Estrada Says PAL Will Find Partner in January

The Manla Times

Tuesday, December 29, 1998

By Marc Crowe

Bloomberg

PRESIDENT Estrada said he expects Philip­pine Airlines (PAL) to find a new partner by next month that will pump cash into the debt-strapped flag-carrier.

PAL is still in talks with foreign airlines interested in buying a stake in the carrier, including Cathay Pacific Airways Ltd. of Hong Kong, Estrada said. Cathay has repeatedly said it broke off talks with PAL.

“They're still negotiating and I hope they will settle it, hopefully by next month.” Estrada said. “We are trying our best to save PAL.”

Last week, PAL’s European creditors rejected a rehabilitation plan proposed by the airline because it failed to include the entry of a new partner or $200 million in new capital.

The plan, submitted more than two weeks ago, called for an immediate capital infusion of $90 million from current stock­holders. It also proposed a longer repayment period for $2.2 billion in debt and slashing the PAL fleet to 22 aircraft from 52 at the start of the year.

“The presence of a strategic partner is of paramount im­portance for a viable rehabili­tation of PAL,” said Credit Agricole Indosuez, which repre­sents owners of 12 Airbus Industrie aircraft leased to PAL.

PAL is expecting a cash in­fusion of $90 million from local investors -- mostly from PAL chairman Lucio Tan – as soon as the plan is approved by regulators.

An additional $60 million would be pumped in within half a year after the plan takes effect. PAL is still seeking a foreign airline to cover that investment.

Social Security System admi­nistrator Carlos Arellano said the state pension fund would be willing to invest up to P1 billion in PAL if the airline can find a partner, according to news reports.

Talks with Cathay and Northwest Airlines Inc. of the US collapsed amid disagreements over management control of the carrier, future job cuts and constitutional limits on foreign ownership of an airline.

Without a capital infusion, PAL’s future appears grim. PAL’s net loss surged to P3.9 billion in the three months to Sept. 30. The flag carrier halted payments on its debts in June after a pilots’ strike pushed the airline to the brink of collapse.

About half of PAL's debts are owed to export credit agencies and their insurers, such as the Export-Import Bank of the US Hermes of Germany, Coface of France and UK-based Export Credits Guarantee Dept.