Days after Manila-based Philippine Airlines voluntarily filed for a pre-arranged restructuring under the US Chapter 11 bankruptcy laws, the airline has successfully entered into a series of agreements to restructure and reorganize its finances and create a stronger and more viable airline.
Days after entering into Chapter 11 restructuring, Philippine Airlines is entering into agreements to restructure the airline. Photo: Airbus
Key stakeholder agreements sealed over the weekend
Subject to court approval, existing creditors will facilitate a US$2 billion in balance sheet reductions. The fleet size will contract by 25%. The airline’s owner, PAL Holdings, will provide US$505 million in long-term equity and debt financing. A further US$150 million in additional debt financing will come from new investors.
Philippine Airlines Chairman and CEO Lucio Tan says agreements made with lenders, lessors, and aircraft and engine suppliers over the weekend are major breakthroughs.
We are grateful to our lenders, aviation partners, and other creditors for supporting the plan, which empowers Philippine Airlines 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,” Mr Tan said in a statement.
The fleet at Philippine Airlines will shrink by 25%. Photo: Airbus
Aircraft deliveries delayed and canceled at Philippine Airlines
Among the agreements made is one with Airbus to delay or cancel orders for 13 Airbus aircraft. Philippine Airlines has 13 Airbus A321neo aircraft yet to be delivered from a 24 strong order. Reuters is reporting Philippine Airlines is delaying the delivery of some and canceling the remainder. There are no details on exact numbers yet.
Philippine Airlines began to feel the financial squeeze in early March 2020 when it halted flights to China. By the second half of March, all scheduled passengers flights were halted. Those flights resumed in June, albeit with restrictions and severely curtailed demand.
Since March 2020, Philippine Airlines has canceled around 80,000 flights. In the process, the airline bumped some 1.5 million booked passengers. This cost the airline more than US$2 billion in revenue.
“We survived the last 11 months but stretching our liquidity, through extraordinary cost control measures, and the deferral of capital expenditure,” said Philippine Airlines President and Chief Operating Officer, Gilbert Santa Maria.”Through all of this, Philippine Airlines has continued to fly with the support of our stakeholders.
“Our major lessors and lenders deferred more than US$360 million in aircraft lease and loan payments. Our suppliers extended payment terms even as they continued to provide us with goods and services.”
Philippine Airlines will continue flying throughout the restructuring process. Photo: Airbus
Philippine Airlines to keep on flying through the restructuring process
In the lead-up to entering into Chapter 11 restructuring on Friday, the airline’s owners tipped in over US$130 million in emergency liquidity. Philippine Airlines also raised US$70 million from the sale of a non-strategic asset. Long-suffering employees also contributed US$60 million via pay cuts.
“We will formalize agreements with substantially all of our lenders, lessors, key aircraft and engine suppliers, and general creditors that will pare down our debt,” said Chief Financial Officer Nilo Rodriguez. “We will implement a 25% reduction of our fleet by returning several widebody and narrowbody aircraft while permanently reducing lease payments for retained aircraft through modified lease contracts and no minimum power by the hour arrangements.
It is early days yet in the Philippine Airlines restructuring but the airline is continuing to fly. There are plans to increase flights as the market picks ups. With the airline’s largest creditors based outside the Philippines, Friday’s US bankruptcy court filing took center stage. However, Philippine Airlines will also complete a parallel filing for recognition in the Philippines under the Financial Insolvency and Rehabilitation (FRIA) Act of 2010.
Philippine Airlines is eyeing emerging from the restructuring process and bankruptcy protection provisions within a few months.
Article Source simpleflying.com