Still raising cash, Cebu Pacific gets P16-billion bank loan

MANILA, Philippines — A syndicate of state-run and private sector banks lent P16 billion to Cebu Pacific to help the loss-making budget carrier take off from a pandemic-induced crash.

The loan is payable in 10 years and will be used to fund the airline’s capital expenditures and “other general corporate purposes,” Cebu Air Inc., the listed operator of Cebu Pacific, told the stock exchange on Friday.

Investors welcomed the news that came a day after the airline first revealed plans to secure loans. On Friday, shares in Cebu Air gained 1.01% to end the week at P45 each, bucking the main index’s 0.02% loss.

The new debt will also serve as “cushion” against unexpected expenses from volatile fuel prices and changes in foreign exchange that inadvertently increase import costs. 

“We at JG Summit and Cebu Pacific are grateful for the confidence of the Philippine banking community,” Lance Gokongwei, president, said. JG Summit is the parent firm of Cebu Air.

To raise the funds, state-controlled Development Bank of the Philippines and Land Bank of the Philippines chipped in with their private counterparts, Asia United Bank Corp., Bank of the Philippine Islands, Metropolitan Bank & Trust Co. and Union Bank of the Philippines.

Since the pandemic erupted last year, Cebu Pacific has been scouring for cash to keep its once-booming business alive as contagion fears continued to pummel travel demand despite flights getting allowed since October last year. 

The company is said capable to incur more debts because it is not overleveraged at the moment. Apart from the syndicated loan, Cebu Pacific kicked off on Wednesday a P12.5-billion stock rights offer to raise fresh equity capital, which in turn only forms part of a larger recovery plan worth $500 million. 

On top of securing new cash, the airline also had to cut manpower by as much as 75% last year to reduce expenses. 

Although Cebu Pacific is yet to release its full-year financial results, the airline long expected losses to amount to “almost P25 billion” in 2020. If realized, projected massive losses will be a reversal of the P9.12 billion in profits in the pre-pandemic 2019. 

Despite the revenue drought, Cebu Pacific said there are no plans to cancel or reduce new aircraft orders from Airbus, the European plane-maker. In fact, some orders are scheduled to arrive this year to replace some of the budget carrier’s old planes, which were either sold already or awaiting to be surrendered to lessors.

Currently, about half of the company’s existing 73-aircraft fleet is flying while the rest are parked while flying demand remains subdued.

“Cebu Pacific remains focused on its business transformation to reduce its unit cost so as to continue to offer affordable flights,” Gokongwei said.