PAL sets equity restructuring

Philippine Airlines Inc. (PAL) is moving forward with an equity restructuring scheme that would allow the flag carrier to wipe out an old deficit and clear the way for the entry of an investor group.

PAL Holdings said in a filing at the Philippine Stock Exchange that its subsidiary PAL had sought the approval of the Securities and Exchange Commission to reduce its authorized capital by a third to P13 billion.

PAL sought to reduce the par value of its shares from P0.20 each to P0.13. Once approved, PAL would file for a subsequent increase in its par value to P1 a share.

“The reduction is part of PAL’s quasireorganization which, once effected, will eliminate the deficit, which accumulated due to the company’s losses prior to its recent three-year period of profitability,” PAL noted in its filing.

More importantly, the flag carrier said the move would allow PAL to “declare dividends and attract more investors.”

A strategic partner for PAL has been the subject of attention ever since the company said it was in talks with various groups since 2015.

Earlier this year, PAL president Jaime Bautista said the company was in advanced negotiations to sell under 40 percent of PAL Holdings, which is listed on the Philippine Stock Exchange, to a foreign airline group.

Its original target to finish talks by the middle of 2017, however, had been moved to the latter part of this year and even by 2018, Bautista noted in more recent interviews.

The new buyer would contribute equity, management expertise and help open up new routes, Bautista had said.

The talks also come at a difficult time for the airline business, with competition and oil prices on the rise.

PAL Holdings itself disclosed a net loss of P1.63 billion in the first semester of 2017, reversing a P4.53-billion profit in the same period last year. This was partly due to a surge in fuel prices.

PAL Holdings’ total revenues hit P67.76 billion, up 17.7 percent.

Other factors drove expenses higher such as its bigger fleet size and expanded operations.

PAL is seeking to reassert its dominance in the local market by upgrading aircraft and increasing destinations. This was started by the first commercial flight of the world’s first dual-class turboprop airplane which took off on Aug. 1 from Mactan International Airport bound for Caticlan and Clark.

A total of 12 next-generation bi-class Bombardier Q400—with a seating capacity of 86, including six Premium Economy seats—would be used to expand PAL’s domestic network using operating hubs in Manila, Cebu and Clark.

By the end of this year, PAL would use the propeller-driven Q400 and Q300 on seven domestic routes out of Clark and 12 out of Cebu.

Over the last seven decades, PAL operated various types of turboprops to link far-flung islands and outlying rural communities. For more than a decade (1988-1999), the 54-seater Fokker 50 was the domestic operations workhorse. A decade later, the Bombardier Q400 and Q300 were introduced (May 2008).

Five next-generation Q400s are to be delivered before December 2017, with seven more for delivery before end of 2019.