PAL, Cayman Airways Talks 'Preliminary'

Manila Bulletin
November 15, 2012
By Edu Lopez

The Philippine Airlines (PAL) and one of its major shareholders, San Miguel corporation, has proposed a multi-million-dollar investment in Cayman Airways, according to Alan Markoff of cayCompass.com, an online news service based in Cayman Islands.

Markoff reported that Premier Mckeeva Bush spoke about it in a statement in the Legislative Assembly and was received by the Cayman Islands Government and passed on to the Cayman Airways Board of Directors to explore.

"Cayman Airways is currently in discussions with Philippine Airlines to ascertain if there are ways for the two airlines to work together. The exploration of this potential collaboration is covering a variety of areas, but includes reviewing the ability to code share, provide aircraft operations and includes other strategic areas."

Mr. Bush stressed that the investment talks were ongoing and "very preliminary" and that nothing had been decided yet.

Cayman Airways had been exploring the concept of selling preference shares - a type of equity security for a debt - to local investors and others.

"This non-voting class of shares allows holders a guaranteed return, but generally does not allow for any involvement in operational or administrative functions," the statement said. "This special class of shares would allow the airline to raise needed capital while allowing the Cayman Islands Government to maintain complete control. Should this concept become a reality, it is envisioned that many Cayman residents and Cayman companies may be able to participate."

The statement said San Miguel Corporation had expressed interest in purchasing preference shares in Cayman Airways and had provided a term sheet with their requests.

"The subject term sheet is merely a starting point and currently being reviewed to determine acceptance or non-acceptance. With respect to the proposed terms, there are many items which could be changed, eliminated or deemed unacceptable to the airline or the Government."

The investment would involve San Miguel acquiring 50 percent of the shares in Cayman Airways.

In his statement to the House, Premier Bush said that the ability for the airline to issue preference shares would require approval not only from Cabinet and the Legislative Assembly, but also from the United Kingdom.

In January 2008, the United States Federal Aviation Administration downgraded the rating for commercial air travel for all of the Philippines because its air transportation regulatory body did not fully satisfy international safety standards. That downgrade from Category 1 to Category 2 prevented Philippines Airlines from increasing its flights to the United States from 33 times per week or from switching its aging fleet to newer aircraft.

Philippines Airlines has recently purchased six new long-haul Boeing 777-300ER aircraft, but because of the FAA downgrade, it can't currently fly them to the United States.

One possible way around that problem is if the airline undertakes a wet-lease agreement - a leasing arrangement where one airline provides and aircraft, complete crew, maintenance, and insurance to an airline - with a carrier from a country with a Category 1 rating. The Cayman Islands has a Category 1 rating.

Cayman Airways CEO Fabian Whorms indicated that a possible wet lease was part of the discussions with San Miguel Corporation and Philippines Airlines.

"This Boeing 777 matter, if possible, is going to be subject to a myriad of regulatory approvals," he said. "We are still in the early stages of exploring what is possible with the authorities and also still assessing what is compatible with our operations and feasible for Cayman Airways."