Editorial Comment

PAL to embark on financial restructuring

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PAL to embark on financial restructuring

PAL Holdings (PHI), parent company of Philippine Airlines, has reported a net comprehensive loss of PHP73bn (approx. US$1.506bn) on total revenues of PHP55.3B and total expenses of PHP81.8B for the 2020 calendar year. For the three months to end March 2020, PHI has reported a net loss of PHP8.6bn ($178 million) and a widening of its capital deficit to PHP83.9bn.

PHI comments that the 64% decline in revenues reflected the “extraordinary impact” of the Covid-19 pandemic on the operations of subsidiary Philippine Airlines (PAL).

The Philippine Government halted all commercial flights in April, May and part of March 2020 as part of a nationwide community quarantine, while local and worldwide travel restrictions held airlines down to a limited number of flights for the rest of 2020.

For 2021, PAL has increased its regular flights on most of its pre-pandemic routes, in addition to new all-cargo services and special repatriation flights on multiple routes to North America, the Middle East, Asia and throughout the Philippines.

In its latest report, PAL notes that it has drawn on bridge funding and support from its majority shareholder; deferred payments through the forbearance of lessors, lenders and suppliers; carried out a retrenchment program; and implemented cost-cutting measures.

To complete the recovery, PAL management and stakeholders stated that they are working on the “final stages of a comprehensive restructuring plan that will enable the airline to emerge financially stronger from the current global crisis”. PAL management adds that it will make the necessary disclosures at the proper time, once details are finalised.

“We are confident that the restructuring will enable PAL to strengthen its capital structure, meet stakeholder obligations and position the company for long-term success,” said PAL.

PAL notes that its flights and operations will not be affected in any restructuring, and plans remain to increase international and domestic flights as the market recovers with the easing of travel restrictions.

PAL confirms that the airline’s shareholders, management and employees “remain resolute in fulfilling the flag carrier’s mission to provide essential air services for travellers, for the repatriation of our citizens, and for the transport of vaccines and other medical and economic shipments that support the economic recovery of the Philippines”.

In a filing with the stock exchange, PAL stated that the group “has not made principal and/or interest payments due in respect to its long-term obligations since April 2020, resulting in breach of certain loan covenants and default provisions in the lease and loan agreements”. PAL added that the restructuring was necessary since the airline has experience “difficulty in sourcing additional financing”.

PAL has already revised its aircraft delivery schedule to postpone deliveries planned for 2020-1 to   2022-25.

Local media reports state that PAL President Gilbert Santa Maria told employees in late 2020, that the company was planning to seek court protection for its debt restructuring, return leased aircraft and raise $505 million in fresh financing to get through a "bankruptcy process.