Philippine Airlines (PAL) expects to be out of Chapter 11 before this year ends and remains optimistic it will survive and “fly long into the future”, although travel demand won’t return to pre-pandemic levels until 2024-2025.
The flag carrier, which filed for bankruptcy in New York and will do a parallel filing in the Philippines as part of its restructuring plan to pare $2.0 billion off its debts, made the announcement in this morning’s (September 6) virtual presscon.
“Only an asteroid hitting Manhattan can stop us from exiting Chapter 11 this year,” Gilbert F. Santa Maria, PAL President & Chief Operating Officer declared.
Normally, it takes 9 to 27 months to restructure under Chapter 11.
It took the airline 7 to 8 years to get out of receivership the last time.
“This time, we’ll be done by the end of the year,” he reiterated, “We will have a new capital and a new balance sheet.”
This is because over 92 per cent of PAL creditors have approved the restructuring plan.
For a whole year, the airline has been negotiating with lenders precisely to avoid drawn out battles as creditors fight over scraps.
“Our core strategy was to put together a plan with a high success rate, with the support of all creditors,” Santa Maria noted.
“The negotiations were amicable and we maintained good relations with everyone.”
However, PAL’s exit financing was “not cheap” and no Government Financial Institution (GFI) has offered a loan.
“If a GFI comes in, that will be interesting,” Santa Maria remarked.
In all, PAL invited 180 investors and plans to use the aircraft it owns plus its Mabuhay Miles program as collateral.
This is the first time an airline rewards program will be used as collateral.
Already, PAL paid 90 percent of passenger refunds, some $400 Million.
While the flag carrier has not received any direct dole-outs, the president credited the goverment for helping them survive.
“The government kept us alive in the pandemic. They chartered flights for the repatriation of stranded overseas Filipinos and the transport of vaccines and medical supplies and paid us at fair market prices,” he explained. “We also received $4 million under Bayanihan 2.”
As further support, the government is suspending aeronautic charges for 2021.
Still, this year, PAL expects to haul in a measly one third of its P154.5 Billion revenues in 2019, around P51.5 Billion.
As part of its restructuring, the airline will reduce its fleet of 92 aircraft to 70 and has already returned seven.
Airbus has postponed deliveries and gave PAL the option to cancel its 2026 to 2030 orders although PAL retained the pre-delivery payment values.
“Airbus and PAL both walked away happy,” according to Santa Maria.
“We don’t see passenger demand coming back until 2024 to 2025,” says Dexter Lee, PAL senior vice president for strategy and planning.
“And we’re a full-service airline. Our strategy is not to turn ourselves into another Lazada, like Air Asia,” according to Santa Maria.
But while P100 billion revenues evaporated from PAL’s passenger market, cargo demand increased during the pandemic and continues to surge todate.
So, for the meantime, PAL focuses on cargo, using not just the belly space but also the cabins of its passenger planes.
The airline is even considering the possibility of acquiring freighters to carry cargo.
And it plans to pursue opportunities in new passenger markets, like Israel, when travel restrictions are lifted.
At present and in the short-term, it is concentrating on short hauls and regional flights because many destinations remain closed.
The bulk of PAL’s current passenger demand is in North America and the Middle East.
Of course, “If Japan opens tomorrow, we’ll fly there,” says Santa Maria. “Right now, we only have cargo flights to Japan.”
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