Foreign airlines eyed to invest in PAL

FILE PHOTO

San Miguel Corp. is in talks to bring in a major foreign firm as a strategic partner in flag carrier Philippine Airlines and the prospective partners include Tokyo-based All Nippon Airways (ANA) and Dubai-based Emirates Airline.

Inquirer sources said SMC was in talks with ANA on a prospective partnership in PAL while some exploratory talks have been conducted with Emirates.

SMC president Ramon Ang, who is also president of PAL, confirmed that these foreign airlines have expressed interest to invest in PAL and that SMC was open to taking any of them as a partner.

Ang said PAL would welcome a strategic investor and that a partnership could happen “within this year.”

Tycoon Lucio Tan earlier put his 51-percent stake in PAL on the block but as the strategic partner, SMC has the option to take up the block and consolidate its interest in the flag carrier. However, SMC is also open to getting another strategic partner in PAL, which Ang said could return to profitability as early as 2014.

“We are now actually in discussions with ANA,” said another source within the SMC group, also confirming the “initial” discussions with Emirates.

ANA is Japan’s biggest airline in terms of passenger volume and one of the largest in the region.

SMC has existing partnerships with Japanese firms, notably with Kirin group in crown jewel San Miguel Brewery and Nihon Yamamura Glass Co. Ltd. in packaging.

Meanwhile, Emirates is the largest airline in the Middle East and one of the leading carriers globally.

A foreign airline, however, can buy up to only 40 percent of PAL given the existing constitutional restriction on foreign ownership in key industries.

PAL is embarking on a massive fleet modernization program, with about 100 new planes expected to be delivered over the next five years, of which 80 have been ordered to date.

In a recent interview with CNBC, Ang said that after losing an average $50 million a year, PAL could turn the corner by 2014. “We’re 100-percent positive that it will be profitable by next year,” Ang said during the television interview.

Ang said PAL would need to invest $1 billion more to become a very competitive regional airline, adding SMC could very well provide the money.

The PAL chief said the flag carrier was lucky because delivery period by aircraft manufacturers had narrowed to one to two years from five to seven years because of the economic problems in Europe and the United States. As such, he said PAL could embark on a “very, very quick” refleeting program that, in turn, could allow the airline to unlock more operating efficiencies.

He said the cost of fuel and maintenance was equivalent to about $1.2 billion or 60 percent of revenues. With the use of fuel-efficient aircraft, the ratio could go down to 40 percent, translating to $400 million in immediate savings.

He added that PAL could not be compared to a low-cost carrier, but PAL could be very competitive in terms of pricing because it has in its fleet bigger aircraft that could seat more passengers. He noted that fuel consumption and labor cost were almost the same if an airline operator were to operate a 240-seater plane and a smaller 170-seater aircraft, implying PAL’s advantage in terms of generating revenues from its bigger capacity.