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Philippine Airlines plans to seek court protection from creditors

Flag carrier pursuing job cuts, fleet reductions and fresh $505m lifeline

Philippine Airlines, the nation's flag carrier, is fighting for its survival amid the coronavirus pandemic.   © Reuters

MANILA -- Philippine Airlines is poised to seek court protection for its debt restructuring as the pandemic-hit flag carrier fights for survival, Nikkei Asia has learned.

The company, which is cutting around 2,700 jobs, or a third of its workforce, is also looking to return around 20 of its leased aircraft to relieve a financial burden amounting to at least $1 billion and raise $505 million "for post-restructuring liquidity requirements."

These plans were disclosed by airline officials during an online town hall meeting with employees and in a separate meeting with the Department of Finance last week, according to people briefed about the matter and meeting materials reviewed by Nikkei.

The plans for a court-backed restructuring come amid deepening financial distress brought about by the COVID-19 crisis.

Philippine Airlines' listed parent PAL Holdings recorded a net loss of 29 billion pesos ($603 million) from January to September, three times larger than the 8.4 billion pesos loss a year ago. During the same period, revenue shrank to 45 billion pesos from 118 billion pesos due to widespread lockdowns imposed to fight the virus. PAL Holdings also declared a 24 billion peso capital shortfall as of end-September.

President Gilbert Santa Maria told employees during the townhall meeting that the process was necessary to help the airline survive the pandemic. The management is also said to be looking to avoid a scenario in which an administrator would decide the airline's fate -- or, even worse, an asset liquidation.

"Philippine Airlines management and stakeholders continue to work on a comprehensive recovery and restructuring plan that will enable PAL to emerge financially stronger from the current global crisis," the company said on Wednesday. "We will make the necessary disclosures at the proper time, once details are finalized. In the meantime, we continue to gradually increase our flights operated on most of our international and domestic routes in line with market recovery."

The airline, which is partly owned by Japan's ANA Holdings, is also looking to raise $505 million through "debtor in possession" financing to be used "for post-restructuring liquidity requirements," according to meeting materials reviewed by Nikkei. Of that total, $255 million is expected to be raised by Philippine Airlines' controlling shareholder, tycoon Lucio Tan, and $250 million from private and government banks.

Department of Finance Secretary Carlos Dominguez, who oversees state banks, said the department has been informed about the Philippine Airlines' plans, including seeking court protection from creditors.

"PAL informed the DOF of their plans last week but gave no details on the assistance they may need from us," Dominguez said in a mobile message to Nikkei.

Dominguez has previously said the government can assist the airlines, but the private sector must take the lead in the industry's recovery.

The Lucio Tan group has already made a series of capital infusions to keep the airline afloat, including: $225 million in deposits for future stock subscription, $122 million in advances in March and $74 million in non-aviation asset sales, according to materials reviewed by Nikkei.

This would not be the first time for Philippine Airlines to enter a court-assisted restructuring. In 1999, the company was placed under receivership amid the Asian financial crisis and labor woes.

At the same time, it is not the only carrier to seek court protection amid the pandemic-induced turmoil in the aviation industry. Its regional peer Thai Airways and bigger airlines in Europe and Latin America have also taken a similar legal route to survive the COVID-19 crisis.

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