The end of the turmoil that has plagued Philippine Airlines is in sight following the appointment of advisers for its fleet renewal programme, unprecedented shareholder unity, and equal treatment for the leading private rival on unprofitable domestic sectors.
Credit Lyonnais and Chase Manhattan Bank have been chosen by PAL to advise on financing its $3 billion fleet renewal programme, which management hopes will turn the carrier's fortunes around.
Concurrently, the ownership struggles appear to be over with local tobacco tycoon Lucio Tan finally securing undisputed control of the carrier. Five state shareholders have signed an agreement which will secure Tan management control within six years.
Tan owns 51 per cent of PR Holdings, which controls 67 per cent of the airline. But government-related groups hold 33 per cent of PR Holdings and a powerful say in policy making. The dissolution of PR Holdings and Tan's investment of $191 million in new equity should give him total control.
The minority shareholders - Philippine National Bank, the Development Bank of the Philippines, Armed Forces of the Philippines Retirement Service and Benefits System, the Government Service Insurance System, and Land Bank of the Philippines - have shown willing to opt out.
The put-option deal allows Tan to buy their shares at a predetermined price if he can return the carrier to profitability within six years - the period needs to turn PAL around.
After posting a net loss of $64.6 million in its year to 31 March 1995, PAL accumulated a further deficit of $35.9 million in the six months to September. The plan to acquire 32 new Boeing and Airbus aircraft is a key component of Tan's revival strategy.
So far, the scheme has not been going entirely according to plan. In February, PAL had to start a search for new underwriters for a $500 million loan to cover down payments on the new jets when a Philippine National Bank agreement to lead underwrite the loan fell through. The bank refused a corporate guarantee by Lucio Tan's companies as collateral, says PAL director Carlos Dominguez. PAL finance chief Jaime Bautista later appointed Credit Lyonnais and Chase Manhattan to advise on financing the 24 mixed Airbus fleet and eight B747-400s.
The huge aircraft order has not won universal approval. One PAL board member, Jesli Lapus, complains the flag may be over extending itself and might not have facilities or routes to make full use of the new aircraft. He says the carrier has yet to produce a detailed routing study.
Meanwhile, PAL has won a small victory with the government, which has ruled that its main rival Grand Air must start serving missionary routes in return for new scheduled authority to Hong Kong. In the past Grand Air and other startups were exempt from missionary routes, even though PAL was forced to serve those routes at a loss. Purely domestic airlines remain exempt, but the move reflects Manila's more evenhanded attitude towards PAL.
Indications are the government will approve the PAL ownership accord when presented, but there are issues outstanding, including the rate for converting holding company shares into PAL shares. Other minority shareholders may be less willing than the government to waive their rights to the new issue, and while they cannot block Tan's takeover, they could affect the extent of his control.
T Ballantyne/D Knibb
Source: Airline Business
