US court allows PAL to access financing

Philippine Airlines (PAL) said on Friday it won a reprieve from a United States bankruptcy court, allowing it access to immediate financing to keep operations going.

PAL said the approval was an “important step forward in PAL’s recovery plan,” which includes the crucial elimination of about $2.1 billion in debts under a Chapter 11 process.

PAL said the the New York court’s decision allows it to access the first $20 million of $505 million in debtor-in-possession (DIP) financing, a special type of fundraising for companies undergoing this type of restructuring.

“This is a significant step in our recovery plan and supports our ongoing operations to continue serving our valued customers and connecting the Philippines with the world,” Gilbert Santa Maria, president and chief operating officer of PAL, said in a statement on Friday.

PAL’s DIP financing would be backed by its owner, billionaire Lucio Tan, and lenders.

Access to fresh funds was needed as the carrier’s cash reserves recently fell to “dangerously low” levels due to the collapse in air travel during the pandemic, PAL counsel Debevoise & Plimpton LLP argued in a Sept. 3 filing to the Chapter 11 court.

They said the initial $20-million drawdown would help PAL continue operations “beyond the third full week in September.”

They said the carrier would also need additional funding because it was “projected to have negative operating cash flow over the coming four to six months.”

PAL expects to exit the Chapter 11 process within the year and even achieve operating earnings starting 2022, lawyers said in a separate filing.

Moreover, PAL said that the Chapter 11 court’s approval of the so-called first-day motions allows it to operate regular flights, pay suppliers as part of daily operations and honor Mabuhay Miles rewards, benefits, travel vouchers and refund requests.

PAL will also continue to pay all employee wages, compensation and benefit obligations through the Chapter 11 process.

“The combination of our substantial creditor support and the court’s approvals enables us to progress toward an expedited emergence and full recovery,” Santa Maria said.

“As travel demand increases and restrictions ease, we continue to increase domestic and international flights, while maintaining the safety and health of our passengers and employees,” he added.

PAL pursued a prearranged Chapter 11 process in the United States to ensure its survival during the pandemic. Prior to the filing, PAL had overall assets of $4.1 billion and $6.07 billion in liabilities with cash and its equivalents amounting to $31.9 million, it told the US court.