Manila Times
Wednesday, December 9, 1998
Carmina E. Reyes
The fate of Philippine Airlines (PAL) is now in the hands of its creditors after the ailing national flag carrier submitted the other day its proposed rehabilitation plan to the Securities and Exchange Commission (SEC).
The SEC yesterday gave all PAL creditors 15 days or until Dec. 22 to respond to the rehabilitation plan. PAL owes at least $2.2 billion to both local and foreign creditors.
The rehab plan and the comments of PAL’s creditors will be used by the SEC as basis in its decision whether to rehabilitate or liquidate the airline.
In a two-page order, the SEC's three-man hearing panel composed of SEC acting chair Fe Eloisa Gloria, Josefina Yasay-Paz, and Ysobel Murillo, directed the PAL interim rehabilitation receiver (IRR) to furnish all PAL creditors’ copies of the rehabilitation program.
“The IRR is hereby directed to furnish a copy of the rehabilitation plan to the petitioners’ creditors together with the copy of this order, and the creditors are given 15 days from receipt thereof within which to file their comments," the hearing panel ordered.
The SEC likewise ordered a three-man task force it formed to study PAL's rehabilitation program to submit on Jan. 7, 1999 its recommendations to the Commission.
Under the rehab plan submitted by PAL on Monday, its creditors will be required to reschedule payments of its $2.2 billion debts, investors will have to infuse $150 million in fresh capital, and its fleet downsized to reverse its losses and stay competitive.
Specifically, the plan calls for an immediate capital infusion of $90 million, reduction of its fleet from 54 to 22 planes, and the rescheduling of its $2.2 billion debts over the next 15 years.
The $90-million infusion must be done not later than 180 days following the implementation of the program. The smaller fleet will service 17 domestic and 13 international routes.
PAL would likewise reduce the par value of its shares from P5 to one centavo to wipe out its deficit. PAL’s secured creditors, holding about $1.725 billion in loans, will be required to extend the maturity of their exposure to PAL from three to 15 years.
On the other hand, unsecured claims amounting to P329 million, will be settled on an installment basis. At least $27 million in subordinated claims, possibly including those of workers, will be converted into common shares with a face value of P.01 per share for every P1 in provincial value.
The SEC hearing panel ordered the task force — composed of Jesus Olanday, Manolito Soller, and Rosita Guerrero -- to “study, analyze the rehabilitation plan and to submit to the panel their requisite recommendation within 30 days from the date of this order."
PAL hopes to return to profitability by March 2000 and projects a profit of $35.2 million for that fiscal year, assuming a "modest economic recovery over the next three to five years.”
Meanwhile, the government moved to revive talks between PAL and Cathay Pacific Airways, even as the Hong Kong carrier said negotiations have ended for good.
Finance Secretary Edgardo Espiritu said Cathay is still in talks with PAL and may make a decision on whether to buy a controlling stake in two to three days. Cathay is seeking assurances it will have management control before proceeding, he said.
Cathay, which broke off talks with PAL last Wednesday, has repeatedly denied Philippine government statements that it is continuing negotiations.
“As far as l'm concerned, the deal is off," Martin Cubbon, finance director at Swire Pacific Ltd., Cathay's parent company, said yesterday.
The Constitution limits foreign ownership of an airline to 40 percent. Espiritu said PAL stockholders – led by Chairman Lucio Tan -- are willing to give Cathay day-to-day management of the carrier if it brings in more investments from other foreign companies.
“The basic issue now is the constitutional limitation on foreign participation in policy- and decision-making," Espiritu said. “They want to have a final say over the board in running PAL."
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