Philippine conglomerate San Miguel Corp (SMC) has confirmed that its investment in Philippine Airlines (PAL) and its low-cost partner Air Philippines (Air Phil) will amount to $500 million.
SMC had announced last week that it would acquire a minor stake in PAL and Air Phil through an investment in their holding companies, but did not release any financial details of the deal.
In a stock exchange disclosure issued on 10 April, SMC confirmed that the investment will come up to $500 million, effectively giving it a 49% stake in PAL and Air Phil.
With this investment, the holding companies will issue new shares to SMC's wholly owned subsidiary San Miguel Equity Investments.
"The new investment will allow the two airlines to strengthen operations and stay competitive with the implementation of PAL and Air Phil's fleet modernisation programme," SMC said in an earlier stock exchange disclosure.
PAL's management also welcomed the investment, saying that it would result in a "stronger" airline.
PAL reported a comprehensive loss of Philippine peso (Ps) 3.6 billion ($83.9 million) for the nine months to 31 December 2011, a reversal from a profit of Ps3.2 billion it reported a year before. This was despite a 2% increase in revenue to Ps55.2 billion for the 2011 period. The loss resulted from higher expenses, an unfavourable exchange rate and a sharp drop in non-operating income.
Over the last few years, the flag carrier has struggled to cope with the emergence of budget carrier Cebu Pacific, which now has the largest market share in the Philippines. PAL wants to retire many of its older and uneconomical widebodies, replacing them with a new fleet to compete effectively on the long-haul markets.
Air Phil's subsidiary, AirPhil Express, has meanwhile seen a resurgence over the last two years and is fast emerging as a serious competitor to Cebu Pacific in the low-fare market segment.
SMC is mainly a food and beverage company, but has diversified into the oil refining, telecommunications and power industries.