Philippine Airlines Inc filed for Chapter 11 bankruptcy in New York, pursuing a lender-backed plan that can help the Southeast Asian country’s flagship carrier recuperate from the Covid-19 pandemic that has devastated global travel.
The company intends to chop debt by $2 billion as a part of a proposed restructuring plan that requires court approval, it said.
Philippine Airlines can even receive $505 million in equity and debt financing from its majority shareholder, in addition to $150 million in debt financing from latest investors. The carrier said it has support agreements with 90 percent of its lenders.
The restructuring plan will allow the carrier to cut back fleet capability by 25 percent, he added. The “recovery plan” will allow the airline to return at the very least 20 planes, company executives said in response to a Bloomberg News inquiry. Earlier this yr, Philippine Airlines also laid off 35 percent of its staff.
Chapter 11 allows an organization to proceed operating during restructuring. Friday’s filing comes after months of negotiations between the airline and interested parties.
Billionaire Lucio Tan called the filing a “major breakthrough” for the carrier. The carrier can even complete a parallel application for recognition within the Philippines under the Bankruptcy and Restructuring Law, it said in an announcement.
The restructuring plan allows the airline “to beat the unprecedented impact of the worldwide pandemic, which has significantly disrupted businesses across all sectors, especially aviation, and emerge stronger in the long term,” Tan, who’s president and CEO, said in an announcement.
While the easing of restrictions has eased travel pressures in the beginning of the northern hemisphere summer season, the Delta Covid-19 variant has recently begun to harm many airlines, particularly within the US and China. Tan previously said the airline, founded in 1941, was working on a comprehensive restructuring plan.
Philippine Airlines is the newest international carrier to reorganize within the U.S. under the U.S. Bankruptcy Code. Using Chapter 11, the corporate will subject its reorganization plan to the ultimate decision of a U.S. judge.
Bankruptcy experts say the United States is commonly the popular venue for a deal, partly because US law is more favorable to the corporate and partly because agreements with creditors are sometimes based on New York or Delaware state law. Chile-based Latam Airlines, Aeromexico and Colombia’s Avianca Holdings sought court protection in New York last yr, blaming a decline in air travel brought on by the coronavirus.
The pandemic forced airlines to suspend flights, lay off employees and seek financial assistance. In June, PT Garuda Indonesia’s president said the carrier was considering options including debt restructuring and renegotiating contracts with aircraft lessors.
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The challenges facing Philippine Airlines holding company PAL Holdings Inc. predate the pandemic. It has been posting losses because the first quarter of 2017. The company suffered a record lack of 71.8 billion pesos ($1.4 billion) in 2020, compared with a shortfall of 10.3 billion pesos a yr earlier. PAL Holdings shares have fallen 7.6% this yr, extending a 17% decline in 2020.
“Following the restructuring, PAL Holdings will continue to be PAL’s principal shareholder,” management told Bloomberg News. “PAL Holdings is not filing and its status and shareholders will remain unchanged.”
The airline will proceed to operate passenger and cargo flights based on demand and travel restrictions. In an announcement, the corporate also said it expects to steadily add domestic and international flights because the market recovers.
She said the corporate also received government support as a state partner in response to the pandemic.
The case is Philippine Airlines Inc, 21-11569, United States Bankruptcy Court for the Southern District of New York (Manhattan).
This article appeared within the print edition of the South China Morning Post as: Philippine Airlines files for bankruptcy as Travel Fallout increases
