PAL needs strategic partner – think tank

MANILA, Philippines - Think tank Centre for Asia Pacific Aviation (CAPA) stressed the need for flag carrier Philippine Airlines Inc. (PAL) to take in a new strategic partner after the group of taipan Lucio Tan successfully bought back the stake of diversified conglomerate San Miguel Corp. (SMC) in the airline.

In its latest aviation analysis titled “PAL needs more and stronger partnerships. All Nippon Airways is a small step,” CAPA said PAL needs a strategic partner to mount more flights to the US and Europe.

The think tank said the recent commercial partnership with All Nippon Airways of Japan and Dubai-based Etihad Airways is the right way to boost global competitiveness for the Tan Group.

“ANA and Etihad have both ruled out potential investments in PAL – at least for the time being. The LT Group could look to re-engage with ANA and Etihad while also exploring other potential suitors that could come to the table with both a comprehensive codeshare partnership and capital,” CAPA said.

The Tan Group successfully bought back the 49 percent interest of SMC in PAL last Sept. 15 for $1.3 billion. SMC’s wholly-owned subsidiary San Miguel Equity Investments Inc. (SMEII) acquired a 49 percent equity interest in Trustmark Holdings Corp. for $500 million.

Trustmark owns 97.71 percent of PAL Holdings, which in turn owns 84.67 percent of PAL through PR Holdings Inc.

“PAL will need a much bigger and stronger portfolio of partners – and ideally a strategic partner – to be successful in the intensely competitive long-haul market. As PAL becomes more visible in the international market, and thus more potentially useful to partners, the quest should grow easier,” CAPA said.

PAL is gearing up for flights to New York via Vancouver by March 15 next year, as well as flights to other major cities including Chicago, Miami, and San Diego, after the US Federal Aviation Administration (US-FAA) upgraded the country’s aviation safety rating back to Category 1 from Category 2 last April.

CAPA said one-stop markets could be challenging for PAL and are generally better served using partners.

 “Category 1 allows PAL to pursue codeshares in the US market. While it would be difficult to secure a deal with a US major, PAL could find suitable US partners in smaller US carriers such as Hawaiian Airlines, Alaska Airlines, Virgin America and JetBlue,” it added.

The think tank said an expanded partnership with ANA to cover the US market could also be a sensible option for PAL as the Japanese airline currently serves New York, as well as other US markets to which PAL currently does not have any access.

CAPA said PAL does not have enough efficient long-haul aircraft as its six Boeing 777-300ER aircraft are fully utilized serving Los Angeles, San Francisco, London, and Vancouver.

SMC president and chief operating officer Ramon S. Ang, earlier embarked on a massive fleet renewal program aimed at acquiring 100 brand new aircraft.

But with the departure of SMC, CAPA said PAL needs to step up efforts to find a new strategic partner to utilize improved slots in Europe after the European Union last year lifted a ban that prevented PAL from entering the European airspace.

 “The Lucio Tan Group has a lot on its plate as it takes back control of PAL. In addition to seeking new partnerships, PAL has been aiming to sell a strategic stake,” CAPA said.