Andrzej Jeziorski/SINGAPORE

A conditional offer by Cathay Pacific to invest up to $100 million in debt-ridden Philippine Airlines (PAL) has been accepted by PAL's interim rehabilitation receiver committee.

The two airlines say they will jointly draft a "rehabilitation plan" for PAL, to be submitted to the Philippines Securities and Exchange Commission (SEC) and creditors for final approval. This is expected to take "several weeks", say the carriers.

The SEC has set a deadline of 21 November for the plan, but sources close to the negotiations say Cathay has requested PAL's creditors to extend the deadline to early December.

Under the terms of the proposal, Hong Kong-based Cathay and PAL's current majority shareholder, tobacco magnate Lucio Tan, will inject into the company an amount of money "yet to be determined". Tan is expected to invest up to 2 billion pesos ($50 million) himself.

Conditions on the proposal include the completion of the due diligence process, the approval of PAL's creditors to reschedule debts and agreement on acceptable arrangements for Cathay taking management control.

Under Philippine law, only up to 40% of the airline can be bought by a foreign shareholder. Cathay confirms that it is in talks with other potential investment partners.

"Cathay Pacific remains interested in taking an equity stake in PAL and this is a further step towards that goal. We believe that with our resources and management experience we can help re-establish PAL as a successful airline," says Cathay corporate development director Tony Tyler.

The Philippine Government has said it will sell its 14% share in the airline if Cathay's proposal is accepted. Finance secretary Edgardo Espiritu says that Cathay has demanded a "total dilution of Government equity".

Singapore Airlines and Northwest Airlines have previously been named as interested in buying a stake in PAL, but Cathay's is the only formal offer to date.

PAL has been in receivership since June, with debts exceeding $2.1 billion. The airline halted operations for over two weeks from 23 September, after trade union negotiations on restructuring broke down. During the stoppage, Cathay took over the operation of some of PAL's domestic routes.

Source: Flight International