New accounting tweaks hit PAL, forcing profits to plunge

The operator of flag carrier Philippine Airlines (PAL) saw losses widen at end-September, mainly from the impact of new accounting rules on leased planes previously not reflected on the balance sheet.

Taipan Lucio Tan’s PAL Holdings Inc. said losses from January to September this year hit P8.49 billion, up almost 116.6 percent year-on-year.

The steep fall in profits came despite revenues during the nine-month period increasing 5.6 percent to P117.9. That was driven by the 5.7-percent growth in passenger revenues to P102.6 billion. Expenses were relatively stable at P117.14 billion, up 2.2 percent.

PAL’s results showed the biggest impact came from the company’s financing charges, which went up a whopping 147.6 percent to P9.45 billion.

This came as PAL took delivery of new planes apart from this year’s adoption of Philippine Financial Reporting Standards 16 in line with more transparent financial reporting standards around the world.

The rules affected how operating lease contracts, previously kept off the balance sheet, were reported. PAL has 52 planes under an operating lease—or roughly half its fleet of 98 aircraft.

The operating leases included most of its long-haul fleet: six Boeing 777-300ERs, six Airbus A350-900s and 10 A330-300s. The rest were 15 A321-231s, 10 Airbus A320-200s and five Bombardier DHC 8-400s.

For the third quarter alone, PAL’s losses doubled to P5.2 billion both on larger operating expenses and as financing charges jumped 124 percent to P3.17 billion.

PAL’s third quarter revenues were flat at P36.67 billion, the period falling under the lean period. Air travel typically picks up during the fourth quarter, which includes the busy Christmas holidays.—MIGUEL R. CAMUS