The operator of flag carrier Philippine Airlines saw losses in the first semester of 2019 surge by over 138 percent after a change in global accounting rules required companies to report certain leases not previously reflected on the balance sheet.
PAL Holdings, controlled by billionaire Lucio Tan, reported a net loss of P3.33 billion from January to June this year, compared to its P1.4-billion loss in the same period in 2018. The losses came despite higher revenue and controlled costs.
PAL said financing charges during the period surged by almost 170 percent—or P3.8 billion—to P6.15 billion. This was after the new rules under “Philippine Financial Reporting Standards 16 Leases” became effective at the start of 2019.
These were meant to provide greater transparency on a company’s obligations related to its lease agreements.
The impact on PAL was significant because more than half of its 98 planes listed at the end of June were previously off-balance sheet operating leases. These included its fleet of six Airbus A350-900s, 14 A330-300s and six Boeing 777 300ERs.
While a standard practice among global carriers, an earlier study by accounting giant PricewaterhouseCoopers said the airline industry would be the second-most impacted after retail under the new rules. PWC estimated that trillions of dollars in lease obligations would appear on the balance sheets of airlines around the world.
In the case of PAL, the net loss came despite continued strong demand for air travel. The flag carrier said total revenue during the period rose 6.4 percent to P81.25 billion in the first half, which included the peak summer travel period.
“The increase was attributable to the growth in passenger and ancillary revenues, resulting from additional flight frequencies and introduction of new routes,” PAL said. Total expenses were up 3.3 percent to P77.75 billion. PAL, which recently underwent a management revamp, is hoping to return to profitability by next year, company director Lucio Tan Jr. said.