PAL targets to 'exit' bankruptcy before 2021 ends
MANILA, Philippines – Beleaguered national carrier Philippine Airlines is hoping to exit bankruptcy protection before the year ends, with no additional job cuts expected and a reduced fleet size that will fly to and fro limited destinations as the pandemic continues to smash demand for air travel.
The loss-making airline announced over the weekend that it filed for Chapter 11 bankruptcy in the United States that would see its debts slashed by over $2 billion and its fleet of aircraft reduced by 25%. At a press conference on Monday, Gilbert Santa Maria, company president, said the route to recovery that PAL has chosen is “unusual for aviation” and that “we don’t anticipate staying in the Chapter 11 process for very long”.
“We will likely be out by the end of the year,” Santa Maria said. “The nice thing about Chapter 11 in the US is it’s transparent, so it’s predictable. And because it’s predictable, we have a high degree of confidence that this will be completed when we expect it.”
During the Chapter 11 process, which allows a financially-distressed company to continue operations while it restructures its finances, PAL would downsize its fleet to 70 from the pre-crisis count of 92, with some 22 aircraft — mostly wide-body planes — to be returned to lessors. Despite operating with a leaner fleet, Santa Maria said PAL will no longer shed workers after the company already reduced its headcount by 30% in mid-March.
At the same time, the carrier said Airbus agreed to either postpone deliveries of new aircraft or cancel some of the company’s orders in the next five years. Once the bankruptcy protection is over, PAL will borrow $150 million from new investors “to facilitate post-restructuring activities”.
“We started negotiating with vendors and creditors a year ago… and we’ve been negotiating with them in good faith ever since,” Santa Maria said.
The bankruptcy petition has been a long time coming for the flag carrier, which now operates 21% of pre-pandemic flights to 70% of its usual destinations. Dexter Lee, company chief planning and strategy officer, said demand is unlikely to recover to pre-pandemic level “until 2024, 2025.” Revenues, meanwhile, are forecast to return to pre-crisis level “close to the back half of the decade,” Lee added.
Santa Maria said it took months of hard-nosed discussions with shareholders, aircraft lessors and banks before coming up with the pre-arranged restructuring plan. “We have basically re-assured them of our survival,” he told reporters.
The flag carrier's proposed restructuring is subject to approval by a court in the southern district of New York. The company will also complete a parallel filing at home under the Financial Insolvency and Rehabilitation (FRIA) Act of 2010.
PAL’s decision to pursue a lender-supported restructuring comes at a time the Duterte administration is hesitant to rescue local airlines using taxpayers’ money. At this point, Nilo Thaddeus Rodriguez, company chief financial officer, said PAL would welcome any help from the government, especially in raising the $150 million exit financing.
“We can never be really sure how this pandemic plays out. Having them (government) behind us post-Chapter 11 would definitely be something that we can explore,” Rodriguez said in the same news conference.
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