PAL, AirPhil consolidation under Tanduay deferred

Taipan Lucio Tan has carved out flag carrier Philippine Airlines and budget airline Air Philippines Corp. from the roster of core businesses to be consolidated under Tanduay Holdings Inc. ahead of its major equity offering and transformation into holding firm LT Group Inc.

In a disclosure to the Philippine Stock Exchange on Wednesday, Tanduay said its board had approved the deferment of its acquisition of the airline business. However, Tanduay’s board agreed to proceed with the purchase of up to 100 percent of Fortune Tobacco Corp., Asia Brewery Inc. and two companies that control Eton Properties Philippines—Paramount LandEquities Inc. and Saturn Holdings Inc.

The consolidation of a non-controlling interest in Philippine National Bank and Allied Banking Corp. under Tanduay is also proceeding as planned, said a source from the LT group.

In the meantime, the deferment of the inclusion of PAL and AirPhil Express in the list will reduce the total asset value that will be consolidated under the future LT Group conglomerate to P115.5 billion from the earlier estimate of P236.5 billion.  However, the move will also reduce the liabilities to be absorbed by the LT Group, since capital-intensive airlines require heavy borrowings.

“But within a three-year timeframe, based on the commitment that the airline business will revert to profitability, it will still be infused into the holding firm in the future,” said a source from the LT group. “The group will have the right of first refusal to acquire the shares.”

Under the original plan, the LT group was supposed to fold in 49.84 percent of PAL (post-recapitalization) and 50.97 percent AirPhil Express into Tanduay.  The airline business, now under the management of San Miguel Corp., is embarking on a major refleeting program which is meant to boost market share and long-term profitability.

But because Tanduay will soon debut as LT Group and offer new shares to the public, the group decided it would be best not to include the two airlines and avoid the financial drag that they might cause.

“This is to protect the minority investors (of Tanduay),” the source said.  “It’s also good for the investing public.”

Tanduay estimated that its consolidated net profit in the first nine months had amounted to P5.7 billion. The estimate did not include the airline units, the source said.

Group-wide operating income amounted to P1.8 billion while other income amounted to P4.4 billion.

Total liabilities amounted to P50 billion while total equity was estimated at P65.5 billion, of which P65.3 billion was attributable to the Lucio Tan group.