Philippine Airlines (PAL) has received its first real piece of good news since June, as some of its biggest creditors back a make-or-break rehabilitation plan. The airline, which has been in receivership since June with a debt of more than $2.2 billion, filed the new plan with Manila's government-backed Securities and Exchange Commission (SEC) on 15 March, its 58th anniversary.
It provides for a 22-aircraft fleet, a $200 million cash infusion, the consolidation of operations at Manila airport's new Terminal 2 instead of Terminal 1, the securing of codeshare agreements, the sale of non-core assets and the resumption of debt repayments almost immediately.
The SEC said after the plan was filed that creditors had 15 days to respond. Secured creditors, who have liens over 19 of the 22 aircraft PAL intends to operate on its core network of 12 international and 17 domestic routes, had been privy to the contents of the plan before it was filed, and some reacted quickly.
European creditors, namely the export credit agencies (ECAs) of France, Germany and the UK, said in a letter to the SEC that the plan "provides a viable basis for the continuing of the rehabilitation of PAL while recognising and respecting the rights and interests of the creditors of PAL".
The ECAs laid down a number of conditions, however, and said that "any amendment to the terms of the plan which has adverse consequence for the rights and interests of the Secured Aircraft Creditors would not be acceptable to the European ECAs".
The conditions are that the promised $200 million be infused by 4 June; that PAL remain the national carrier of the Philippines and that five former Cathay Pacific Airways executives, hired on five-year terms in January, remain for the duration of their contracts.
The executives were hired through their new consultancy, Regent Star Services, after an initial rehabilitation plan, filed on 7 December, was overwhelmingly rejected by creditors.
The source of the proposed $200 million injection remains a mystery, but chairman Lucio Tan's 70% holding in PAL will clearly be reduced to a minority one. The airline says the fresh capital will represent a 90% holding.
Tan is reported to be in talks to buy a sizeable stake in private domestic rival Air Philippines.
The carrier recently won approval to operate international services within the Asia-Pacific region and to the USA, and says it hopes to be able to launch Japanese flights in June.
PAL's travails
5 June, 1998 - Pilots strike, crippling the airline
7 June, 1998 - All 600 union pilots sacked, leaving 25 management pilots
23 June, 1998 - Airline placed in receivership by SEC
23 September, 1998 - Operations cease after unions reject offer for airline stake and board seats
7 October, 1998 - Services resume after employees accept new management offer
7 December , 1998 - Rehabilitation plan filed with SEC and quickly rejected by creditors
January 1999 - Five former Cathay Pacific Airways executives are hired to assist with new rehabilitation plan. Chairman Lucio Tan steps down as chief executive in management shake-up. "Token" $37.9 million debt payment made to secured creditors
15 March, 1999 - PAL files new rehabilitation plan with SEC.
Source: Airline Business
