Philippine Daily Inquirer
Wednesday, December 23, 1998
EUROPEAN creditors have rejected a proposed rehabilitation plan for troubled Philippine Airlines Inc.
The creditors control leases on 12 Airbus jets, which constitute more than half of the 22 planes PAL would continue flying under its survival plan.
The rejection by the European Export Credit Agencies was filed with the Securities and Exchange Commission in Manila, according to documents obtained by Reuters yesterday.
They rejected the plan on the grounds it did not address two key issues—the presence of a strategic partner and infusion of $200 million in new equity.
"Since these crucial elements, despite having been presented to and discussed with PAL are not included, it will not be possible for the lessors to support the rehabilitation plan as currently drafted," the letter said.
French bank Credit Agricole Indosuez acts as the security trustee and assignee of lessors' rights in the planes in question, and communicated the creditors' rejection.
PAL has held talks separately with Hong Kong-based Cathay Pacific Airways Ltd and US carrier Northwest Airlines Corp. on forging a strategic partnership. However, both sets of talks broke down earlier this month.
The collapse of negotiations prompted PAL to slash the capital infusion it was seeking to $150 million, instead of the $200 originally sought.
The European creditors include Britain's Export Credits Guarantee Department, Germian insurance group Hermes, and French credit insurer Coface. PAL’s rehabilitation plan did not state the exact total of these agencies' claims.
The airline is saddled with debts of around $2 billion.
It briefly closed down in September, but went back into business after Philippine President Estrada negotiated a deal with unions.
PAL’s troubles turned for the worse in June this year when its pilots went on strike, prompting the airline to fire all the strikers.
Yesterday the pilots union accused three of the country's biggest commercial banks of unduly withholding their P2.2 billion worth of retirement benefits, purportedly on orders of PAL majority owner Lucio Tan.
The Airline Pilots Association of the Philippines said in a press conference the banks were ordered by Tan to freeze these funds which they hold in trust due to the labor dispute between PAL and Alpap.
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