PAL eyes deal with regional airline

San Miguel Corp officials say they are considering a deal with an airline in the region as part of plans to make their unit, Philippine Airlines (PAL), more competitive


MANILA, Philippines (UPDATED) – The country’s biggest conglomerate said they are considering a deal with an airline in the region as part of plans to make their unit, Philippine Airlines (PAL), more competitive and able to make the most of its lucrative US routes.

“There are some airline(s) in the region being offered to us for joint venture or an acquisition so we are at the moment evaluating their offers,” San Miguel Corp. president Ramon Ang told reporters at the sidelines of the conglomerate’s annual stockholders meeting on Thursday, June 14.

“We are not resting and we are evaluating all these opportunities being offered to us,” he previously told the company’s stockholders.

San Miguel acquired a minority but controlling stake in PAL in April. Ang took over as PAL president not long after.

Ang considers the purchase of or an agreement with a regional airline as a way to solve the over 4-year long ban imposed on local carriers to mount new and additional flights to US destinations.

Solution to Category 2

Ang said a regional airline deal would be an opportunity “to forever solve the problem of Category 2.”

This Category 2 status was imposed by the US Federal Aviation Authority (FAA) due to inability of their local counterpart agency to implement global safety standards. It hit PAL hard.  

The lucrative Manila-North America routes, which only PAL is currently allowed to fly, contribute the most to the airline’s bottom-line.  

“There are several opportunities for PAL to acquire other companies in the region to have good synergy in operating the AOC (air operating certificate) of this airline going to the United States or Europe,” he said.

Profitable in 2 years

In his message to the stockholders, San Miguel chairman Eduardo “Danding” Cojuangco Jr. stressed that PAL is currently the focus of their efforts, much like when they acquired Petron Corp., the country’s largest oil refiner and retailer, in 2008.

“With so many alternatives open to travelers today — no-frills, budget airlines, many more carriers opening new and more frequently traveled routes — the airline industry is easily commoditized. The immediate task at hand, after putting in place an efficiency pan that willower operating costs, is to differentiate and reposition PAL,” Cojuangco said.

“With the new leadership of our president and COO Ramon Ang and new management directives in place, we expect to turn around Asia’s first airline and be in black in two years time,” he added.

Refleeting

The group is also “evaluating the viability of refleeting PAL,” Cojuangco said, adding that a masterplan is in the works to lower the airline’s operating cost.

Ang told San Miguel’s shareholders that they are in talks with aircraft manufacturers since PAL plans to acquire 100 aircraft in the next 5 to 7 years.

Previous to the entry of San Miguel in PAL, legacy airline has embarked on a 5-year refleeting and modernization program, which could benefit from a new investor with deep pockets or access to one.

Asia’s first airline, which had been bleeding from its cycle of labor and financial woes, needs fresh funds to survive an industry that has been growing leaps and bounds.

Early this 2012, the previous airline officials said the legacy carrier, PAL, and its budget arm AirPhil Express respectively have 6 and 4 new planes due for delivery this year. PAL is taking delivery of four Airbus A320s and two Boeing 777s, increasing its current fleet of 36. Airphil Express had 3 new Airbus A320 aircraft delivered in the first quarter.

The refleeting program involves replacing old aircraft nearing the end of their economic lives with newer ones that are more fuel efficient. AirPhil had a $290 million capital expenditure budget that will finance its refleeting program as it intends to be a strong second player in the domestic travel sector. – Rappler.com