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RE-START: Apart from the airline’s recapitalisation, the carrier has streamlined its operations by cutting the size of its fleet by as much as 25% as part of the company’s reorganisation plan. Image Credit: Reuters


  • How PAL carried out its bankruptcy exit plan, to emerge with fresh capital, lower debt and a better financial standing.
  • Know the three key drivers that allowed PAL to get it out of financial turbulence amid pandemic.

Manila: During the toughest stages of the pandemic, a Philippine Airlines (PAL) pilot Jimmy* was grounded for months.

Initially, he was involved in the repatriation of Filipinos from different countries. At the end of 2020, the Philippine's flag-carrier reported a massive loss amounting to $-1.4 billion.

Strict travel curbs rapidly taken by countries to limit the spread of the pandemic dealt a huge blow to most airlines.

To keep himself busy, Jimmy helped in his family’s rice mill and trading business. Now, with the Philippine’s borders reopened, Jimmy is back in the skies flying. His journey is emblematic of what happened to the country's 81-year-old carrier.

Faced with pandemic-induced financial turbulence, PAL filed for Chapter 11 on September 3, 2021 with the US Bankruptcy Court for the Southern District of New York. The court granted the request.

However, its Chapter 11 filing and subsequent court approval, did not mean PAL faced a shutdown. the court allowed it to carry out its rehabilitation plan — with the aim of paying creditors over a period of time.

What happened next:

What’s the airline’s financial standing during the pandemic?

In an end-September report to the bankruptcy court, PAL Chief Financial Officer Nilo Thaddeus Rodriguez showed the airline had a gross income of $91.75 million for the month — and loss of $29.56 million (Php1.5 billion).

What is Chapter 11 bankruptcy protection?
Chapter 11 of the US Bankruptcy Code permits reorganisation. During a Chapter 11 bankruptcy process, businesses usually retain possession and control of their assets — under the supervision of a bankruptcy court.

Filing for Chapter 11 suspends all judgments, collection activities, foreclosures, and repossessions of property against the filing business.

In getting its Chapter 11 filing approved, PAL got a breath of fresh air, giving it time to restructure on the hope that the pandemic restrictions would ease.

What did PAL’s Chapter 11 bankruptcy process entail?

Usually, a case filed under Chapter 11 means the debtor remains “in possession” — has the powers and duties of a trustee, may continue to operate its business, and may, with court approval, borrow new money.

As part of the process, Philippine Airlines presented the bankruptcy court a restructuring plan, which the court subsequently approved. The plan called for the following:

  • $2 billion in permanent balance sheet reductions from existing creditors.
  • It allows the airline to consensually contract fleet capacity by 25%.
  • Fresh infusion of $505 million in long-term equity and debt financing from PAL’s majority shareholder (Lucio Tan).
  • $150 million of additional debt financing from new investors.
  • PAL also sought to complete a parallel filing for recognition in the Philippines under the Financial Insolvency and Rehabilitation (FRIA) Act of 2010.
PAL bankruptcy process
Image Credit: Vijith Pulikkal / Gulf News

What were the major drivers in its exit strategy from Chapter 11 process?

There were three “engines” that helped it achieve successful restructuring: court approval, agreement by creditors and its ramped up operations.

First, the court approval to slash debts by more than $2 billion was pivotal to the success of its restructuring plan. It helped positioning the flag carrier for a recovery from its pandemic-induced losses.

From 4.5 billion passengers to standstill
Over 4.5 billion passengers traveled globally before the pandemic; this number fell to roughly 1.8 billion after the virus began to spread.

As governments around the world imposed lockdowns and restricted cross-border travel to curb the spread of COVID-19, airlines were among the hardest-hit.

The International Air Transport Association (IATA) estimates airlines around the world lost about $52 billion in 2021, after incurring about $138 billion in losses in 2020.

Second, the “consensual” restructuring plan meant that it was accepted by 100% of the votes cast by its primary aircraft lessors and lenders, original equipment manufacturers (OEMs) and maintenance, repair, and overhaul service providers, and certain funded debt lenders.

Third, even as it was going through financial restructuring process — to which stakeholders agreed — its flights continued uninterrupted. It honoured tickets, vouchers and its loyalty programme (Mabuhay Miles).

As travel restrictions eased, it ramped up its operations. By the end of 2021, as travel restrictions were eased, PAL virtually emerged from its Chapter 11 bankruptcy process.

In short, the process enabled PAL to remain the flag carrier of the Philippines and the country’s premier global airline, able to sustain its 80-year history of providing the Philippines’ vital links to the world.

The country welcomed more than 22,000 inbound travellers since its borders were reopened on February 10, 2022 to international tourists.

What do airlines’ numbers show?

On January 18, 2022, PAL filed results of its December operations in a report provided by the airline’s claims agent Kurtzman Carson Consultants LLC.

Four months after filing for Chapter 11 bankruptcy protection, PAL swung into profitability, with 1.7 billion pesos profit ($32.97 million) in December 2021.

It showed that four months after filing for Chapter 11 bankruptcy protection, PAL swung into profitability, with 1.7 billion pesos profit ($32.97 million) in December 2021.

It reversed a loss of $11.67 million incurred in November. Rodriguez, the airline’s CFO, reported to the court that the airline had a gross income of $183.82 million for December, up 28.1% from $143.48 million earned in November.

In terms of break-down, PAL’s passenger revenue grew 37.7% to $132.27 million in December from $96.09 million in November, while cargo revenue declined by 4% to $42.27 million from $44.04 million previously. Ancillary revenue increased 57.5% to $6.74 million from $4.28 million in November.

When did PAL start?

PAL started nearly 81 years ago.

The flag carrier of the Philippines is the country’s only full-service network airline. PAL was the first commercial airline in Asia. It is marking its 81st anniversary next month (March 2022). It was ranked the 30th best airline in the world in 2019.

Is PAL Holdings Inc. covered by the Chapter 11 filing?

No. During restructuring, PAL has stated that business operations will continue as usual. PAL Holdings Inc., the holding company of PAL, and Air Philippines Corp, known as PAL Express, are not included in the Chapter 11 filing.

Lucio Tan PAL Chairman
Image Credit: Gulf News

Who controls PAL?

The airline is majority-owned by a holding company, known as PAL Holdings, controlled by Filipino billionaire Lucio Tan, 87.

With a net worth of $1.9 billion (list published in September 2021), Tan emerged as PAL’s controlling shareholder in 1995 when he was appointed chairman. He regained control of PAL in in 2014 after buying San Miguel Corp.’s controlling interest in the airline. His business empire spans banking, property, tobacco and beverages.

Who is at the helm of the airline?

In January this year, PAL announced that its senior vice-president for operations, Capt. Stanley K. Ng, was appointed as its new president and chief operating officer (COO), in an acting or officer-in-charge capacity, replacing Gilbert F. Santa Maria.

Does that mean PAL is out of Chapter 11 process?

The airline states it had successfully completed its financial restructuring within four months. In contrast, other airlines remained in the Chapter 11 process more than a year after filing in 2020. The airline has set its sights on restoring more routes and ramp up flight frequencies as more travel restrictions are lifted.

It seeks to resume regular flights to multiple cities in mainland China, full regularisation of flights to Australia and the commencement of new services to Israel.

The company projects that it will generate an operating income of $220 million by end-2022 and $364 million in 2023.