Turbulence @PAL

It has been raining cats and dogs for over a week. What we experienced, based on an old folklore is the proverbial “siyam-siyam” or incessant rain for nine days! This prevented most of us from doing our usual chores with our laundry hamper already brimming.

A different kind of turbulent weather is haunting the restructuring program of Philippine Airlines (PAL). I heard the flag carrier’s top honcho Gilbert Sta. Maria and PAL independent member of the board Gregorio “Greggy” Yu flew to New York but at the last minute decided to hold off the filling of Chapter11.

What gives? Is the decision to defer the filling led to the resignation of Mr. Greggy? As an accomplished banker, Mr. Greggy was given the draconian responsibility of chairing the rehabilitation committee.  

He was also in-charge of negotiating with the creditor banks as well as the fund raising campaign of some $400 million, a big chunk of the $505 million PAL needs as fresh capital to keep the flag carrier afloat.

On Monday, the board accepted Mr. Greggy’s resignation. The current talk circulating around the PAL corridors is that Lucio ‘Hun Hun’ Tan III, a third generation Tan and grandchild of the cigarette tycoon, Lucio “Kapitan” Tan, will now be steering the rehab committee. Mr. Hun Hun is a member of the board of the flag carrier and is the vice president of PAL Holdings.

 The outstanding issue now is: what route will PAL finally take? Relative to this is, if Chapter 11 is out of the horizon, will the airline company be adopting FRIA, instead?

Republic act 10142, otherwise known as FRIA (short for Financial Rehabilitation and Insolvency Act of 2010), covers the rehabilitation or liquidation of debtors. It provides a timely, fair, transparent, effective, and efficient rehabilitation designed to preserve and maximize the value of the assets of the debtors, including the recognition of the creditor rights as well as ensure equitable treatment of creditors.

As an alternative to doing it in New York, my source told me FRIA could now be a better route because it’s less financially burdensome. In the rehabilitation plan crafted with the assistance of SeaBury, an aviation and aerospace financial specialist, some $505 million is needed as fresh capital infusion.  

 To date, Kapitan has already poured in $100 million, which has bankrolled PAL’s operating expenses, including salaries of the airline’s workforce. Under Chapter 11, Kapitan will have to come with the money, roughly a little over $400 million as a head start for PAL within two to three weeks after the filing. Based on what I heard from the banking community, three major banks – Asia United Bank, China Bank, and Bank of the Philippine Islands, have agreed to lend $75 million each, fully collateralized by fixed assets of LT Group of companies.

Although the financial package has been approved in principle by the three banks, there’s a certain “documentary requirement” which keeps the facility hanging and is reportedly among the reasons for Mr. Greggy bowing out of PAL.

The lingering question is: who will take the place of Mr. Greggy as independent director? He was with PAL for 11 years, alongside his numerous board seats, among them, Philippine Bank of Communications (PBCom) where he chairs the executive committee, vice chairman of Sterling Bank, a board member of Ballet Philippines, and the Manila Symphony Orchestra.

The twaddle and prattle is retired PAL president Jimmy Bautista may be returning to the flag-carrier which he steered out of its difficulties in less than 10 years with the rehabilitation/restructuring program filed before the Securities and Exchange Commission in 1998.

From my point of view, this scenario is highly unlikely. I believe Mr. Jimmy, who has deep affection for the flag carrier, is “willing to help” maybe as a consultant or advisor. This grandfather has his cabin full, bonding with his two bundles of joy, 10-year-old master Emmanuel Josef, and eight-year-old princess Maria Ellena, while attending meetings. As a retiree, it appears like there’s virtually no rest for Mr. Jimmy, who sits in various boards: PBCom; Premier Leisure, the holding company that owns City of Dreams; Cosco Capital Corp., which owns S&R and Pure Gold; Nickel Asia Corp. Bell Resources, and Airspeed International, a cargo handling and warehousing entity; University of the East, and UERM.

Taking all these things together, my wish is for the business wheels to turn on the side of the positive that will allow PAL to fly over this turbulent weather.  

Talkback to me at sionil731@gmail.com