Kuwait Airways v. PAL (G.R. No. 156087)

Facts:

Kuwait Airways and Philippine Airlines (PAL) entered into a Commercial Agreement to assist each other to develop traffic on the route Kuwait-Bangkok-Manila and vice-versa. Under the said agreement, Kuwait Airways obligated itself to share with PAL revenue earned from the uplift of passengers between Kuwait and Manila and vice-versa. Sometime later, delegations from Philippines and Kuwait (Philippine Panel and Kuwait Panel) met and agreed that effective upon the signing of the Confidential Memorandum of Understanding (CMU), the exercise of the third and fourth freedom traffic rights shall not be subject to any royalty payment or commercial agreements. The Philippine Panel composed of officials from CAB, DFA, and PAL and headed by the Executive Director of the CAB signed the CMU – in behalf of the Philippine Government. A month later, petitioner sent a letter informing PAL that by virtue of the CMU the termination of the royalty payment is in effect. PAL insisted that the Agreement should continue to be in force and petitioner is still obligated to pay PAL revenue until such date. Petitioner refusing to pay, PAL filed a complaint before the RTC which ruled in its favor. Hence this petition.

Issue:

Whether or not CAB can compel PAL to terminate the Commercial Agreement with petitioner.

Ruling: NO.

[We do not doubt that the CAB, in the exercise of its statutory mandate, has the power to compel Philippine Airlines to immediately terminate its Commercial Agreement with Kuwait Airways pursuant to the CMU. Considering that it is the Philippine government that has the sole authority to charter air policy and negotiate with foreign governments with respect to air traffic rights, the government through the CAB has the indispensable authority to compel local air carriers to comply with government determined policies, even at the expense of economic rights.]

However, this is not a case where the CAB had duly exercised its regulatory authority over a local airline in order to implement or further government air policy. What happened instead was an officer of the CAB, acting in behalf not of the Board but of the Philippine government, had committed to a foreign nation the immediate abrogation of Philippine Airlines’ commercial agreement with Kuwait Airways.

Nor can we presume, simply because Dr. Linlingan, Executive Director of the CAB had signed the CMU in behalf of the Philippine Panel that he could have done so bearing the authority of the Board, in the exercise of regulatory jurisdiction over Philippine Airlines. For one, the CAB is a collegial body composed of five members and no one member–even the chairman–can act in behalf of the entire Board. The Board is disabled from performing as such without a quorum. For another, the Executive Director of the CAB is not even a member of the Board, per R.A. No. 776, as amended.

*The general rule is CAB has the power to regulate the airline companies/air transportation industry BUT this case is an exception.

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