Gov’t aid for PAL will depend on Chapter 11 outcome — Dominguez

MANILA, Philippines — The government will wait for the outcome of Philippine Airlines’ bankruptcy filing in New York before deciding whether to use taxpayers’ money to help the loss-making national carrier raise funds for its post-restructuring needs.

During Thursday’s Senate panel hearing on the proposed national budget for next year, Sen. Grace Poe took the occasion to ask Finance Secretary Carlos Dominguez III how the Duterte administration plans to help the beleaguered airline, which recently filed for Chapter 11 bankruptcy in the United States.

Dominguez, a former PAL president himself, said the government would only participate in any fundraising activities of the airline if all goes well with its corporate restructuring. This is to make sure that PAL can pay whatever amount that state-run banks will lend to the company.

“I do not want LandBank and DBP to go in and finance a company that is filing for bankruptcy and we don’t know how it will turn out,” Dominguez said, referring to state-controlled Land Bank of the Philippines and Development Bank of the Philippines.

“One of our GFIs (Government Financial Institutions) was provided with bankruptcy filing and we are reviewing it and we are following this very carefully. If in the end it looks like it will be a prudent investment for the taxpayers’ money, we will participate,” he added.

In what the company called a “major breakthrough”, PAL announced last week it is pursuing a pre-arranged restructuring plan that would see over $2 billion of its debts forgiven and its fleet of aircraft reduced by 25%.

The company expects to have “a lighter balance sheet” by the end of the Chapter 11 process, which allows a financially-distressed company to continue operations while it fixes its finances. Earlier this week, company officials said they are hoping to exit bankruptcy protection in “a few months”, then start raising $150 million of additional debt “to facilitate post-restructuring activities”.

At this point, Nilo Thaddeus Rodriguez, company chief financial officer, said PAL would welcome any help from the government, especially in raising the exit financing. “Having them (government) behind us post-Chapter 11 would definitely be something that we can explore,” Rodriguez said in a news conference last Monday.

The flag carrier's proposed restructuring is subject to approval by a court in the southern district of New York. Gilbert Santa Maria, company president, said the chance that the restructuring would fail is “very, very small”.

Additional condition

Dominguez said waiting for the results of the bankruptcy filing was an additional condition that the government imposed on PAL before receiving help from taxpayers.

According to the finance chief, the government has been in touch with local airlines since March last year to discuss any form of aid that the government can extend to them. While the Duterte administration cannot afford to rescue ailing local airlines through bailouts, Dominguez said state banks are willing to lend money to carriers subject to certain conditions.

Before receiving taxpayers’ money, Dominguez said major shareholders must infuse additional “adequate” capital to the company while current creditors should also step in to “relieve” financial troubles. Lastly, local banks should pitch in for financing.

Dominguez said budget carrier Cebu Pacific took this route when it completed raising its $500-million recovery fund, with private investors pitching in half of that amount. Apart from the recovery fund, Cebu Pacific got a P16 billion loan from a syndicate of banks, with state-run lenders contributing 18% to the credit line.

But the finance chief said PAL “took a different path” when it filed for bankruptcy.

“So I told them (PAL), the conditions I’ve set before are still on the table, but if you will file for bankruptcy, we will have to wait for the results of the bankruptcy proceedings,” Dominguez said. “Bankruptcy courts do not necessarily follow what we want.”