PCIB Nixes PAL Bid to Extend Loan Maturity

Philippine Star

Wednesday, December 23, 1998

Des Ferriols

The Philippine Commercial International Bank (PCIB) has rejected the proposal of Philippine Airlines (PAL) to extend the maturity period of its loan to 15 years, saying that 10 years was enough.

Documents from the Securities and Exchange Commission (SEC) showed that the PCIB wanted to limit the extension to only 10 years, inclusive of five-year grace period and five-year repayment period.

PCIB also told the SEC that PAL should sell its rotables and airbus engines and the proceeds be used for partial payment of its $60-million domestic syndicated loan.

PCIB said that since PAL plans to reduce its fleet from 52 to only 22 aircraft, it won’t need its rotables and airbus engines anymore.

Earlier, PAL’s European creditors rejected the airline’s proposed rehabilitation plan expressing doubt that the company would recover without a strategic partner to help chart its recovery.

In separate letters of SEC, they all expressed disappointment over the collapse of talks between PAL and Cathay Pacific Airways.

According to Credit Agricole Indosuez (CAI), the security trustee and assignee for 12 ECA-supported aircraft lessons, the presence of a strategic partner was “of paramount importance” for the viable rehabilitation PAL, saying that it would enable the airline firm to make the necessary improvements in key areas such as route/fleet planning, marketing and distribution and production and productivity management.

“We share the opinion that the safe implementation of a rehabilitation plan will benefit from the presence of a strategic partner,” said Credit Agricole.

“It is, however, left to PAL and the SEC to decide which format of cooperation with such partner is the most suitable.”

Moreover, Credit Agricole demanded to know the exact reasons for the failed negotiations with Cathay Pacific, Northwest Airlines and Singapore Airlines.

“Given the setbacks, what are the chances today of PAL securing a strategic partnership?” the trustee asked.

Credit Agricole also questioned the reduction in amount of initial investment that was expected to be injected by PAL shareholders to support the rehabilitation plan.

The original amount, according to the trustee, was $200 million but this was subsequently reduced to only $150 million.