SEC Junks PAL Creditors' Appeal to Return Aircraft

Business World

Friday, December 18, 1998

Maricris C. Carlos

The Securities and Exchange Commission (SEC) has ordered a group of creditors of Philippine Airlines, Inc. (PAL) to cease and desist from asking PAL to return a leased Airbus A330- 300 aircraft.

This after PAL defaulted on its lease payments for the aircraft, prompting the lessors to demand for its return. The SEC order is based on the request of PAL's interim rehabilitation receiver (IRR).

It was issued against aircraft leasing firms Pacer Aviation Ltd. and Credit Agricole Indosuez S.A. (CAI), which financed PAL’s lease of the aircraft. The two have asked PAL to return the aircraft to Hong Kong by yesterday.

In its order, the SEC hearing panel said it sided with the rehabilitation body "in order not to unduly hamper and/or render ineffectual/moot whatever orders that may be issued in the case...and for in the adjudication of the merits of the petition and/or the rehabilitation plan duly submitted.”

The SEC said the aircraft is "vital in PAL's operations and in its rehabilitation.” The aircraft is servicing PAL's regional flights.

The SEC said Pacer "voluntarily submitted itself to the jurisdiction of the commission when it filed a motion with the SEC complaining on PAL's defaulting on lease payments.” This addresses a possible jurisdiction problem since the two firms are not based in the Philippines.

Another group of PAL creditors recently asked for the return of three Boeing aircrafts also due to PAL's failure to pay its arrears.

These are General Electric Corp. of the United States, Ireland's GPA Group Plc., and Airplanes Finance Ltd. The three have asked PAL to redeliver the planes to the Shannon International Airport in Ireland.

Meanwhile the SEC's review of PAL’s rehabilitation plan continues. The agency earlier said it will give itself until next month to decide on PAL's rehabilitation or dissolution.

PAL submitted its rehabilitation plan to the SEC last Dec. 7. The plan provides for a $150-million equity infusion and a comprehensive debt restructuring program seen to affect all 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 in the proposed plan. The interim body made the projections based on a reduced PAL fleet of 22 planes.

PAL said the equity infusion will come from existing shareholders in two trenches.

The first trench of $90 million will be paid after the rehabilitation plan's approval or before the plan's implementation.

The second trench of $60 million will be paid on a specific date, but not later than 180 days following the implementation date.

“The shareholder equity infusion,” PAL said, “will comprise over 90% of the new equity ownership of PAL.”

PAL also outlined a capital restructuring program for its shareholders. This involves the reduction in the par value of PAL's existing common shares from P5.00 a piece to P0.01 per share. With the capital restructuring program, the holdings of PAL employees will be reduced to 5% from the present 20% equity.

"Securing a strategic partner, most likely in the form of a foreign airline, has been, and continues to be a priority for PAL,” the plan states.

PAL filed its debt relief petition with the SEC last June for loans worth $2.1 billion.