AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND BETWEEN THE PHILIPPINES AND OTHER COUNTRIES.

• Number: Presidential Decree No. 1590
• Sections: 27

Preamble

WHEREAS, the ownership, control, and management of Philippine Airlines, our national flag carrier, have been reacquired by the Government; WHEREAS, the franchise granted to Philippine Airlines, Inc. by virtue of Act No. 4271, as amended, will expire in November 1985;

WHEREAS, there is a need to grant Philippine Airlines, Inc. a new franchise to establish, operate, and maintain air-transport services within the Philippines and between the Philippines and other countries;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution, do hereby decree and order the following:

Section 1

SECTION 1. There is hereby granted to Philippine Airlines, Inc., hereinafter referred to as the grantee, a franchise to establish, operate, and maintain transport services for the carriage of passengers, mail, and property by air in and between any and all points and places throughout the Philippines, and between the Philippines and other countries.

Section 2

SEC. 2. Excepting cases of force majeure and whenever weather conditions permit, the grantee shall maintain scheduled and/or nonscheduled and/or charter air-transport services in and between any and all points and places throughout the Philippines as well as between the Philippines and other countries at such frequencies as traffic needs may require.

Section 3

SEC. 3. The grantee shall fix just and reasonable rates for the transportation of passengers, mail, and freight, subject to the regulations and approval of the Civil Aeronautics Board or such other regulatory agency as the Government may designate for this purpose. Any order of the Civil Aeronautics Board made under this Section shall be subject to review by the courts.

All aircraft used by the grantee and the flight-crew members operating such aircraft shall be licensed by the Government of the Philippines and together with its accessories and equipment shall at all times be in airworthy condition; they shall be equipped with radio communication, safety and other equipment, and shall be operated and maintained in accordance with the regulations and technical requirements of the Civil Aeronautics Administration or such other regulatory body as the Government may prescribe for this purpose.

The grantee's equipment and the operation of such equipment shall at all times be subject to inspection and regulation by the Civil Aeronautics Administration whose decisions on technical matters shall be binding until revoked or annulled by superior authority under whose control this office falls or by the courts for excess, or abuse of jurisdiction.

The grantee shall comply with the provisions of Republic Act Numbered Seven Hundred and Seventy-six, and the regulations promulgated thereunder from time to time.

Section 4

SEC. 4. Subject to such terms and conditions as the Philippine Government may prescribe, the grantee may use landing and other airport facilities on land or water as may be maintained or owned by the Government within the Philippines on the grantee's lines, excepting those which in the opinion of said Government may not be used by the grantee because of military or naval considerations, and reciprocally, the Philippine Government shall have the right to use the landing and other airport facilities on land or water maintained or owned by the grantee in the Philippines.

Section 5

SEC. 5. The grantee shall have the right, at its terminals and landing fields as well as in its aircraft, to construct, operate, and maintain stations or transmitting sets for wireless telegraphy and direction finding, and other radio aids to air navigation using wave lengths as shall be in accordance with the rules and regulations made from time to time by the Philippine Government; but the wireless communication facilities shall be used solely for receiving and transmitting weather forecasts and messages relating to the grantee's aircraft and other matters in connection with the grantee's services.

Section 6

SEC. 6. The grantee is authorized to enter into transportation contracts with the Philippine Government, including the carrying of mail, upon terms and conditions to be mutually agreed upon. The grantee shall give preferential considerations to contracts with the Philippine Government, and, reciprocally, the latter shall give preferential considerations to contracts with the grantee in the carrying of passengers, mail, and freight.

Section 7

SEC. 7. In case of war, insurrection, domestic trouble, public calamity, or national emergency, the Philippine Government upon order of the President shall have the right to take over and operate the equipment of the grantee, paying just compensation for such use or damages.

Section 8

SEC. 8. The grantee shall be subject to the laws of the Philippines now existing or hereafter enacted.

Section 9

SEC. 9. With the approval of the President of the Philippines, and subject to the limitations and procedure prescribed by law, the grantee shall be authorized to exercise the right of eminent domain as may be reasonably necessary for its stations and other structures in connection with the grantee's activities and operations.

No private property shall be taken for any purpose by the grantee without proper condemnation proceedings and just compensation paid or tendered therefor, and any authority to take and occupy land contained herein shall not apply to the taking, use, or occupation of any land except such as is required for the actual purposes for which this franchise is granted.

