For PAL reinvention, not liquidation
Congratulations to Judge Japar B. Dimaampao, 57, for his long delayed but well deserved promotion to the Supreme Court. I know him personally to be as trustworthy as his uncle, retired CJ Hilario G. Davide Jr., as gentle as his aunt Gigi Davide, and as devout a Muslim faithful is to the teachings of Allah, as a good Christian is to the commandments of Jesus Christ to love God and his neighbor.
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Although filed under Chapter 11 of the United States Bankruptcy Code, the 18-page petition (under official forms 201, 202 and 204) from Philippine Airlines (PAL) seeks to restructure its finances, secure its recovery and reinvent yourself to become stronger. and better, and not to liquidate its assets or cease operations.
This goal of pursuing in good faith its mission as the full-service airline and national airline of the country is clearly demonstrated, in my humble opinion, by the fact that the petition was filed (1) voluntarily by PAL itself, and not by its bankers, salespeople or disgruntled customers; (2) after PAL has obtained a consensual agreement with almost all of its lenders, lessors, aircraft and engine suppliers, and its majority shareholders; and (3) after PAL was able to secure firm new capital injection commitments of up to $ 655 million, including $ 505 million debtor-in-charge (DIP) financing from its major shareholders, Buona Sorte Holdings Inc. and PAL Holdings Inc. (both controlled by taipan Lucio C. Tan), and local banks to maintain liquidity during the crisis, and to be converted into equity or long-term debt later.
It is true that during the initial hearing on September 9, the US Bankruptcy Court for the Southern District of New York granted all of PAL’s “first day” motions, thus allowing the carrier (1) to operate normally without be disturbed by the wait for the petition, (2) honor and maintain all customer programs, including valid tickets and travel vouchers, as well as Mabuhay miles and benefits, (3) pay suppliers and commercial creditors ongoing in the ordinary course of business, (4) continue to pay all salaries, compensation and employee benefits, (5) to operate its domestic and international flights, and, most importantly, (6) to access the first 20 million dollars of its DIP funding of $ 505 million, enabling it to undertake the first five measures.
These milestones mark important milestones in PAL’s turnaround plan, especially in securing what bankers call a “permanent haircut” of over $ 2 billion (100 billion pesos) in liabilities, allowing it to recover its accumulated deficit (as of June 30, 2021) almost equivalent to this amount.
Notably, despite its financial difficulties, PAL remained one of the 10 safest airlines in the world chosen by the Safe Travel Barometer out of 150 carriers, with a score of 4.2 out of 5. Lufthansa took first place at 4 , 5, and Alaska Airlines tenth at 4.1.
As required by law, the petition listed PAL’s five largest creditors secured by spare aircraft and engines as collateral, as follows: PK Airfinance of Luxembourg, $ 334.23 million; “EXIM guaranteed loans” to four international banks, $ 240.1 million; National Bank of the Philippines (GNP), $ 156.51 million; Banco de Oro, $ 80.42 million; and China Banking Corp., $ 54.83 million.
It also listed in good faith the 40 largest unsecured claims of the carrier, including those from affiliates (Buona Sorte, PNB, Air Philippines, MacroAsia Airport Services), government agencies (Manila International Airport Authority, Civil Aviation Authority of the Philippines), local banks (Asia United Bank, China Banking Corp., Union Bank), aircraft rental companies, foreign banks, maintenance service providers, etc.
In general, a Chapter 11 filing does not necessarily mean that the filer ceases to operate. In fact, it allows the filer to restructure debt, downsize operations, cut expenses, free up assets, and come out lighter and more lively, as the giants Delta Air Lines and General Motors have done.
Thus, to refine and improve, PAL will reduce its fleet by 25%, which would entail the return of 22 aircraft; abandon its losing long-haul routes to New York and London; and will focus on profitable destinations in the Philippines, China and Australia.
Normally Chapter 11 is a long process. However, given the pre-packaged and pre-negotiated measures that I explained earlier, I think PAL can successfully exit Chapter 11 by the end of the year, as the president of PAL hoped. Gilbert Santa Maria.
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