Guidelines on Capital and Operational Requirements for the Grant of Certificate of Public Convenience and Necessity

May 25, 2018

CAB RESOLUTION NO. 32(BM 03-05-25-2018)

 

WHEREAS, Republic Act 776, as amended, otherwise known as the "Civil Aeronautics Act of the Philippines", authorizes the CAB to make and amend such general and special rules, regulations and procedures to carry out the provisions of RA 776, Section 10 (B) thereof, provides, to wit:

SECTION 10. Powers and duties of the Board. — B) The Board may perform such acts, conduct such investigations, issue and amend such orders, and make and amend such general and special rules, regulations, and procedures as it shall deem necessary to carry out the provisions of this Act.

WHEREAS, the Board sees the necessity to continuously review and revise existing policies to keep abreast with developments in civil aviation and to ensure that entities intending to operate air transport services, whether scheduled or non-scheduled have proven capacity and capability to operate the services applied for;

WHEREAS, the Board by reason of public interest safety, and to prevent proliferation of "paper airlines" which puts the Philippine civil aviation industry in a bad light;

NOW, THEREFORE, the Board RESOLVED, as it hereby RESOLVES to adopt the following guidelines, in addition to existing requirements, in granting permits to domestic carriers intending to operate scheduled/non-scheduled domestic/international air transportation services:

I. Coverage: This Guidelines shall apply to all domestic carriers, in addition to the requirements of this Board, applying for an original, and as maybe applicable, renewal of Certificate of Public Convenience and Necessity to Operate: AIDSTE

a. Domestic Scheduled

b. Domestic Non-scheduled

i. Agricultural Air Spraying Services

c. International Scheduled, and

d. International Non-scheduled

II. Capitalization Requirement

a. Scheduled Air Transport Services

1. Domestic: 300M

2. International: 800M

b. Non-scheduled

1. Domestic

i. Air Taxi: 25M

ii. Agricultural Air-spraying: 10M

2. International Non-Scheduled: 150M

III. Operational Requirement:

a. Domestic Air Transport

i. An applicant-carrier securing a permit to operate Domestic Non-scheduled Air Transport Services shall have at least one (1) serviceable aircraft duly registered and certified Airworthy by the Civil Aviation Authority of the Philippines (CAAP) and capable of providing the services applied for. It shall have in its employ Pilot/s and/or crew duly rated and licensed by the Civil Aviation Authority of the Philippines.

ii. An applicant-carrier securing a permit to operate Domestic Scheduled Air Transport Services shall have at least two (2) serviceable aircraft, duly registered and certified airworthy by the Civil Aviation Authority of the Philippines, and capable of providing the services applied for. It shall have in its employ Pilot/s and/or crew duly rated and licensed by the Civil Aviation Authority of the Philippines. AaCTcI

b. An applicant-carrier securing a permit to operate International Non-scheduled air transport services:

i. must have a valid permit or Certificate of Public Convenience and Necessity (CPCN) to operate domestic scheduled and/or domestic non-scheduled air transport services;

ii. shall have been in continuous operation of domestic scheduled and/or domestic non-scheduled air transport services for at least one (1) year; and

iii. must at least have two (2) serviceable aircraft in its fleet duly registered and certified airworthy by the Civil Aviation of the Philippines, capable of operating non-scheduled international/regional routes, provided that the required number of aircraft shall be increased, depending on the routes applied for and the frequency thereof.

c. An applicant-career securing a permit to operate International Scheduled air transport services:

i. must have a valid permit or Certificate of Public Convenience and Necessity (CPCN) to operate either a Domestic Scheduled Service and/or Non-scheduled International air transport;

ii. shall have been in continuous operation of Domestic Scheduled and/or International Non-scheduled air transport services for at least one (1) year; and

iii. must at least have two (2) serviceable aircraft duly registered and certified airworthy by the CAAP, and capable of operating scheduled international/regional routes; provided that an additional aircraft is acquired or leased in the immediately succeeding year of operation to ensure that its services are not disrupted. This does not preclude the airline from acquiring more aircraft.

