PAL Rehab Plan Rejected

The Journal

Wednesday, December 23, 1998

EUROPEAN creditors have rejected a proposed rehabilitation plan for troubled Philippine Airlines.

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, 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 latter 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 $15 million instead of the $200 million original sought.

The European creditors include Britain’s Export Credits Guarantee Department, German 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 $2.0 billion. It briefly closed down in September, but went back into business after President Estrada negotiated a deal with unions.

Meanwhile, PAL announced it would add two more direct Cebu-Tokyo flights on Dec.29, raising total frequencies on the busy route to five times weekly.

The new services are the result of a decision by the Civil Aeronautics Board last Sept. 10 awarding additional landing/takeoff slots at Tokyo’s Narita airport to PAL.

They fulfill a PAL promise to the Cebuano people and business community to expand international air services to the city and bid to serve the riding public and stimulate economic activity in the region.

The added flights are a shot in the arm for the trade and tourist-based economy of Cebu and Central Visayas, which is heavily reliant on the Japanese market.

Cebu’s multitude of manufacturing and export firms will delight on particular PAL’s choice of its high capacity workhorse, the Airbus 330-300, to serve the route.

The widebodied A330-300 benefits both passengers with luxurious amenities and cargo shippers with larger capacity. It can seat 278 passenger up to 21,680 kilograms of cargo – the largest cargo-hold capacity of any aircraft in the PAL regional fleet.

The new service has been structured especially to suit the busy schedules of the Japanese business and tourist. PR 435 departs Narita every Tuesday and Friday at the convenient time of 9:55 a.m. and arrives in Cebu’s Mactan International Airport at 2 p.m.

The return flight, PR 436, leaves Cebu on the same days at 1:30 a.m., giving departing passengers the luxury of a late hotel checkout and the chance to spend the entire day in the island. The flight arrives in Narita at 7 a.m., just in time to catch train to work.

Alternatively, Japanese passengers headed back home and may opt to take PAL’s morning flight, PR 434, which departs Cebu every Wednesday, Thursday and Sunday at 8 a.m. and arrives in Narita at 1:25p.m.

Apart from the five Cebu-Tokyo flights, PAL also operates a four-times-weekly service from Cebu to Osaka that originates in Manila. Cebu is thus linked to the two premier Japanese Cities nine times a week via PAL flights.