Philippine Airlines (PAL) filed for Chapter 11 creditor protection in a United States court, a move that is seen to be a lifesaving measure for the flag carrier.
"On September 3, Philippine Airlines announced the voluntary decision to undergo financial restructuring under the US Chapter 11 process," PAL said in a statement on Saturday, September 4, Manila time.
"This step is part of a set of major agreements PAL has reached with substantially all of our stakeholders, and with one objective: to build a stronger Philippine Airlines so that we can serve our customers better and continue our mission as a full-service airline and flag carrier of the Philippines," it added.
PAL explained that "Chapter 11 is a globally recognized US legal process that many airlines have used to reinvent themselves into more successful companies."
"The restructuring will enable PAL to emerge with fresh capital, lower debt, and a sturdier financial foundation for the future," it said.
PAL also said the restructuring plan "provides over $2 billion in permanent balance sheet reductions from existing creditors and allows the airline to consensually contract fleet capacity by 25% and includes $505 million in long-term equity and debt financing from PAL's majority shareholder and $150 million of additional debt financing from new investors."
PAL assured its customers of its continued operations.
"We will continue to fly and to serve our customers throughout this process: It is business as usual for us," PAL said.
"Our highest priority is the safety and health of our passengers, our employees, and the communities we serve. Nothing about that will change as we undergo restructuring," it added.
The airline said it will continue "to increase domestic and international flights as travel demand recovers with the easing of travel restrictions, and we will roll out new products and services that help make flying safer and more convenient."
"After 80 years of flying the Philippine flag, we recognize that our nation will look up to PAL to sustain the links and connections that unite our island country and bring life to our communities and economy. We pledge to work harder to earn your continuing support, to deliver buong pusong alaga (wholehearted care) and provide a beacon of hope to Filipinos and travelers from all over the world," it said.
Filing for Chapter 11 essentially means that a corporation is asking for more time to restore its financial health as it plans to pay back its debts.
In 2020, a Nikkei Asia report detailed that the Lucio Tan-led airline is seeking to raise $505 million (around P25 billion) through debtor-in-possession financing.
Nikkei Asia said airline executives told employees in a virtual town hall meeting that $255 million will be raised by Tan, while $250 million will come from private and government banks.
It was earlier reported that PAL was supposedly considering restructuring under Republic Act No. 10142 or the Financial Rehabilitation and Insolvency Act. Aviation data firm Cirium reported that PAL's advisor Seabury Capital "pushed hard" for the airline to choose the "more tried and tested" Chapter 11 route.
According to its latest financial statement, PAL's recovery plans also include rationalization of routes by discontinuing "ultra-long-haul routes," altering select aircraft to accommodate the expected increase in passenger demand when travel confidence returns, and reduction of manpower.
In 2020, the Philippine aviation industry was grounded for almost three months.