PAL continues to rebuild operations as it readies itself for restructuring

Philippine Airlines PAL continues to rebuild operations as it readies itself for restructuring. A report from FlightGlobal said PAL has informed its lessors of a plan to file for Chapter 11 in the USA by the end of May. However, PAL has not confirmed any of the final details of the restructuring. A Chapter 11 is a bankruptcy protection that involves a reorganization of a debtor’s business affairs, debts, and assets. It is most often used by large entities, such as businesses, though it is available to individuals as well.

PAL said that they continue to rebuild its international and domestic network. However, the recent surge in the number of Covid-19 cases in the Philippines was a huge setback. Government imposed travel and flight restrictions have forced PAL to cancel numerous flights in the past month. They remain optimistic however that they will be able to slowly get back to incremental rebuilding as number of cases taper down.

This also means that the airline’s operations will continue.

Sources say PAL has informed lessors of Chapter 11

According to FlightGlobal, three people with knowledge on the matter said, “they are going to file before the end of May as long as they have the requisite support from creditors in terms of the majority they need to get it through and the prearranged fashion they’re going for.

“There are milestones and there are things that the airline then would have to do, there are commitments and DIP (debtor-in-possession financing) that have to materialise.

“The DIP funding would have to come through and all of that is negotiated with the lawyers. That’s the approach they are taking.”

The report from FlightGlobal also said that PAL is putting together a prearranged insolvency, which the person describes as a “halfway house” between a pre-pack and the freeform filing that, for example, some of the Latin American carriers have used.

Then again, FlightGlobal just mentioned “sources”, referring from where they got this news. It may or may not be official. In other words, nothing is final.

PAL in talks with aircraft lessors

PAL has been in talks with its lessors in order to restructure its leases. Out of the total number of aircraft in its fleet including subsidiary PAL Express, 49 aircraft are on lease. However, many of the struggling airlines around the world including South East Asian carriers, have resorted to debt and lease restructuring. PAL continues to seek favorable lease terms for the aircraft they intend to keep should they resort to fleet downsizing.

PAL operations however continue while restructuring will be ongoing.

Nothing is also final with regards to the number of aircraft they plan to let-go of.

Should we be alarmed?

While nothing is final, there is no cause of alarm yet. While mainstream media in the Philippines are singing a different tune, all we can say is PAL needs to restructure. This is an inevitable move in order to survive this global pandemic. A chapter 11 filing may just be a part of the process towards effectively restructuring. At the end of the day, it is all about survival.

We remain optimistic that PAL will come out of this, after surviving numerous crisis way back. The airline is battle-tested. They will continue to fly Philippine skies for the years to come.