Philippine Airlines' [PAL 6.05 susp] Q2/21 net loss of P9.6 billion, up 31% from Q2/20 net loss of P11.5 billion, and up 7% from Q1/21 net loss of P8.6 billion. PAL mentioned that its “liquidity situation” became “more critical” in 2020 and 2021 and that the continued massive declines in passenger volume and revenues, coupled with the “difficulty in sourcing additional financing”, caused PAL to “embark” on a restructuring plan to “ensure the Group’s business continuity”.
To meet funding requirements in 1H, PAL has “drawn on bridge funding from its major shareholder, deferred payments through the forbearance of lessors, lenders, and suppliers, carried out a retrenchment program, and implemented cost-cutting measures.” Despite these drastic measures, PAL still lost over P18 billion in the first six months of 2021. PAL cut its operating expenses in half by significantly reducing the number of flights operated and through layoffs announced and executed earlier in the year.
MB BOTTOM-LINE
There isn’t much that I can say about this situation that I haven’t said already, especially for a stock that’s been suspended for the past two months for failure to submit audited annual financials. PAL reduced its fleet of airplanes from 97 to 95 in order to save money, but I don’t think there’s a magic number of planes that will result in PAL returning to profitability in its current form, especially in this environment.
The Tan Family’s simultaneous milking and mismanagement of this airline have made it terminally unprofitable and basically unsellable. Lucio Tan is the only person left willing to put more money into the company to prevent bankruptcy, but without a major overhaul of PAL’s basic business plan, his equity injections only delay the inevitable.
I feel bad for PAL’s employees, both for those laid-off and for those who were allowed to remain on the payroll. The old methods won’t solve this problem; the business plan is one that consistently fails to make more than it spends. It’s not a matter of getting some new planes and a new tagline. If PAL wants to be anything other than a sad vanity project for the Tan Family, it basically has to tear it all down and start again.
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