(Bloomberg, New York) Philippine Airlines Inc. (PAL) filed for Chapter 11 bankruptcy in New York. The Philippines main carrier filed it together with a lender-supported plan to help it recover after the pandemic devastated global travel.
The company aims to cut $2 billion in borrowings through a proposed restructuring plan, which needs court approval, it said. PAL will also get $505 million in equity and debt financing from its majority shareholder. It will also receive $150 million of debt financing from new investors. The carrier said it has support agreements from 90% of its lenders.
The “recovery plan” will allow the airline to return at least 20 aircraft, the company’s management said. The restructuring plan will enable the carrier to reduce its fleet capacity by 25%, it said. PAL will also cut 35% of its workforce early this year.
Chairman and CEO of Philippine Airlines, Lucio Tan comments
Chapter 11 lets a company continue to operate while it restructures. The filing on Friday comes after the airline spent months negotiating with its stakeholders. Billionaire owner Lucio Tan called the filing a “breakthrough” for the carrier. The carrier will also complete a parallel filing for recognition in the Philippines under insolvency and rehability law.
The restructuring plan allows the airline “to overcome the unprecedented impact of the global pandemic. The pandemic has significantly disrupted businesses in all sectors, especially aviation. The restructuring will allow PAL to emerge stronger for the long-term,” Tan in a statement. Tan is the chairman and chief executive officer.
The end to lockdowns eased the strain on travel at the start of the summer season in the Northern Hemisphere. Unfortunately, the delta variant of Covid-19 has recently begun hurting many airlines, especially in the U.S. and China. Tan has said previously that the airline, founded in 1941, was working on a comprehensive restructuring plan.
Philippine Airlines is the latest international carrier to reorganise in the United States. By using Chapter 11, the company will subject its reorganisation plan to the final decision of a U.S. judge.
PAL is not the only airline to file for bankruptcy
Bankruptcy experts say the U.S. is often the preferred venue because the law is more favourable to a company. It is also partly because creditor contracts are often based on state law in New York or Delaware. PAL is not the first to take this route. Latam Airlines, based in Chile, Aeromexico, and Colombia’s Avianca Holdings, sought court protection in New York last year. All have blamed the drop in air travel caused by the coronavirus.
The pandemic has forced airlines to suspend flights, lay off employees and seek financial help. In June, PT Garuda, Indonesia’s president, said the carrier was considering options. These options include restructuring debt and renegotiating contracts with aircraft lessors.
The challenges for PAL Holdings Inc., the holding company of Philippine Airlines, predate the pandemic. It has reported losses since the first quarter of 2017. The company suffered a record 71.8 billion pesos ($1.4 billion) loss in 2020. Shares of PAL Holdings have declined 7.6% this year, extending a 17% fall in 2020. Earlier in March this year, PAL announced that it would retrench staff.
“After the restructuring, PAL Holdings will still be the major shareholder of PAL,” the management told Bloomberg News. “PAL Holdings is not filing, and its status and shareholders will remain the same.”
The airline will continue to operate its passenger and cargo flights based on demand and travel restrictions. The company also said it expects to add domestic and international flights as the market recovers gradually.
The company also received government support for being a state partner in the pandemic response, it said.