Philippine Airlines announced on Saturday that it had placed itself under the American bankruptcy regime (Chapter 11) in order to reduce its debt, after the drop in its activity caused by the coronavirus pandemic, but will continue to ensure its air links.
The Philippine national airline (PAL) said the bankruptcy filing would allow it to restructure its contracts and reduce its debt by at least $2 billion while raising $655 million in capital when it comes out of the process of Chapter 11. “Philippine Airlines will continue its usual activities while finalising the restructuring of its network, fleet and organisation,” said Nilo Thaddeus Rodriguez, vice president and chief financial officer, in a video statement.
PAL announced to reduce its fleet by 25% and renegotiate its contracts in order to reduce lease payments. In the United States, recourse to chapter 11 is a method that allows a company no longer able to repay its debt to restructure itself safe from creditors. As part of the deals with vendors, lenders and donors, Nilo Thaddeus Rodriguez said PAL will get $505 million to execute the turnaround plan. This money will then be converted into airline stock and long-term debt.
The company will also get an additional $150 million in debt financing when it comes out of the restructuring process “in a few months,” Rodriguez said. Philippine air travel volume collapsed by 75%, from around 30 million passengers in 2019 to seven million last year, due to pandemic restrictions, PAL President Gilbert Santa Maria said in the same video.
Lessor Avation from Singapore and its customer Philippine Airlines have agreed on terms for PAL to retain the use of a Boeing 777-300ER on lease from Avation. The lease will continue to its original scheduled termination, following an initial period on a PBH basis the lease will revert to the current market rate fixed rents and maintenance reserves.
The carrier has cancelled more than 80,000 flights, losing $2 billion in revenue and cutting 2,300 jobs. Santa Maria said PAL now operates 21% of pre-pandemic flights, to 70% of destinations usually served.