Philippine Airlines to Exit Bankruptcy Within the Year, Says Creditors ‘Won’t Be Fighting Over Scraps’
Philippine Airlines filed for bankruptcy in New York last week to offload some $2 billion (over P100 billion) in borrowings that it can no longer fulfill.
Philippine Airlines (PAL) said on Monday, Sept. 6, it expects to exit bankruptcy before 2021 is up, and will emerge a leaner company.
The flag carrier had filed for voluntary Chapter 11 bankruptcy protection in New York on Friday, Sept. 3. Chapter 11 allows a distressed company to keep running and prevents its assets from being seized by creditors.
“Once we exit (Chapter 11) before the end of the year, we’re done,” Gilbert Santa Maria, PAL president and chief operating officer, said at a press conference on Monday. “We will have a lighter balance sheet, we will have new capital, and our cost structure will be a lot lighter. We will be done before the end of the year.”
Santa Maria and PAL chief financial officer Nilo Thaddeus Rodriguez will go before a federal judge on Thursday, Sept. 9, to defend the restructuring plan. The goal is to offload some $2 billion (over P100 billion) in borrowings that it can no longer fulfill. Under Chapter 11 rules, the judge has the final say on the plan, but PAL executives do not expect any major hurdles as the vast majority of their creditors and lessors are on board.
“We don’t anticipate that the court is going to have to manage a bunch of creditors fighting over scraps,” Santa Maria said.
PAL noted it doesn’t anticipate any more job cuts beyond the 2,300 that were already completed in March this year – for the time being.
“The only caveat to my statement that we will no longer have any additional job cuts is we hope the pandemic does not become worse,” Santa Maria emphasized.
But it will be letting go of 22 aircraft – made up of a mix of wide bodies, narrow bodies and one or two turbo propeller planes – to slash expenses. The remaining fleet of 70 planes “will be more than adequate” to see demand through until the industry recovers, Santa Maria said. Airbus has already agreed to either postpone delivery of or cancel outright some of the 13 aircraft PAL had ordered pre-pandemic.
Analysts approve of the plan, saying it signals the start of a turnaround.
“I think this is a new beginning for PAL – reduced balance sheet, reduced leverage, and fresh capital infusion from all stakeholders, stockholders, the banks – and it’s good for everybody,” Christina Ulang, head of research for First Metro Investment, told “BusinessWorld Live” on One News in an interview. “And I think once this gets implemented, it’s going to signal to the world that the aviation industry of the Philippines is able to bounce back. This is going to be a good template for distressed firms.”
Still, the outlook remains cloudy. In the briefing, executives flashed a slide showing they handled seven million passengers last year, a fraction of the 30 million that flew with them in 2019. And despite high hopes early this year, the Delta variant of the coronavirus has thrown out all expectations of a bounce-back in air travel in 2021.
“We don’t foresee demand coming back to pre-pandemic levels until 2024, 2025. And at that point in time we don’t believe we will be at what our size was,” Dexter Lee, chief strategy officer, said.
PAL stated it will look into adding domestic routes as well as flights to China and Australia.
PAL is majority owned by business tycoon Lucio Tan, who also serves as chairman and chief executive officer. The 87-year-old Tan, along with the rest of the majority shareholders, will be injecting another $505 million (P25 billion) in long-term debt and equity financing under the restructuring plan. New investors will pump in some $150 million (P7.5 billion) in additional financing after it emerges from bankruptcy.
“We were very lucky to have Kapitan, Dr Lucio C. Tan, our chairman and CEO (chief executive officer), who wanted to continue to support Philippine Airlines,” Santa Maria said.