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Stock Commentary

PAL denies that it has started 'the groundwork' to sell a minority stake to strategic investor

Merkado Barkada
PAL denies that it has started 'the groundwork' to sell a minority stake to strategic investor

Philippine Airlines [PAL 5.57, up 5.1%] [link] issued a clarification to a news article that claimed PAL was looking to sell a 20% to 25% minority stake to a strategic investor, and that PAL “recently formed a team to ‘receive some offers’”. The source claimed that this process was already underway, and that they were looking for a foreign airline to come in as a partner. PAL clarified that while it has “always been open or receptive to welcome strateigic partners”, and that its “sentiment is strongly in favor of welcoming [a] strategic investor”, the company has “nothing to report on the matter at this time” because “the groundwork” for the process “has yet to be started.”

 

MB bottom-line: Regardless of whether you think this is just part of PAL’s cycle of selling into strength and then gently nosing the whole thing into the ground only to be rescued by a deep-pocketed owner, the right strategic investor could be a friend-with-benefits situation that solves a lot of operational problems that PAL is facing. PAL’s aging fleet of planes is in a state of perpetual disrepair because of the worldwide shortage of new planes and replacement parts; the right strategic with a complimentary fleet configuration could improve PAL’s access to replacement parts or improve its bargaining position for resources. If the strategic investor is in a prestigious or lucrative foreign market, this could help differentiate PAL’s offering from its downstream peers like Cebu Pacific [CEB 33.90, up 0.1%] while opening up network expansion opportunities. It also helps spread Lucio Tan’s risk by giving another company a vested interest in PAL’s long-term survival. The wording of this clarification makes it obvious that PAL wants very badly to do a deal like this, so it feels like this whole thing is just a matter of time.

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