SEC Rejects Lessors' Claim on PAL Planes

Manila Bulletin

Friday, December 18, 1998

James A. Loyola

The Securities and Exchange Commission (SEC) nullified the notice of termination of the lease agreement served to Philippine Airlines by lessors Pacer Aviation Limited and Credit Agricole Indosuez S.A. (CAI).

In an order issued yesterday, SEC hearing officer Ysobel Murillo said Pacer and CAI's notice of termination for the lease over an Airbus A330-300 to PAL is "given no effect and set aside.”

In addition, Murillo said Pacer and CAI are mandated to cease and desist from requiring PAL to deliver the leased plane or any other property leased by PAL in Hong Kong without authorization from the SEC.

The order was issued after the PAL interim rehabilitation receiver (IRR) brought the notice of termination to the attention of the SEC. The notice sought the delivery of the aircraft to Hong Kong.

The SEC said it had authority to issue the order against the foreign lessors "considering that Pacer appeared and voluntarily submitted itself to the jurisdictions of the commission by filling a complaint in interventions against PAL at the SEC.”

Murillo said the order was issued after finding that the said aircraft is currently used in, and vital to, PAL's regional operations. She noted that the redelivery of the plane to the lessor may “unduly hamper or render ineffectual or moot” whatever orders that may be issued by the SEC regarding the proposed rehabilitation of PAL.

PAL’s rehabilitation plan calls for a $6 billion ($150 million) capital injection from its shareholders, a reduction in capital and the restructurings of its obligations to various types of creditors. The capital restructuring will be done by reducing the par value of its shares from P5.00 per share to one centavo apiece. After this, the P6-billion shareholder equity injection will comprise over 90 percent of the new equity ownership of the company.

The plan requires that after the reduction in par value of the existing common shares and the contribution of new equity, the shareholding stake of employees shall equal five percent of the then existing PAL equity.

PAL said it will resume some debt repayments following the acceptance of the rehabilitation plan. The payment terms for suspended payments will vary for each group of claims (secured, unsecured, subordinated creditors).