Section 10

SEC. 10. The grantee shall not issue stock or bonds except in exchange for actual cash or for property at least equal in value to the par value of the stock or bonds so issued; provided, however, that it may issue stock, bond, or property dividends upon compliance with the requirements of applicable existing laws.

Section 11

SEC. 11. It shall be unlawful for the grantee to use, employ, or contract for the labor of persons held in involuntary servitude.

Section 12

SEC. 12. The grantee shall hold the national, provincial, and municipal governments of the Philippines harmless from all claims, accounts, demands, or actions arising out of accidents or injuries, whether to property or to persons, caused by the operation of the services under the franchise hereby granted.

Section 13

SEC. 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax:

The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code; or

A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or non-transport operations; provided, that with respect to international air-transport service, only the gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not limited to the following:

All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel, and oil, whether refined or in crude form, and whether such taxes, duties, charges, royalties, or fees are directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of said petroleum products but are billed or passed on to the grantee either as part of the price or cost thereof or by mutual agreement or other arrangement; provided, that all such purchases by, sales or deliveries of aviation gas, fuel, and oil to the grantee shall be for exclusive use in its transport and non-transport operations and other activities incidental thereto;

All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price;

All taxes on lease rentals, interest, fees, and other charges payable to lessors, whether foreign or domestic, of aircraft, engines, equipment, machinery, spare parts, and other property rented, leased, or chartered by the grantee where the payment of such taxes is assumed by the grantee;

All taxes on interest, fees, and other charges on foreign loans obtained and other obligations incurred by the grantee where the payment of such taxes is assumed by the grantee;

All taxes, fees, and other charges on the registration, licensing, acquisition, and transfer of aircraft, equipment, motor vehicles, and all other personal and real property of the grantee; and

The corporate development tax under Presidential Decree No. 1158-A.

The grantee, shall, however, pay the tax on its real property in conformity with existing law.

For purposes of computing the basic corporate income tax as provided herein, the grantee is authorized:

To depreciate its assets to the extent of not more than twice as fast the normal rate of depreciation; and

To carry over as a deduction from taxable income any net loss incurred in any year up to five years following the year of such loss.

Section 14

SEC. 14. The grantee shall pay either the franchise tax or the basic corporate income tax on a quarterly basis to the Commissioner of Internal Revenue. Within sixty (60) days after the end of each of the first three quarters of the taxable calendar or fiscal year, the quarterly franchise or income-tax return shall be filed and payment of either the franchise or income tax shall be made by the grantee.

A final or an adjustment return covering the operation of the grantee for the preceding calendar or fiscal year shall be filed on or before the fifteenth day of the fourth month following the close of the calendar or fiscal year. The amount of the final franchise or income tax to be paid by the grantee shall be the balance of the total franchise or income tax shown in the final or adjustment return after deducting therefrom the total quarterly franchise or income taxes already paid during the preceding first three quarters of the same taxable year.

Any excess of the total quarterly payments over the actual annual franchise or income tax due as shown in the final or adjustment franchise or income-tax return shall either be refunded to the grantee or credited against the grantee's quarterly franchise or income-tax liability for the succeeding taxable year or years at the option of the grantee.

The term "gross revenues" is herein defined as the total gross income earned by the grantee from; (a) transport, non-transport, and other services; (b) earnings realized from investments in money-market placements, bank deposits, investments in shares of stock and other securities, and other investments; (c) total gains net of total losses realized from the disposition of assets and foreign-exchange transactions; and (d) gross income from other sources.

Section 15

SEC. 15. This franchise shall not be interpreted to mean an exclusive grant of the privileges herein provided for. However, in the event that any competing individual, partnership, or corporation shall receive a similar permit or franchise with terms and/or provisions more favorable than those herein granted or which tend to place the grantee herein at any disadvantage, then such term and/or provision shall, ipso facto, become part hereof and shall operate equally in favor of the grantee herein.

Section 16

SEC. 16. This franchise is granted with the understanding that it shall be subject to amendment, alteration, or repeal by competent authority when the public interest so requires.

Section 17

SEC. 17. The term of this franchise shall be fifty (50) years from the date of the acceptance of this franchise by the grantee.

Section 18

SEC. 18. The provisions of existing laws to the contrary notwithstanding, the grantee is hereby authorized, without need of approval by or clearance from any government agency, to hire or employ foreign nationals with special qualifications, competence, or experience who are needed by the grantee for the efficiency and improvement of its operations and other business activities; provided, that notice of such employment shall be given by the grantee to all the government agencies concerned and such foreign national shall register with the Commission on Immigration and Deportation within thirty (30) days from the date of such employment.

