PAL Files Chapter 11

4 September 2021

Flag carrier Philippine Airlines (PAL) has filed Chapter 11 bankruptcy protection on 3 September in the Southern District Court of New York for asset protection and to allow the airline to restructure and reorganize its finances impacted by COVID-19 crisis.

The proposed restructure plan which needs court approval will allow the airline to consensually reduce its fleet capacity by 25 percent and aims to cut $2 billion in borrowings, mostly from aircraft lesses of new planes, the company said.

The filing involves return of new aircraft, involving among others, three Airbus A350-900, five B777-300ER, four A330-300s, four A321neos, and four Q400s for a total of 20. The rest of the unexpiring A320/21 fleet with current leases will be kept, while the rest will be return to lessors.

PAL President and COO Gilbert Santa Maria said the move aims to create a "permanent solution" that would enable the company to guarantee its future.

"With this goal in mind, we have voluntarily filed for restructuring under a pre-arranged Chapter 11 in the US while simultaneously executing a support filing under the Financial Rehabilitation and Insolvency Act in the Philippines," Santa Maria said.

The restructuring plans also includes $505 million in long-term debt equity and debt financing from the airline’s majority shareholder and $150 million of additional debt financing from new investors, the company said.

PAL Holdings the listed parent company and PAL Express are not included in the Chapter 11 bankruptcy, the company added.

Different aircraft lessors, engine manufacturer Rolls-Royce and maintenance provider Lufthansa Technik are among the largest unsecured creditors in the company, according to the court filing.

The airline lawyers Norton Rose Fulbright has completed “reaching out” to lessors and has already consented to their plan for haircut through return of signature pages.

PAL had managed to find a replacement for the $75 million in debtor-in-possession (DIP) financing it lost when the bank that was going to provide it pulled out. This consequently resulted to the delay in filing as replacement bank will need to be found. 

Another local bank in the Philippines which the airline does not disclosed has agreed to provide that portion of the financing, out of a total of $505 million that PAL requires to satisfy its debtors under a DIP "A Tranche".

The airline lawyers has been in discussions with its lessors about a potential bankruptcy protection filing since last year. Alongside its lawyers, it is being advised by restructuring specialist Seabury Capital.

PAL confirmed that its scheduled passenger and cargo flights will not be affected and will continue to operate. It will also continue to honor airline vouchers and frequent flyer Mabuhay Miles, subject to usual terms and conditions.