After Filing Bankruptcy, Flag-carrier Philippine Airlines (PAL) is hopeful about completing its corporate restructuring without any job cuts despite an imminent fleet reduction.
In a press conference on Monday, PAL president Gilbert Santa Maria said the loss-making airline had already done the job cuts in March in “anticipation of the exercise of the Chapter 11 filing.”
“We do not anticipate additional job cuts with the caveat that the timing of Chapter 11 (plea) was driven by legal requirements that we have to complete to bring (about) our entire plan,” Santa Maria told reporters.
PAL submitted the papers for a Chapter 11 action in New York through a voluntary pre-arranged restructuring with the US Bankruptcy Court for the Southern District of New York in order to implement an agreement it reached with over 90 percent of its lessors, lenders, and other creditors.
The filing was necessary since most of the airline creditors are based in the United States.
“The reality of the pandemic is still on us, but my only caveat on that (is) we will not have additional job cuts,” Santa Maria added.
The lender-supported plan, which PAL chair and CEO Lucio Tan described as a “breakthrough,” also allowed to “consensually contract” or reduce fleet capacity by 25 percent.
Santa Maria disclosed that PAL decided to return 22 aircraft to lessor and negotiated the postponement of the delivery of 13 narrow-body Airbus aircraft, with an option to cancel some orders beyond 2026 to 2030. This leaves PAL with 70 aircraft, a quarter down from its 92-plane fleet.
Airbus SE agreed to postpone deliveries of 13 narrow-body planes with an option to cancel some beyond 2026, Philippine Airlines chief financial officer Nilo Thaddeus Rodriguez said.
Singapore-based aircraft lessor Avation PLC welcomed the restructuring announcement, saying that it would support the process and has agreed on terms for Philippine Airlines to retain a Boeing Co 777-300ER.
“A successful restructuring will ensure that Avation’s aircraft will remain with PAL and that Avation will recommence collecting cash rent on the aircraft for the first time since mid-2020,” the London-listed company said in a statement.
Pending US court approval of the Chapter 11 plea, PAL said flight operations will be unaffected and all valid tickets, vouchers, refund applications, and Mabuhay Miles will be honored during the period.
“The next step for us is as soon as we complete the first-day hearings in the US on Thursday. (We will) file locally a recognition under the FRIA ( Financial Rehabilitation and Insolvency Act) law,” Nilo Thaddeus Rodriguez, PAL chief financial officer, explained.
“In terms of the rehabilitation, we selected or strategized the pre-arranged process because this allows PAL to actually stay within the rehabilitation process in shortest the possible time. We expect (this to be) approved this year, that’s the target,” he added.
According to Santa Maria, PAL’s Chapter 11 plea is “unusual for aviation” and that the airline “will likely be out by the end of the year.”
PAL has been struggling financially but its petition will also provide the firm a $505 million in long-term equity and debt financing from the majority shareholder and $150 million of additional debt financing from new investors.
While this provision will help PAL overcome the unprecedented impact of the global pandemic, Senior VP for Strategy and Planning Dexter Lee said returning to pre-pandemic status would still take about three to four years.
“We don’t foresee demand coming back to pre-pandemic levels until 2024 to 2025. At that point in time, we don’t believe we will be at what our size was, which was more than P3 billion in revenues,” Lee said.
“By 2025, we expect to reach those numbers closer to the back half of the decade. We do have significant plans in terms of adding capacity as demand recovers. We are looking at routes that we want to serve — both existing and new routes,” he added.
During the first half, PAL managed to cut losses by 21 percent to P16.55 billion by slashing operating costs and cutting a third of its workforce.
For Now, Philippine Airlines is likely to focus on the domestic market as well as west coast North America, a traditionally profitable long-haul route, and North and Southeast Asia.
Pictures : Philippine Airlines , Airbus .