IV. That, the required prior and continuous domestic operations and/or non-scheduled international operations stated in the immediately preceding paragraphs may be dispensed with, provided the applicant is able to prove that it has sufficient capital to start and sustain the operations applied for. In which case the paid-up capital and/or working capital required of the start-up airline, as provided in item II shall be equivalent to double the amount required under this Guidelines. Provided that, the applicant-carrier shall have the required number of aircraft, whether owned or leased, in its fleet. Provided further that, it has managerial and operational personnel with a good track record and have been engaged in the management and/or operation of air transport services for at least five (5) years. EcTCAD

V. A determination of an applicant-carrier's financial requirement shall be based on its proposed operation. The determination of the applicant's total financial requirement is equal to the sum of:

a. its start-up costs;

b. its operating and overhead costs associated with operating the business for a 90-day period under conditions of optimum demand; and

c. for businesses already in operation, any owners' deficit, as reported in the applicant's audited balance sheet. The deficit that is reported for financial requirements purposes should be net of any start-up costs that have already been incurred and were included in arriving at the owner's deficit (i.e., start-up costs incurred on or before the audited balance sheet's fiscal year-end date).

Art air carrier, already in operation, which has a negative working capital or is capital deficient, shall be required to submit a "Stockholder's Undertaking to Infuse Additional Capital" and to infuse the same within a period of one (1) year from the issuance of the said "Stockholder's Undertaking. Provided that, a "going-concern" assumption in its Audited Financial Statement shall not mean that the business will cease, but the air carrier shall be required to submit its plans and programs to address its losses as may be directed by the Board.

VI The applicant-carrier must be able to prove that it has acquired or can acquire the necessary funding to meet the financial requirement. The applicant must demonstrate that:

a. it has, or can acquire, through a combination of equity and/or debt, funds in an amount at least equal to the financial requirement/s as described in the preceding paragraph.

b. the funds are not encumbered and consist of liquid assets (i.e., readily convertible to cash); and

c. the funds are available and will remain available to finance the air service.

VII. The financial fitness of the applicant shall be based on the following capital structure: based on a 90-day start-up and operating cost

The Financial Requirements Statement computes the:

(i) Financial requirement;

(ii) Capital funding requirement that must be funded by owner's capital; and HSAcaE

(iii) Balance of the financial requirement, which is not restricted to being funded by owners' capital.

 

Line	Description
1000	Shareholders' or Partners' Equity/Deficit (This section only applies to applicants that are already in operation)
1001	Equity/(Deficit) (from audited balance sheet, deficit reported as a negative number)
1002	Start-up costs incurred prior to financial statement year-end date
1003	Net equity/(deficit) (line 1001 + line 1002, deficit reported as a negative number)
2000	Financial Requirement
2001	Start-up costs
2002	Operating costs (from 90 Day Operating Statement)
2003	Total costs (line 2001 + line 2002)
2004	Net deficit, if any (from line 1003, deficit reported as a positive)
2005	Financial requirement (line 2003 + line 2004)
3000	Capital Funding Requirement
3001	50% of total costs (line 2003 x 50%)
3002	Net equity (deficit), if any (from line 1003, deficit reported as a negative)
3003	Capital funding requirement (line 3001-line 3002; if negative, enter zero)
4000	Balance of Funding Requirement
4001	Financial requirement (from line 2005)
4002	Capital funding requirement (from line 3003)
4003	Balance of funding requirement (line 4001-line 4002)

 

VIII. A higher paid-up capital may be required from an applicant-carrier, depending on the scale of its proposed operation as provided in its business plan

IX. Existing grantees of Certificate Public Convenience and Necessity to Operate Air Transport Services for Domestic Scheduled and Non-scheduled Operations and International Scheduled and Non-scheduled Operations shall be required to comply with the foregoing capitalization and operational requirement within a period of one (1) year from the effectivity hereof or upon renewal of its CPCN, whichever comes first.

X. All other issuances, rules or regulations contrary to the foregoing are hereby deemed amended.

XI. Any provision, found to be contrary to or in violation of existing laws and the Constitution are deemed null and void; all other provisions shall remain in force.

XII This Resolution shall take effect fifteen (15) days after its publication in a newspaper of general circulation and deposit in the UP Law Center. HESIcT

Pasay City, Philippines, May 25, 2018.

ARTHUR P. TUGADESecretaryChairman

(SGD.) MANUEL ANTONIO L. TAMAYOUndersecretary for Aviation and AirportsAlternate Chairman

(SGD.) REYNALDO L. CHINGAssistant Secretary for Administration and Special Concerns

(SGD.) JIM C. SYDIONGCODirector GeneralMember

(SGD.) EDMUNDO F. GAMMADMember

(SGD.) DANILO O. MENDEZMember

Attested by:

(SGD.) JEAN MARIONNE A. BERMUDEZActing Board Secretary

Noted:

(SGD.) CARMELO L. ARCILLAExecutive Director