Andrzej Jeziorski/SINGAPORE

Troubled Philippine Airlines (PAL) has suffered a fresh blow with the rejection of its rehabilitation plan by European creditors.

One local creditor, the Philippine International Commercial Bank (PCI Bank), has suggested changes to the plan, meanwhile.

The European creditors control the leases on 12 Airbus aircraft, which constitute more than half of PAL's planned eventual fleet of 22. The creditors' group, represented by Credit Agricole Indosuez and European export credit agencies of the UK, France and Germany is understood to be owed more than $2 billion by PAL.

According to Credit Agricole, the airline's rehabilitation plan presented to the Securities and Exchange Commission in Manila in mid-December is unacceptable. The SEC will decide by 7 January on the plan. The creditors blame the decision on the absence of a strategic partner, and the reduced investment offered by PAL majority shareholder Lucio Tan, a tobacco magnate also under investigation for tax evasion.

It was expected that up to $200 million would be invested in the airline, while the actual amount proposed in the plan is only $150 million. This would be paid in an initial tranche of $90 million from a group of local investors led by Tan, followed six months later by the remaining $60 million to be paid by an unknown strategic partner.

The creditors also expressed doubts over PAL's prospects of finding the required strategic partner, after Cathay Pacific Airways and Northwest Airlines recently backed out of negotiations. Cathay says it has no further interest in PAL, after talks broke down over the issues of management control and further workforce reductions.

Credit Agricole adds that a thorough restructuring of the airline is unlikely while the present management and directors remain.

For its part, PCI Bank is suggesting that the airline's permanent receiver committee should be multiparty and include two representatives from its own creditors' group. It also proposes that full and partially secured claims should be limited to 10 years' maturity, rather than the 15 proposed in the plan, and that interest on debts should begin to accumulate from 31 December.

The bank suggests furthermore that income from the sale of aircraft engines should be used to partially cover a $60 million domestic loan from local banks.

Apart from the cash injection, the failed rehabilitation plan included a fleet reduction from 53 to 22 aircraft, cost-cutting measures and the disposal of non-core businesses.

Source: Flight International