PAL tells US court it will change course and return to profit in 2022
Philippine Airlines (PAL) plans to reverse years of losses and achieve operating profits starting 2022 after exiting Chapter 11 restructuring, according to court documents filed by its bankruptcy lawyers in the United States.
With the removal of $2.1 billion in debts and a new business plan, the embattled national carrier expects to book an operating income of $220 million next year and $364 million in 2023, PAL chief financial officer Nilo Thaddeus Rodriguez said.
“By 2022, PAL expects to exit its recovery phase as operating activities generate more consistent positive monthly cash flow,” added Rodriguez, who cited “projections and available data.”
The filing was made by PAL counsel Debevoise & Plimpton LLP to support the Chapter 11 plea hearings.
PAL’s parent firm had recorded consecutive losses since 2017. It was on course to extend losses in 2021, marking its fifth-straight year in the red.
With a leaner cost structure, Rodriguez said PAL’s earnings before interest, taxes, depreciation and amortization margins were set to increase from 7 percent this year to as high as 27 percent in 2025, when PAL expects prepandemic passenger demand to fully recover.
Lucio Tan
The restructuring process was largely backed by billionaire Lucio Tan, PAL’s controlling shareholder since 1993.
The filing showed that Tan’s privately held Buona Sorte Holding Inc., the airline’s largest unsecured creditor, had agreed to waive the recovery of funding advances worth as much as $358 million under the restructuring plan.
These included emergency capital infusions made last year, allowing the national carrier to continue operations.
PAL also revealed further details of its flight network buildup, which was dependent on COVID-19 restrictions.
It cited the likely exit from unprofitable markets such as the US East Coast (New York) and London Heathrow.
It also planned to boost US West Coast flights, expand international and codeshare partnerships and target growth markets such as China.
PAL would also strengthen its Ninoy Aquino International Airport hub, maintain routes from Cebu and eventually expand in Clark International Airport.
PAL’s restructuring also involved the return of 21 narrow and wide-body planes to lessors and lenders to bring its fleet size to 70 aircraft.
It will also implement a so-called power-by-the-hour scheme for remaining planes, allowing PAL to better manage cash flow since it would pay a fixed cost based on the number of hours an aircraft is used.
PAL’s major shareholder is also arranging $505 million in financing while new investors will later come in with $150 million after it exits the Chapter 11 process.
