Philippine Airlines goes from the brink of bankruptcy to profitability: how it happened
Manila: During the most difficult stages of the pandemic, a Philippine Airlines (PAL) pilot, Jimmy*, was grounded for months.
Initially, he was involved in the repatriation of Filipinos from different countries. At the end of 2020, the Philippine flag carrier reported a massive loss amounting to -1.4 billion dollars.
Strict travel restrictions quickly taken by countries to limit the spread of the pandemic have dealt a major blow to most airlines.
To keep himself busy, Jimmy helped out with his family’s rice mill and business venture. Now, with the Philippines borders reopening, Jimmy is back in the air flying. His journey is emblematic of what happened to the country’s 81-year-old carrier.
Faced with the pandemic-induced financial turmoil, PAL filed for Chapter 11 on September 3, 2021 in the United States Bankruptcy Court for the Southern District of New York. The court granted the request.
However, its Chapter 11 filing and subsequent court approval did not mean PAL faced closure. It continued to operate limited domestic and international (repatriation) flights.
It was allowed to reorganize to carry out its reorganization plan — with the aim of paying creditors over a period of time.
What is the financial situation of the airline during the pandemic?
In a late September report to bankruptcy court, PAL chief financial officer Nilo Thaddeus Rodriguez showed the airline had gross income of $91.75 million for the month – and a loss of $29.56 million. dollars (1.5 billion Php).
By getting its Chapter 11 filing approved, PAL was given a breath of fresh air, giving it time to restructure in hopes that pandemic restrictions would be eased.
What is Chapter 11 bankruptcy protection?
Chapter 11 of the Bankruptcy Code permits reorganization under US bankruptcy laws. In a Chapter 11 bankruptcy, businesses generally retain possession and control of their assets – under the supervision of a bankruptcy court.
Filing for Chapter 11 stays all judgments, collection activities, foreclosures, and repossessions against the filing company.
4.5 billion passengers
More than 4.5 billion passengers traveled worldwide before the pandemic; that number fell to around 1.8 billion after the virus began to spread.
As governments around the world imposed lockdowns and restricted cross-border travel to curb the spread of COVID-19, airlines were among the hardest hit.
The International Air Transport Association (IATA) estimates that airlines around the world lost around $52 billion in 2021, after suffering around $138 billion in losses in 2020.
What did the PAL Chapter 11 bankruptcy process involve?
Usually, a case filed under Chapter 11 means the debtor remains “in possession” – has the powers and duties of a trustee, can continue to operate their business, and can, with court approval, borrow new funds.
As part of the process, Philippine Airlines submitted a restructuring plan to the bankruptcy court, which the court then approved. The plan provided for the following:
- $2 billion in permanent balance sheet reductions for existing creditors.
- It allows the airline to consensually contract the capacity of its fleet by 25%.
- New injection of $505 million in equity and long-term debt financing from PAL majority shareholder (Lucio Tan).
- $150 million in additional debt financing from new investors.
- PAL also sought to file a parallel filing for recognition in the Philippines under the Financial Insolvency and Rehabilitation Act of 2010 (FRIA).
What were the main drivers of its exit strategy from the Chapter 11 process?
Three “drivers” helped it succeed in its restructuring: court approval, creditor approval and the ramping up of its operations.
First, court approval to reduce its debts by more than $2 billion was critical to the success of its restructuring plan. It helped position the flag carrier for a recovery from its pandemic-induced losses.
Second, the “consensual” restructuring plan meant that it had been accepted by 100% of the votes cast by its main aircraft lessors and lenders, original equipment manufacturers (OEMs) and suppliers of maintenance, repair and overhaul, and some financed lenders.
Third, even as it went through a process of financial restructuring – to which the stakeholders consented – its thefts continued uninterrupted. He honored tickets, vouchers and his loyalty program (Mabuhay Miles).
As travel restrictions eased, it ramped up operations. At the end of 2021, as travel restrictions were eased, PAL virtually emerged from its Chapter 11 bankruptcy process.
In short, the process has allowed PAL to remain the flag carrier of the Philippines and the country’s premier global airline, able to maintain its 80-year history of providing the Philippines’ vital links to the world.
The country has welcomed more than 22,000 inbound travelers since reopening its borders on February 10, 2022 to international tourists.
What do the airline figures show?
On January 18, 2022, PAL filed the results of its December operations in a report provided by airline claims agent Kurtzman Carson Consultants LLC.
It showed that four months after filing for Chapter 11 bankruptcy protection, PAL became profitable, with a profit of 1.7 billion pesos ($32.97 million) in December 2021.
He reversed an $11.67 million loss suffered in November. Rodriguez, the airline’s chief financial officer, told the court the airline earned $183.82 million in gross revenue for December, up 28.1% from the $143.48 million earned in November.
In terms of breakdown, PAL passenger revenue increased 37.7% to $132.27 million in December from $96.09 million in November, while cargo revenue fell 4% to 42. $27 million versus $44.04 million previously. Ancillary revenue rose 57.5% to $6.74 million from $4.28 million in November.
When did PAL start?
PAL started nearly 81 years ago.
The Philippines’ flag carrier is the country’s only full-service airline. PAL was the first commercial airline in Asia. He celebrates his 81st birthday next month (March 2022). It was ranked the 30th best airline in the world in 2019.
Is PAL Holdings Inc. covered by the Chapter 11 filing?
No. During the restructuring, PAL said business operations would continue as usual. PAL Holdings Inc., PAL’s holding company, and Air Philippines Corp, known as PAL Express, are not included in the Chapter 11 filing.
Who controls PAL?
The airline is majority owned by a holding company, known as PAL Holdings, controlled by Filipino billionaire Lucio Tan, 87.
With a net worth of $1.9 billion (list published September 2021), Tan became PAL’s majority shareholder in 1995 when he was named chairman. He regained control of PAL in 2014 after buying the majority stake from San Miguel Corp. in the airline. His business empire spans banking, real estate, tobacco and beverages.
Who is the head of the airline?
In January of this year, PAL announced that its Senior Vice President for Operations, Captain Stanley K. Ng, had been appointed as the new President and Chief Operating Officer (COO), on an interim or managerial basis, replacing Gilbert F. Santa Maria.
Does that mean PAL is out of the Chapter 11 process?
The airline says it completed its financial restructuring in four months. In contrast, other airlines have remained in the Chapter 11 process for more than a year after filing in 2020. The airline aims to restore more routes and increase flight frequencies as more travel restrictions are lifted.
It is looking to resume regular flights to several cities in Mainland Chinafull regularization of flights to Australia and the launch of new services at Israel.
The company expects to generate operating profit of $220 million by the end of 2022 and $364 million in 2023.