PAL deal to form Cambodia Air pushing through

MANILA, Philippines – Philippine Airlines (PAL) announced Wednesday, February 12 that a deal with the Royal Group of Cambodia (RGC) to form Cambodia Airlines Co. Ltd is underway despite a 7-month delay.

Atty. Ma. Cecilia Pesayco, assistant corporate secretary of PAL, told the Philippine Stock Exchange (PSE) that “Ongoing preparations for the completion of the contemplated joint venture agreement between PAL and Inter Logistics are currently being conducted.” Inter Logistics (Cambodia) Co. Ltd. is fully owned by RGC chairperson Neak Oknha Kith Meng.

Ramon Ang, president and chief operating officer of San Miguel Corporation, one of the owners of PAL apart from tycoon Lucio Tan, earlier said that PAL was “reviewing when to start [investing] and whether that project is still viable.” Ang also said that PAL was delaying moving forward as it studied the situation in Cambodia.

Protests against Cambodian Prime Minister Hun Sen have grown deadly in its attempt to stop protesters.

PAL announced previously it was putting $10 million of equity for a 49% stake in Cambodia Airlines, which would be 100% owned by Inter Logistics (Cambodia) Co. Ltd.

PAL was supposed to make a $1 million downpayment of the total acquisition cost based on completion of closing conditions that were set for July 15, 2013. The balance would be paid based on the board of Cambodia Air’s call.

The closing conditions for the deal included registration of PAL’s investment in Cambodia Air. Cambodia Air would also get the necessary franchises, permits, and licenses to operate and maintain an airline company. Cambodia Air should end up being a flag carrier, entitling the airline to traffic rights, as well as slots under the bilateral agreements of Cambodia and other countries.

PAL’s board of directors approved the Cambodia Air investment on April 25, with the deal scheduled to be concluded on July 15. It was deferred to October 15, and Cambodia Airlines would compete with Cambodia Angkor Air. Cambodia Angkor Air is controlled by Cambodia’s government and has a partnership with Vietnam Airlines.

To equip Cambodia Air, PAL would deploy 16 to 22 aircraft worth $1.5 billion. Around 8 to 10 would be deployed on Cambodia Air’s first year of operations.

Ang earlier said the joint venture would increase PAL revenues by around $300 million to $400 million.

San MIguel gained a 49% stake in PAL Holdings after investment agreements between SMC’s San Miguel Equity Investments Inc. (SMEII) and Trustmark Holdings were completed.

Upon San Miguel’s entry, PAL pursued a refleeting program, signing a $9.5-billion contract with the EADS group for 65 Airbus planes. The aim is to acquire 100 new aircraft.

The Centre for Asia Pacific Aviation takes a different stand on the plans, saying that PAL should focus on long-haul expansion. It also suggests in its latest aviation analysis, “PAL defers Cambodia joint venture. Does Cambodia or PAL need a new carrier?” that PAL would be better served by reducing expenditures and increasing the profitability of its Philippine operations. – Rappler.com