DBP Eyes $150M Loan for Infusion Into PAL

The Journal

Friday, December 18, 1998

SEC stops seizure actions versus PAL

THE Development Bank of the Philippines is planning to borrow another $150 million on top of the $300 million it earlier sought from the Japan Export-Import Bank (Jeximbank) to help solve the more short-term needs of the Philippine Airlines, the Department of Finance said yesterday.

The additional loan is one of two options that government has identified as "the more likely choices" towards ensuring that PAL continues to operate, a Finance official said in an interview.

The loan falls under the two-step scheme being evaluated by a government team led by Finance Secretary Edgardo B. Espiritu for possible adoption by PAL and followed an earlier plan calling for equity infusion by the National Development Corporation (NDC) in the airline.

The NDC option was identified the other likely route by which government will ensure that PAL resumes full operations, according to the finance official.

Like the NDC plan, DBP will tap the additional financing from Jeximbank on the strength of the $30 billion Miyazawa fund, after all, was supposed to aid crisis-hit countries like the Philippines deal with corporate restructuring problems and PAL fits into this prescription perfectly, the official said.

The government also remains committed to saving PAL from total closure mainly because its domestic routes continue to be very viable despite more recent competition although its international destinations needed an overhaul, the official added.

“Jeximbank is open to the proposal and we have people discussing the mechanics of the plan." the official said without disclosing any detail.

What encouraged the government was that this proposal was not turned down immediately by Jeximbank although the plan will have to be approved by PAL management itself and by Jeximbank in Tokyo, the official said.

The plan would likewise need the imprimatur of PAL creditors, the official said.

Nevertheless, they have reason to expect that something will be decided concerning this plan next week before the long Christmas holidays, the official said.

The SEC hearing panel led by SEC officer-in-charge Fe Eloisa C. Gloria, and members Josefina L. Pasay-Paz and Ysobel Yasay-Murillo issued an order setting aside and with no effect the notice of termination and lease over Airbus A300-300 by Pacer Aviation Limited and Credit Agricole Indosuez SA.

The SEC also directed Pacer and Credit Agricole “to cease and desist from requiring PAL to deliver the said subject leased property, or any other leased properties by PAL, in Hong Kong at any given period without prior order from the commission."

The order was based on the fact that Pacer has appeared and voluntarily submitted to the jurisdiction of the commission by filing the petition for the cancellation of the lease agreement last Sept 28, 1998.

The SEC also said that the subject aircraft is currently being used in PAL's regional operations and is vital to the company with a pending petition for its rehabilitation.

"In order not to duly hamper and/or render ineffectual/moot whatever orders that may be issued in the case at bar and/or in the adjudication of the merits of the petition and/or the rehabilitation plan duly submitted, we grant PAL's interim rehabilitation receiver formal request," the order said.

PAL's IRR has asked the SEC not to grant the termination agreement.

The SEC earlier convened a task force composed of SEC lawyers and examiner to study the rehabilitation plan submitted by PAL.

The task force will submit to the hearing panel its recommendation within 30 days from the date of the order of the commission (Dec 7).

PAL filed a petition to rehabilitate the airline with the SEC last June 19, 1998 after it was not spared by the Asian economic crisis. The financial crisis and the reduced demand for air travel placed sever pressure on PAL's cash flow.

Operations have been scaled down to key profitable international and domestic routes. Personnel have been reduced from 12.986 in May 1998 to 8.589 as of Nov 7. 1998.

PAL is the leading carrier in the Philippines with a domestic market share of 63 percent, and has a strong franchise with Filipino travelers.