Things are starting to happen fast at Philippine Airlines. The carrier is set to increase its capital four-fold in less than a year, a move that should help PAL finance its fleet renewal and also strengthen chairman Lucio Tan's control.
Tan successfully ended a boardroom struggle last September when PAL doubled its capital from 5 billion to 10 billion pesos (US$380 million), and he exercised his pre-emptive rights to take a 57 per cent controlling stake.
Shareholders have now unanimously approved a board recommendation to double capitalisation again, boosting it to 20 billion pesos ($760 million) once all new shares are sold. PAL is offering two billion new shares to shareholders in two tranches. The first went on sale 1 March; the second will be offered in March 1998.
How this will change PAL's ownership was still unclear at presstime, since shareholders had until the end of March to subscribe to the new offering. But preliminary signs point to Lucio Tan raising his stake.
'Any shares not subscribed to by existing shareholders will be put up for grabs among the other shareholders,' explains Avelino Zapata, PAL's senior vice president for sales and service. 'I have the very strong feeling that if any shareholders do not exercise their rights, Lucio Tan will. He's always prepared to take up the slack.'
Government financial institutions seem least likely to exercise their share rights. The Land Bank and Philippine National Bank, among others, have announced they will not subscribe. During September's capitalisation the government agencies waived their pre-emptive rights as part of a settlement allowing Tan to take control, but there is no such agreement now. They seem keener in investing where near term profit prospects are better, and PAL was forecasting a US$76 million loss for its year ending 31 March. PAL employees, who hold a 5 per cent stake in the airline, may also not exercise their rights.
Plans by the Ayala group, which retains a 10 per cent holding, were still unknown at presstime amid mixed reports. Some sources suggest that the group is so dissatisfied with current management that it wants to sell out, even at a loss. Others, however, indicate Ayala is still debating whether to subscribe to new shares.
Zapata says PAL's recapitalisation is designed to help fund its US$4 billion fleet replacement, which calls for 16 new aircraft this year. 'We are engaged in global borrowing, and this capitalisation is necessary for the banks,' he says.
And PAL is not the only Philippine carrier looking for new equity. Air Philippines is the target of Taiwanese carrier Far Eastern Air Transport and investment company China Development Corp, which are seeking to take a 40 per cent stake in the carrier. Far Eastern wants to establish a presence in the Philippines market which it sees as a good niche in light of Taiwan's already crowded skies.
Source: Airline Business
