G.R. No. 119528 March 26, 1997
PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents.

FACTS

Petitioner Philippine Airlines (PAL) filed this Special Civil Action for Certiorari and Prohibition to challenge the jurisdiction of the Civil Aeronautics Board (CAB). PAL sought to prohibit the CAB from hearing Grand International Airways’ (GrandAir) application for a Certificate of Public Convenience and Necessity (CPCN) and to annul a Temporary Operating Permit (TOP) issued to GrandAir for domestic routes. PAL’s core argument was that a legislative franchise from Congress is a mandatory constitutional prerequisite under Section 11, Article XII of the 1987 Constitution before the CAB can issue any CPCN or TOP. PAL, itself a franchise holder, contended the CAB acted without jurisdiction because GrandAir lacked such a franchise.
GrandAir applied for a CPCN with the CAB in November 1994 and subsequently requested a TOP. PAL filed a formal opposition, primarily on the jurisdictional ground of lack of a legislative franchise. The CAB’s Chief Hearing Officer denied PAL’s opposition, citing appellate court rulings that a franchise was not a prerequisite for CAB action. The CAB then issued Resolution No. 119(92), granting GrandAir a three-month TOP. PAL’s motion for reconsideration was denied by the CAB, which reaffirmed its authority under Section 10(C)(1) of Republic Act No. 776 (the Civil Aeronautics Act) to issue TOPs and CPCNs.

ISSUE

Whether a prior legislative franchise is required before the Civil Aeronautics Board can exercise its jurisdiction to receive an application for, and issue, a Temporary Operating Permit or a Certificate of Public Convenience and Necessity to a domestic air carrier.

RULING

The Supreme Court DISMISSED the petition, ruling that a legislative franchise is NOT a condition precedent for the CAB to assume jurisdiction over an application or to issue a TOP or CPCN. The Court clarified the distinct roles of a legislative franchise and an administrative CPCN/TOP. A franchise is a primary authorization from the state to operate a public utility. In contrast, a CPCN or TOP is a secondary administrative license issued by a regulatory body like the CAB to ensure the applicant is fit, willing, and able to operate, and that the service is required by public convenience and necessity.
The legal logic rests on the interpretation of Section 11, Article XII of the Constitution , which states that no franchise for operating a public utility shall be granted except to citizens and under certain conditions. The Court, following its precedent in Albano v. Reyes, held that this constitutional provision does not mean Congress must directly grant each franchise. Congress may delegate to administrative agencies, like the CAB, the power to issue licenses or authorizations (CPCNs/TOPs) to qualified entities. The franchise requirement is deemed satisfied once the entity, which must be a Filipino corporation, is granted a CPCN by the delegated agency. The CAB’s authority to issue CPCNs and TOPs is explicitly conferred by Section 10(C)(1) of R.A. 776. Therefore, the CAB correctly exercised its jurisdiction over GrandAir’s application. The requirement of a legislative franchise is fulfilled through the grant of the CPCN itself by the duly delegated agency.