Lucio Tan to cut stake in PAL

Monday, 19 July 2010 00:00
BY DARWIN G. AMOJELAR SENIOR REPORTER
The Manila Times

PHILIPPINE Airlines Inc. (PAL) is in talks with several fund managers and Asian carriers for possible investment in the Lucio Tan-owned company. “The shareholders want [investors] to inject fresh capital. So, PAL will not get from the shareholders.
That’s the structure that we are looking at rather than the shareholders selling their shares,” Jaime Bautista, the flag carrier’s president told reporters on Friday.

“We will issue new shares—that’s the ideal. It’s possible through PAL Holdings Inc.,” he added.
PAL Holdings owns 84.7 percent of the flag carrier.

Bautista said Tan’s stake may be diluted if the tobacco tycoon decides not to infuse additional capital into the firm.

“It’s okay with him [Tan] as long as the money will go to PAL,” Bautista said.

In 1998, Hong Kong-based Cathay Pacific Airways Ltd. had contemplated on investing P4 billion in PAL but the plan failed to materialize because of “major differences.”

The Philippine carrier sought rehabilitation in 1998 after racking up $2.12 billion in debts.

Bautista said Cathay and the International Airline of United Arab Emirates were not among the carriers that PAL is in discussions with.

PAL Holdings’ shares have been climbing, from P3 at the start of the month to P4.85 on Friday, as rumors circulated that new investors were about to come in. On July 14, its shares hit P5.20.

Despite financial difficulties, PAL settled $40 million in maturing debts last month, on top of the $10 million it has been paying monthly, Bautista said.

The 69-year-old airline was able to bring down its liabilities to about $1 billion since entering corporate receivership. The company emerged from receivership after recording a profit in 2007.

But the airline’s finances spiraled in the succeeding three years as it incurred over $350 million, or at least P15 billion, in losses during its last two fiscal years.

Its equity also dropped precipitously to a little over $1.1 million as of February this year, the airline said.

Because of this, the company decided to let go of at least 3,000 employees with the spin-off of its three core businesses.

The affected workers belong to the in-flight catering services, airport services (including ground handling, cargo terminal/cargo handling, and ramp handling) and call center reservations.

Although the industry is improving, Bautista said PAL has “to continue implement[ing] more measures to generate more revenues and reduce costs.”

Besides its debts, the airline is also dealing with the problems brought about by the Philippines’ Category 2 rating by the US Federal Aviation Administration and the blacklisting by the European Union. These sanctions barred PAL from flying to these important destinations.

On top of these, the company also needs to tackle manpower problems, especially with pilots, “because of the industry’s increased capacity,” Bautista said.