SEC Give PAL Go-ahead to Pay P175.77M in Debts

Business World

Monday, December 14, 1998

The Securities and Exchange Commission (SEC) has given Philippine Airlines, Inc. (PAL) the go-ahead to pay off P175.77 million worth of debts to selected creditors, most of which are suppliers of various services and aircraft, related equipment, and materials.

As this developed, another creditor, lndover Asia Ltd., filed a formal claim against PAL before the SEC for debts amounting to $2 million.

In its motion, Indover said its claim is based on its subscription of debt papers PAL issued in 1997.

Early last year, PAL issued $200 million worth of floating rate notes to raise cash for its operations. Of the total issue, the Hong Kong-based firm said it subscribed to some $2 million.

Under a debt suspension order issued by the SEC, however, PAL just cannot pay off its creditors arbitrarily — it must first seek SEC's approval.

As things stand, the SEC approves only payments to creditors and suppliers providing services vital to PAL's day-to-day flight operations.

In SEC's latest approval, in fact, most of the creditors to be paid off are providers of in flight catering, aircraft maintenance, and cargo management.

Among the creditors to be paid off are BF Goodrich, Fokker Services Schiphol, Macroasia Airport Services Corp., Jardine Aboitiz International Forwarders, China Airlines Ltd., Eva Airways Corp., Hong Kong Aircraft Engineering Co. Ltd., Hong Kong Air Cargo Industry Services Ltd., Alliedbankers Insurance Corp., and Sharjah Airport Authority in the United Arab Emirates.

The SEC order also approved the sale of PAL's four “unserviceable” Pratt & Whitney engines to International Turbine Service, Inc. for $650,000.

Because the SEC does not allow PAL to pay all its maturing obligations, a number of creditors were forced to ask the SEC to formally recognize their claims in PAL's rehabilitation plan.

The SEC is now reviewing the rehabilitation plan to determine whether or not it would still be feasible for PAL to continue operating. It has given itself 30 calendar days from Dec. 8 to decide.

The plan provides for a $150-million equity infusion and a comprehensive debt restructuring program seen to affect all of PAL's 9,000 creditors.

"The rehabilitation plan has been developed with the assumption of modest economic recovery over the next three to five years," PAL said.

Although PAL has yet to find a strategic partner, the plan provided for a partner coming in. “Securing a strategic runner, most likely in the form a foreign airline, has been and continues to be a priority for PAL,” it said.

PAL filed a debt relief petition last June covering debts amounting to $2.1 billion.