SMC Fights Back LT Group Accusations

8 November 2014

“Because we have the money,
By Lorenz S. Marasigan

In a tit-for-tat war, San Miguel Corporation is fighting back accusations hurled by the Lucio Tan Group that their investment with the airline are overambitious.

THE group of tycoon Lucio C. Tan does not have enough capital to support the funding requirement that Philippine Airlines (PAL) will need for further route expansion to complement the massive fleet-modernization program that San Miguel Corp. (SMC) initiated in 2012.

An executive of the diversified conglomerate made this statement late Thursday, following a negative comment from aviation think tank Centre for Asia Pacific Aviation (CAPA), which noted that the food-to-infrastructure firm made a wrong decision in expanding the capacity of the airline.

The industry expert advised PAL to clip its oversupply of “wings” to reduce its chances of ending the year in the red.

But the decision of SMC to aggressively expand the fleet was doable back then, said the company official, who spoke on condition of anonymity.

“We initiated the ‘overambitious’ refleeting program, because we have the money to complement it with a massive route expansion,” the highly placed source said.

The executive reckoned that the LT Group is finding it hard to supply the new aircraft with new routes as it does not have a huge war chest to fund the needed expansion.

“They see it as inappropriate because they don’t have the money to finance the needed expansion,” the company official pointed out.

The SMC official said the new management of the legacy carrier should stop blaming the diversified conglomerate for the massive fleet modernization, as this was appropriate when the food-to-infrastructure firm was still at the helm of the airline.

“They have to pay $500 million in loan, on top of the $800 million they paid us for the buyback transaction. The $500 million is part of the working capital, it has either to be refinanced or paid internally to the bank they tapped. They don’t have enough working capital to expand,” the source said.

The carrier’s fleet expansion was part of then-PAL President Ramon S. Ang’s strategic plan of launching operations in Europe, the United States and other long- and medium-haul flights.

For now, PAL President and CEO Jaime J. Bautista said these plans would have to be shelved.

“We want to focus on profitable routes, and the US is a very promising route for PAL, especially now that we are out of Category 2 and we are operating our new Boeing 777-300ER, which will result in very efficient operations in terms of fuel consumption and maintenance,” he said.

SMC officially exited the flag carrier in October, concluding the over $1-billion buyback transaction launched in September.

San Miguel Equity Investments Inc., a unit of the food-to-infrastructure firm, sold its 49-percent stake in Trustmark Holdings Corp. to the billionaire last month.

The group of the taipan owns 88.23 percent of the airline through Trustmark, which holds an 89.78-percent stake in listed PAL Holdings Inc.

The group of the taipan is currently revisiting the massive re-fleeting program struck by SMC with France’s Airbus. It has a price tag of $9.5 billion, involving the delivery of 84 airplanes from Airbus, comprising of a mix of A330s, A321s and A320s.

As of end-June its fleet is composed of 85 aircraft composed of six Boeing 777-300ER, four Boeing 747-400, five Bombardier DHC 8-400, four Bombardier DHC 8-300, 10 Airbus A340-300, 18 Airbus A330-300, seven A321-231, 28 Airbus A320-200 and three Airbus A319-100.

PAL Holdings successfully executed an income backflip, after it posted a net profit of P1.49 billion in the second quarter of 2014 from a net loss of P1.08 billion in the same three-month period in 2013.

In the same comparative periods, revenues of the airline operator rose by 47.4 percent to P27.30 billion from P18.52 billion, while operating expenses climbed by a slower 31 percent to P6.04 billion from P19.47 billion.

PAL Holdings shares ended Friday’s trading at P3.65 apiece, crashing by 8 percent or 33 centavos from P3.98 each on Thursday.


  1. But the problem of Ramon Ang's management for PAL is uncertain plan. Ramon Ang planned to buy some long haul airplanes such as Airbus A350, Boeing 747-8I, or more Boeing 777-300ER for route expansion, but decision is uncertain. He also planned route expansion for Europe, US, Turkey, Brazil, South Africa, and other key places after relaunching London via Heathrow Airport, but PAL's new destination remains uncertain.

  2. Ramon Ang could not even pay Lucio Tan the $500-M buy-in deal he made in 2012. That's why LT had to kick him out, besides the fact that the airline was just piling up debt - including the P2-B unpaid fuel PAL owed Petron when RSA was the chief.