Manila (Philippine Daily Inquirer/ANN) - Flag carrier Philippine Airlines (PAL) is in negotiations to acquire as much as a 50-per cent equity in the national airline of the Cayman Islands in what could be the long-awaited solution to the downgraded aviation safety status that has hounded local carriers since 2008.

PAL president Ramon Ang yesterday confirmed that both parties were in the process of working out a deal that could see both airlines coming to a mutually beneficial arrangement.

"Yes, we are currently in talks with Cayman Airways and the Cayman Islands government for a number of investment opportunities," he said in a text message to the Philippine Daily Inquirer.

His statement comes after the government of Cayman Islands disclosed the deal, some details of which were published late Tuesday in the Caymanian Compass publication.

According to the publication, the Cayman Islands government was evaluating a proposal put forward by PAL-and one of its significant stakeholders, San Miguel Corp.-for a 50-per cent stake in the small airline.

The scheme will call for Cayman Airways to issue new preferred shares that San Miguel will subscribe to. The fresh capital to be generated from the equity infusion will be used by the Cayman carrier to acquire new aircraft, which will then be rented out to PAL under a so-called "wet lease" agreement.

Under a wet lease deal, the aircraft are registered and domiciled in the Cayman Islands and flown, operated and maintained completely by Cayman Airways.

Cayman Airways' Category 1 status with the US Federal Aviation Administration will allow the airline to mount additional flights between the Philippines and the US mainland.

The Cayman airline operates only four Boeing 737s and two De Havilland Twin Otter turboprops.

PAL, on the other hand, is prohibited from increasing its number of flights to the US mainland or replacing planes currently used for the route since the Philippines is under category 2 status with the FAA due to weaknesses in the local aviation regulator.

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Philippine Airlines eyes stake in Cayman Islands carrier