Section 19

SEC. 19. The grantee is hereby authorized to contract loans and credits in any convertible foreign currency and incur indebtedness from time to time from foreign governments, foreign banks, or any foreign or international financial institution or fund sources, or to issue bonds, notes, debentures, and other evidences of indebtedness under such terms and conditions as it shall deem appropriate for the accomplishment of its purpose.

The loans, credits, indebtedness contracted under this Section by the grantee, and the payment of the principal, interest, fees, and other charges thereon shall be exempt from any and all taxes, including withholding tax; provided, that the liability for the payment of such taxes is assumed by the grantee.

The Republic of the Philippines hereby unconditionally guarantees the payment of the principal of and interest, fees, and other charges on or arising from or in connection with the foreign loans, credits, bonds, debentures, notes, and other evidences of indebtedness issued or incurred by the grantee under this Section and shall pay the same in the event the grantee fails to do so. In such event, The Republic of the Philippines shall succeed to all the rights of the creditors and/or holders of such bonds, debentures, notes, or other evidences of indebtedness to the extent of the payment made, unless and until the sum so paid by the Republic of the Philippines is refunded by the grantee. The instrument of guarantee shall be executed by the President or by his duly-designated representative on behalf of the Republic of the Philippines.

Section 20

SEC. 20. All rentals, interest, fees, and other charges paid by the grantee to foreign or domestic lessors for the lease of aircraft, engines, spare parts, other flight or ground equipment, and other personal property shall be exempt from all taxes, including withholding tax; provided, that the liability for the payment of said taxes is assumed by the grantee.

The Republic of the Philippines hereby unconditionally guarantees the due and faithful performance by the grantee of its obligations under lease contracts entered into by the grantee with foreign lessors, including the prompt payment of all rentals, interest, fees, and other charges thereunder, and shall pay the same in case the grantee fails to do so. The instrument of guarantee shall be executed by the President of by his duly-designated representative on behalf of the Republic of the Philippines.

The term "foreign lessor" shall be construed to apply to a foreign entity or alien individual, whether resident or nonresident, which enters into a lease contract with the grantee for the lease of aircraft, engines, spare parts, other flight or ground equipment, and other personal property wherein the rentals, interest, fees, or charges are denominated or payable in foreign currency.

Section 21

SEC. 21. The provisions of existing laws to the contrary notwithstanding, the Budget Commissioner and/or the National Treasurer are hereby authorized to offset any outstanding obligation of the grantee to any agency or instrumentality of the Government with any receivable of the grantee from any agency or instrumentality of the Government.

Section 22

SEC. 22. The grantee shall not, without the previous approval of the President of the Philippines, lease, transfer, grant the usufruct of sell, or assign this franchise and the rights and privileges acquired thereunder to any person, firm, company corporation, or other mercantile or legal entity, nor merge with any other company or corporation organized for the same or any other purpose. Any corporation to which this franchise may be sold, transferred, or assigned or with which the grantee may merge, with the approval above mentioned, shall be subject to the corporation laws of the Philippines now existing or hereafter enacted, and any person, firm, company, corporation, or other commercial or legal entity to which this franchise is validly sold, transferred, or assigned or with which the grantee may merge, shall be subject to all the conditions, terms, restrictions, and limitations of this franchise as fully and completely and to the same extent as if this franchise had been originally granted to such person, firm, company, corporation, or other commercial or legal entity.

Section 23

SEC. 23. If any section or provision of this franchise, as amended, is held or declared unconstitutional or invalid by a competent court in a final judgment, and the other sections or provisions hereof shall continue to be in force as if the section or provision so annulled or voided had never been incorporated in this franchise.

Section 24

SEC. 24. This franchise, as amended, or any section or provision hereof may only be modified, amended, or repealed expressly by a special law or decree that shall specifically modify, amend, or repeal this franchise or any section or provision thereof.

Section 25

SEC. 25. All laws, decree, orders, instructions, and rules and regulations or parts thereof which are inconsistent herewith are hereby repealed or modified accordingly.

Section 26

SEC. 26. This Decree shall take effect immediately and shall form part of the law of the land.

Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen hundred and seventy-eight.

(Sgd.) FERDINAND E. MARCOS

President of the Philippines

By the President:

(Sgd.) JACOBO C. CLAVE

Presidential Executive Assistant