PAL's $46 Million Dilemma

by Lenie Lectura

13 May 2010

PHILIPPINE Airlines (PAL) has yet to determine how it will be able to repay $46 million worth of debt due early next month. PAL president Jaime Bautista said the flag carrier is scheduled to pay creditors about $46 million by June 7. The amount is part of the flag carrier’s $2.3-billion debt which has now actually gone down to over $1 billion, added the PAL official. “Our debt balance is more than $1 billion. There is a maturing amount [by] June 7 which is about $46 million. It’s a principal payment which is scheduled to be paid once a year,” said Bautista. The PAL official did not say how the carrier will source payment for the maturing debt. “We will try our best. It’s really a challenge.” On top of the yearly $46-million repayment, PAL is also obliged to pay $10 million every month. “Yes, we are paying $10 million monthly,” added Bautista. PAL is in talks with prospective investors but nothing has been firmed up as yet. “Investors are looking for the following: profitability, growth and competency. Aside from being profitable, there should be growth. We also should be sufficient and must have the capability to compete with other airlines,” said Bautista. The airline was supposed to lay off 3,000 workers effective June but the labor department directed PAL to suspend this until the labor dispute with the PAL Employees Association is still under the jurisdiction of the agency. The flag carrier said was supposed to implement the next phase of its restructuring program, starting with the spin off of its inflight catering services; airport services, including ground handling, cargo terminal/cargo handling and ramp handling; and call center reservations at the close of business hours on May 31. Bautista emphasized that PAL needs to pursue the restructuring plan due to several factors that are beyond the airline’s control. These include unabated liberalization of the commercial aviation industry to the detriment of local players like PAL; the worldwide economic recession that led to a crippling slowdown in passenger traffic; record-high oil prices in 2008-2009 and the continuing increase in the price of aviation fuel, which account for nearly half of PAL’s operating expenses; downgrade of the Philippine aviation sector to Category II by the United States that prevents PAL from using brand new long-range aircraft or increasing flights to the US; and the subsequent blacklisting of Philippine carriers by the European Union, ruining the reputation of even those airlines with outstanding safety records like PAL. He cited PAL’s financial situation which continues to deteriorate, with the company sustaining over $350 million (or more than P15 billion) in losses during the last two fiscal years. Its equity has also dropped precipitously to a little over $1.1 million as of February. “For our fiscal year ending March this year, it will still be a loss,” said Bautista. In spite of this predicament, PAL posted “better-than-expected” revenues for January and February this year.