Philippine Airlines struggles to survive in pandemic
MANILA, Philippines – Philippine Airlines (PAL) has formalized a claim for creditor protection in the United States – a move that its owner, billionaire Lucio Tan, has called a “major breakthrough” in the 80-year-old carrier’s battle for survive the pandemic.
PAL on Saturday announced it is filing a Chapter 11 bankruptcy petition in the Southern District of New York City, which would pave the way for the elimination of $ 2.1 billion in aircraft debt and obligations.
The airline assured the public that flights would not be disrupted and that all tickets, vouchers, perks and mileage awards would be honored.
It also pledged to step up its air operations and continue essential vaccine deliveries and repatriation flights to stranded Filipinos around the world.
PAL said it intends to maintain business continuity, especially for its employees, customers, suppliers, business partners and local communities. Passenger and cargo flights will continue, subject to travel restrictions, he said.
Once approved by the US court, the petition would protect the airline’s assets, such as planes and equipment, from seizure and sale. PAL said it was voluntary and pre-arranged with creditors and donors, many of whom were international companies and large local banks.
Chapter 11 of the US Bankruptcy Code is a globally recognized and proven measure for corporate reorganization. It has been used by international carriers, such as the Chilean company LATAM Airlines and the Colombian Avianca.
Fleet reduction, job cuts
Wider in scope than PAL’s rehabilitation program tabled in the aftermath of the 1997 Asian financial crisis, advocacy is a key part of a sprawling restructuring plan that requires significant fleet reductions, cancellation of debt and billions of pesos in new capital.
“We are grateful to our lenders, aviation partners and other creditors for supporting the plan, which enables PAL to weather the unprecedented impact of the global pandemic which has significantly disrupted businesses across all industries, including especially aviation and which emerges stronger in the long run, ”Tan said in a statement on Saturday.
A parallel filing would also be made in the Philippines under the Insolvency and Financial Rehabilitation Act of 2010, PAL said.
PAL will also return 21 aircraft that were no longer needed for its revised long-term business plan.
It was not clear whether the reduction in the fleet, representing more than 20 percent of PAL’s 95 planes, would lead to further job cuts.
The carrier cut 2,300 jobs, or 30% of its workforce, last March, joining other airlines that have downsized to cut costs given the slowdown caused by the pandemic.
Chance of “reset”
Airline and banking sources told the Inquirer that the measures would give the national carrier the ability to “reset” and reorganize its business for the future.
They also agreed that the airline’s short-term recovery hinged on efforts to fight the pandemic and would test the Tan family’s commitment to supporting PAL through continued losses.
“It all depends on the financial ‘rope’ that Lucio Tan is prepared to provide,” Avelino Zapanta, PAL president, told the Inquirer when the transporter was rehabilitated in 1999.
“Even until next year, I don’t see any standardization for the airlines,” he added.
As the global health crisis worsened PAL’s financial woes, forcing the national airline to suspend debt payments as early as April of last year, signs of trouble were long brewing for the airline.
After Tan regained full control of PAL in 2014, ending a two-year alliance with conglomerate San Miguel Corp., it pursued a new strategy to expand its international network, modernize its fleet and achieve five-star status. coveted by 2020.
When it retired old planes and introduced the next generation of Airbus A350-900s, the airline opened nonstop flights from Manila to New York and seemed unstoppable in its mission to connect the Philippines to more global gateways.
Losses since 2016
But financial losses began to gradually increase in 2016, and by 2019, PAL Holdings Inc., its parent company, had accumulated 22.9 billion pesos in losses.
PAL Holdings lost 71.8 billion pesos in 2020 alone after flights were disrupted by recurring quarantines.
A year earlier, the company’s plans had been turned upside down due to abrupt changes in leadership, culminating in the surprise retirement of Jaime Bautista, longtime president of PAL.
The Inquirer has learned that current PAL chairman Gilbert Santa Maria has personally traveled to New York for the Chapter 11 plea filing.
In the statement, Santa Maria thanked PAL employees around the world for continuing to provide “the highest quality of service in these difficult times”.
“Following the recent celebration of our 80th anniversary, we move forward with renewed confidence as today’s actions allow us to continue serving our customers and the Philippine economy into the future,” he said.
PAL said Tan’s group, as the majority shareholder, would inject $ 505 million in equity and debt financing while another $ 150 million in debt was required from global private investors for the “post-restructuring” activities.
The pardon case showed that PAL’s five largest secured claimants, or those whose loans were tied to collateral, such as planes and engines, owed a total of $ 866 million.
These include local banks, such as the Philippine National Bank of Tan, or PNB ($ 156.5 million) and the Sy family’s BDO Unibank Inc. ($ 80.42 million) and China Banking Corp. ($ 54.83 million).
Claims worth $ 1.4 billion
The airline’s top 40 creditors have unsecured debts worth more than $ 1.4 billion.
They include dozens of international aircraft rental companies, local banks, maintenance companies and even government agencies, such as the Manila International Airport Authority (MIAA) and the Civil Aviation Authority of Philippines (CAAP).
The main unsecured bank lenders were PNB ($ 115.9 million), Asia United Bank ($ 75.3 million), China Banking ($ 65.27 million) and Union Bank of the Philippines ($ 20.1 million) of dollars).
Tan’s own Buona Sorte Holdings was the largest unsecured creditor with $ 358.28 million, while CAAP and MIAA owed $ 8.65 million and $ 21.7 million in regulatory fees.
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