We all are aware of how this covid-19 pandemic has battered our airlines to the bone. Each is finding ways to stay afloat amidst the mounting debt due to a plummet in air travel demand. In the case of Philippine Airlines, a restructure is badly needed, hence, the need to file for a Chapter 11 protection in the United States. This is basically the very first step, or should we say, a stage towards the rehabilitation plan.
We first want to correct that wrong notion that a “Chapter 11” is a bankruptcy filing in which a company will fold its operations. Absolutely not. Basically, it is just a form of bankruptcy protection that will enable the company to restructure and reorganize its business to pay its debts and exit from the red. Chapter 11 will allow the company to continue its business uninterrupted.
Benefits of a Chapter 11
Here are the benefits of Chapter 11 bankruptcy protection in general terms:
- Suspends all collection activities of creditors.
- Foreclosures are suspended.
- Suspends judgement against the company.
- Can continue to operate without the need to liquidate assets or to shutdown to satisfy debt.
- The company directly reports to the court, no trustee.
- Restructuring debt Some of the notable companies that have filed for Chapter 11 are General Motors, Kmart, Marvel, Converse, Delta Airlines, American Airlines, etc.
Restructuring under the Chapter 11 process
This move for PAL to undergo voluntary undergo financial restructuring under the U.S. Chapter 11 process is necessary for them to continue operating. This step is part of a set of major agreements PAL has reached with substantially all of our stakeholders and intending to rebuild and return to profitability in the future.
The rehabilitation plan is however still subject to court approval. It provides over US$2.0 Billion in permanent balance sheet reductions from existing creditors and will allow PAL to consensually contract fleet capacity by 25%. This includes US$505 Million in long-term equity and debt financing from PAL’s majority shareholder and US$150 Million in additional debt financing from new investors.
Aside from a pre-arranged restructuring under the U.S. Chapter 11 process in the Southern District of New York to implement the restructuring plan, PAL will also need to complete a parallel filing for recognition in the Philippines under the Financial Insolvency and Rehabilitation (FRIA) Act of 2010.
So what’s going to happen after the filing of Chapter 11?
There is no need to panic! PAL’s flights will continue as usual as though “nothing” happened. PAL will continue to increase domestic and international flights as travel demand recovers with the easing of travel restrictions. They will also roll out new products and services that help make flying safer and more convenient.
- All passenger and cargo flights will continue to operate.
- All current and future tickets and travel vouchers will be honored, subject to the usual terms and conditions of use.
- Passengers may browse, book and buy tickets from our website, mobile app, ticket offices, contact centers and partner travel agents.
- Mabuhay Miles will continue to be earned and honored subject to the usual terms and conditions of use.
So again, this is NOT the end of PAL but a new beginning! Almost all airlines around the world were badly hit by the Covid-19 pandemic and restructuring was necessary. For PAL, a chapter 11 filing was simply the first step towards the restructure and reorganization.
