Law Summary
Operation of Air-Transport Services
- The grantee must maintain scheduled, nonscheduled, and/or charter air services in all points within the Philippines and to other countries.
- Services must be maintained as often as traffic requirements dictate, except in cases of force majeure or adverse weather.
Regulation of Rates and Airworthiness
- The grantee must charge just and reasonable rates subject to approval by the Civil Aeronautics Board (CAB) or other designated government regulatory body.
- Decisions of the CAB may be reviewed by courts.
- All aircraft and crew must be licensed by the Philippine government.
- Aircraft equipment must be maintained in airworthy condition, equipped with communication and safety devices, and comply with technical regulations.
- The Civil Aeronautics Administration (CAA) has authority to inspect and regulate operations.
- Compliance with Republic Act No. 776 and its implementing regulations is required.
Use of Airport Facilities
- The grantee may use government-maintained airport facilities subject to government terms.
- Certain facilities may be withheld based on military or naval considerations.
- The government has reciprocal rights to use the grantee's facilities.
Communication Facilities
- The grantee is authorized to build, operate, and maintain wireless and radio communication stations at its terminals and aircraft.
- Communication use is restricted to operational matters such as weather and flight-related messages.
Contracts with the Philippine Government
- The grantee may enter into transportation contracts with the government, including mail carriage.
- Both parties agree to give preferential consideration for contracts involving passengers, mail, and freight.
Government Rights During Emergencies
- In cases of war, insurrection, calamity, or national emergency, the government may take over and operate the grantee’s equipment.
- The grantee shall receive just compensation for such use or damages.
Compliance with Philippine Laws
- The grantee is subject to all current and future Philippine laws.
Exercise of Eminent Domain
- With the President's approval, the grantee may exercise eminent domain to acquire property for its operations.
- Proper condemnation procedures and just compensation are mandatory.
- Property taken must be strictly necessary for franchise purposes.
Issuance of Stock and Bonds
- The grantee may issue stock or bonds only for cash or property of equivalent value.
- Property dividends may be issued upon compliance with laws.
Prohibition on Involuntary Servitude
- It is unlawful for the grantee to use or contract labor obtained through involuntary servitude.
Indemnity to Government
- The grantee shall hold government entities harmless from claims arising from accidents or injuries caused by the operation of its services.
Taxation and Franchise Fees
- The grantee shall pay either:
- Basic corporate income tax on net taxable income, or
- A franchise tax of 2% on gross revenues (with specific treatment for international flight revenues).
- The chosen tax shall be the lesser amount.
- Taxes paid shall be in lieu of other government taxes and fees including those on aviation fuel, imports, leases, interests, registration, and others.
- Real property taxes remain payable.
- The grantee may depreciate assets accelerated up to double the normal rate, and carry over net losses up to five years.
Tax Payment Procedures
- Quarterly tax returns and payments are required.
- Final annual tax return must be filed with settlement within specified deadlines.
- Overpayments may be refunded or credited.
- "Gross revenues" broadly includes income from transport and non-transport operations, investments, asset disposition, foreign-exchange transactions, and other sources.
Non-Exclusivity and Equal Treatment
- The franchise is non-exclusive.
- If any competitor receives more favorable terms, such terms shall automatically apply to the grantee.
Amendment and Revocation
- The franchise may be amended, altered, or repealed by competent authority if public interest requires.
Franchise Term
- The franchise is valid for 50 years from the date of acceptance by the grantee.
Employment of Foreign Nationals
- The grantee may hire foreign nationals with special qualifications without government approval.
- Such foreign nationals must register with the Commission on Immigration and Deportation within 30 days.
Foreign Loans and Indebtedness
- The grantee may obtain loans or incur debts in foreign currency for its operations.
- Such obligations and payments are exempt from taxes if assumed by the grantee.
- The Republic of the Philippines unconditionally guarantees payment of principal and interest on these foreign loans.
Tax Exemptions on Leasing and Rentals
- Rentals, interest, and other charges to foreign or domestic lessors for lease of aircraft and equipment are exempt from taxes if the grantee assumes liability.
- The government guarantees payment under such leases.
Offset of Government Obligations
- Government agencies may offset obligations owed by the grantee with receivables from the grantee.
Restrictions on Transfer or Assignment
- The grantee cannot lease, transfer, sell, or assign the franchise without Presidential approval.
- Any authorized successor is bound by the same terms and conditions.
Severability Clause
- If any provision is declared unconstitutional or invalid, other provisions remain in effect as if the invalidated parts were removed.
Modification or Repeal
- Franchise or its provisions may only be changed or repealed by special law or decree specifically addressing such changes.
Repeal of Inconsistent Laws
- All laws and regulations inconsistent with this decree are repealed or modified accordingly.
Effectivity
- The decree takes effect immediately and forms part of the law of the land.