SMC buys stake in PAL

The Philippine Star
April 5, 2012
By Mary Ann Reyes

In an agreement signed Tuesday night, Trustmark Holdings Corp. and Zuma Holdings and Management Corp., the holding companies of PAL and Air Philippines Corp., respectively, will issue new shares to San Miguel Equity Investments Inc., a wholly owned subsidiary of SMC. Air Phil is PAL’s low cost subsidiary.

  Tan, however, will retain chairmanship of PAL.

  A joint statement said SMC “welcomes the opportunity to participate in the refleeting and modernization plans of the two airlines.”

  PAL spokeswoman Cielo Villaluna said the deal was signed by Tan and SMC president Ramon Ang late Tuesday.

  The joint statement, as well as Villaluna’s, did not reveal further details, such as the size of the stake or the amount of money involved. “That is all we are willing to say at the moment,” Villaluna said.

  But Ang said his group is forking over $500 million for a 49 percent stake in PAL.

  Due to lingering high fuel costs, PAL suffered a total comprehensive loss of $33.5 million for its fiscal year’s third quarter covering October to December 2011.

  The flag carrier said total revenues dropped 3.8 percent to $386 million for the third quarter of 2011 compared to the same period in 2010.

  Company officials pointed out that during the period, PAL experienced weak passenger demand as well as declining cargo markets as the world economy struggled to recover.

  While there were improvements in yields for both passenger and cargo compared with the same period last year, load factors lagged behind, the airline reported.

  Total operating expenses amounted to $419.5 million, up by $34.8 million or nine percent over the same quarter in 2010. Jet fuel costs continued to put pressure on the airline’s bottom line as fuel prices rose to $129.75 per barrel in the third quarter from an average of $100.96 per barrel in the same period the previous year.



  PAL was also forced to cut hundreds of flights in September after a day-long wildcat strike by ground crew who were protesting the outsourcing of 2,600 catering, airport services and call centre reservation jobs.

  It took the airline more than a month to cut the flight backlog.

  SMC,, in contrast, is flush with cash and has been aggressively expanding its business portfolio.

  The brewer, which is also Southeast Asia’s largest food company, began its successful diversification strategy a decade ago.

  Its acquisitions include Petron, the country’s largest oil refiner, US giant Exxon Mobil’s refinery and petrol retail stations in Malaysia, and a third of Manila Electric Co.

  SMC has also embarked on infrastructure projects in the Philippines, including the building of toll highways, rail systems and an airport.

  Tan and Ang said the development would allow the two airlines to strengthen operations and stay competitive with the implementation of PAL and Air Phil’s fleet modernization program.