Lucio Tan seeks new investors in capital-starved PAL

by Jenniffer B. Austria
July 19, 2010
Manila Standard Today

BEER and tobacco tycoon Lucio Tan is willing to reduce his stake in Philippine Airlines to accommodate fresh capital from potential investors, an official said over the weekend.

Tan would not be selling his shares, but instead the airline would be offering new shares to obtain new capital, company president Jaime Bautista said. That meant Tan’s shares in the airline would be diluted, he said.

“We are looking at fresh equity that will go directly to PAL,” Bautista said, but stressed that Tan wanted to keep majority control of the company while opening the carrier to new investors. Tan owns over 90 percent of the airline.

“The preference is for Mr. Tan to maintain majority control of the airline,” Bautista said. He said the company was now talking to potential foreign investors but refused to identify them.

The airline’s shareholders last year approved a quasi-reorganization plan to attract new investors. The plan is to reduce the par value of its shares to P0.20 from P0.80 a share, and then to increase its authorized capital stock from P16 billion to P20 billion divided into 100 billion shares at P0.20 a share.
PAL started entertaining talks with potential investors in a bid to boost the airline’s finances, which have deteriorated over the past two years as a result of the global financial crisis, stiff competition from low-cost airlines, and rising fuel costs.

The airline reported a net loss of $40.2 million in the first nine months of its fiscal year ending December 2009, an improvement from the $330.2 million it lost a year earlier. The company’s revenues rose 15 percent to $1.08 billion, but its expenses amounted to $1.1 billion.

To reduce costs, the flag carrier earlier disclosed plans to offer early retirement packages to its 8,000 employees and to reduce the number of flights to its long-haul destinations, and in particular the United States, Australia and Canada.

Sources within the airline said the carrier lost $14.3 million in its fiscal year ending March 2010, a reduction from the previous year’s loss of $297.8 million.

They said lower fares and weak passenger demand from its international operations drove revenues down to $1.36 billion from $1.60 billion.

Worldwide capacity cuts during the year did not keep pace with declining traffic demand, hence exerting significant pressure on fares and yields, the sources said.