Flag carrier Philippine Airlines (PAL) is expecting to emerge from the Chapter 11 bankruptcy process before 2021 ends.
“Once we exit before the end of the year, we’re done. We will have a lighter balance sheet. We will have new capital and our cost structure will be a lot lighter,” said PAL president Gilbert Santa Maria on Monday, September 6.
“The chance that this will fail is very, very small,” he said.
PAL filed for creditor protection under Chapter 11 of the US Bankruptcy Code in a New York court, the airline announced on Saturday, September 4.
It will still be business as usual for PAL as it seeks to reorganize to improve its financial health.
Reports on PAL’s plan to file for Chapter 11 bankruptcy have been surfacing since 2020.
Santa Maria said on Monday that it took the airline a long time to finalize its decision due to the “complexity of the process,” along with negotiations with creditors as PAL wanted to give assurances on its survival.
“A year ago, we started negotiating. And those negotiations were difficult and intense. You can imagine the creditors want to be ensured that the asset they own remain in good shape and that the assets still have value if they have to take it back,” the PAL president told reporters.
Santa Maria said the court will have to approve the fundamental basis of its filing for bankruptcy protection, debtor-in-possession financing, and the reorganization plan.
Once the court approves the reorganization plan, creditors will still have to vote on it. PAL is confident that the plan it prepared will be unchallenged, as chief finance officer Nilo Thaddeus Rodriguez said 92% of the creditors already support it.
The proposed rehabilitation will result in a $2-billion cut in PAL’s debt. It also includes $505 million in long-term debt equity and debt financing, plus $105 million in additional debt financing from new investors.
Santa Maria said PAL will also be returning a total of 22 aircraft to lessors from its fleet of 92 planes.
As long as pandemic recovery runs its course, PAL said its rightsizing efforts already concluded back in March.
“We do not anticipate additional job cuts.… The only caveat to my statement that we will no longer have additional job cuts is we hope that the pandemic will not become worse and that we will be able to recover,” said Santa Maria.
PAL will also file for restructuring under Republic Act No. 10142 or the Financial Rehabilitation and Insolvency Act, once first day motions are approved. The first day hearings will start on Thursday, September 9.
The flag carrier does not see demand returning until 2024 or 2025. PAL chief strategy and planning officer Dexter Lee said the airline’s revenue figures are expected to be “closer to the back half of the decade.” – Rappler.com