Philippine Airlines, Asia’s oldest carrier, has filed for Chapter 11 bankruptcy in the United States to pursue a lender-backed restructuring plan that aims to help the loss-making company get back on its feet following a pandemic-induced crash.
The flag carrier’s proposed restructuring, which is subject to approval by a court in the southern district of New York, includes an agreement with majority of aircraft lessors and lenders to reduce debt payments by over $2 billion and slash its fleet size by 25%, the company said in a statement on Saturday.
The Chapter 11 filing, which allows a company to continue operations while it restructures its finances, was a product of discussions with key shareholders, PAL said, adding the plan will not affect passengers and employees. The company will also complete a parallel filing for recognition in the Philippines under the Financial Insolvency and Rehabilitation (FRIA) Act of 2010.
“We welcome this major breakthrough, an overall agreement that enables PAL to remain the flag carrier of the Philippines and the premier global airline of the country,” billionaire Lucio Tan, company president and CEO, said.
To stay liquid during the recovery process, PAL said existing shareholders and local banks agreed to infuse $505 million in new debt and equity financing to the company. The carrier said it will gradually increase domestic and international flights to match any improvements in market demand.
Once the bankruptcy protection is over, PAL will borrow $150 million from foreign investors “to facilitate post-restructuring activities”.
“PAL will continue to operate flights in the normal course of business in accordance with safety regulations, and the company expects to continue to meet its current financial obligations throughout this process,” the company said.
As losses piled up for the beleaguered aviation sector, the Duterte government has continued to be reluctant in spending taxpayers’ money to rescue local airlines on the brink of financial collapse, unlike regional counterparts that handed bailouts to their cash-strapped carriers like Malaysia and Thailand.
PAL has weathered past crises before. In 1999, the airline was placed under receivership after facing a series of labour strikes while grappling with the Asian Financial Crisis and a $2 billion debt driven by its ambitious expansion plans at the time. But the coronavirus pandemic is a different kind of crisis for the company, which sank the airline deeper into the red in 2020 to mark the fourth consecutive year that it recorded hefty losses.
In the first half, PAL Holdings Inc., the airline’s parent firm, narrowed its net loss by 20 percent year-on-year to P16.56 billion. Operating expenses fell nearly 49 percent on-year during the period, with manpower costs also declining after the company started shedding 2,300 workers in March while those who managed to stay took big pay cuts.
“We are grateful to our lenders, aviation partners and other creditors for supporting the plan, which empowers PAL to overcome the unprecedented impact of the global pandemic that has significantly disrupted businesses in all sectors, especially aviation, and emerge stronger for the long-term,” Tan said.