PAL resorts to borrowing to pay P6-B debt to gov’t

Flag carrier Philippine Airlines (PAL) will borrow money to settle a multiyear P6-billion bill in navigational fees and other charges due within the year, in line with the deal struck with the Duterte administration recently.

PAL president Jaime Bautista said the added debt burden meant extra costs for PAL, operated by listed firm PAL Holdings Inc. He said, however, that the airline’s growth prospects remained strong given the still-robust demand for air travel.

“It will affect our cash flow,” Bautista said at the sidelines of the Philippine Aviation Day business forum on Friday.

“We have to borrow money to pay for it,” Bautista said, referring to the P6-billion fee which was due within 2017. “There is a facility that we can tap to pay for it.”

He did not give added details, sharing that “one of the banks will help.”

Bautista said PAL would likely post a net loss in 2017. The flag carrier was already struggling with profitability this year due in part to the higher cost of jet fuel, a major operating expense.

In late September this year, PAL and its owner taipan Lucio Tan landed in the crosshairs of President Duterte, who demanded that the flag carrier settle in 10 days its arrears to the government. The Department of Transportation initially calculated the amount at around P7.3 billion.

After negotiations, where figures were reconciled and verified, the final amount of P6 billion emerged. The matter was resolved within the 10-day deadline.

“It’s a closed issue, we will pay for it,” Bautista said.

He nevertheless appealed to the government to address infrastructure constraints, including Manila’s Ninoy Aquino International Airport (Naia), the country’s congested main gateway.

“The market is growing. The problem is we need the support of the government in terms of infrastructure,” Bautista said.

He said the Lucio Tan group would finalize before the end of the year a proposal to build a P20-billion Naia Terminal 2 “annex building,” which would rise on the land being leased from Philippine Amusement and Gaming Corp.

This would address capacity constraints in Naia, which is handling about 40 percent more passengers than its design capacity. It would also support PAL’s expansion plans, with its fleet size set to expand to 96 planes by 2021 from 87 aircraft today.

That offer was stalled as PAL got embroiled in a dispute with Pagcor over the lease rate.