so the country can revert to Category 1," Bautista said.

"Our expansion plans, if this matter is not resolved soonest, are being put in peril," he said.

"Boeing is even helping us with this, but hopefully, the government will do its homework."

PAL sees the FAA downgrade as a temporary setback.

"We are still taking delivery of the planes we have purchased. We are committed to buy these planes and we have contractual obligations to pay for these planes," Bautista said.*AFP

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