Just as it looked as if it was all over for Philippine Airlines (PAL), a troop of white knights have emerged in the form of former Cathay Pacific Airways executives who have taken up senior management positions in Manila.
The four high-level executives started working at PAL in mid-January and their move could not have come at a better time for the embattled Philippine flag carrier, which is desperate for credibility among its management team.
In December, after equity-sale talks with Cathay Pacific Airways and Northwest Airlines failed, PAL was forced to complete a "standalone" rehabilitation plan, proposing a $150 million cash injection from new and existing shareholders, a 22-aircraft fleet and the sell-off of non-core businesses.
The plan was a requirement of the Philippine Securities and Exchange Commission (SEC), which since June has protected the airline from its creditors - there are more than 9,000, owed a total of over $2.1 billion. Key lenders, including European credit agencies and the US Exim bank, have rejected the plan, saying it will not work without the help of a foreign airline partner and claiming that figures on future revenues are over-optimistic.
News that the Cathay executives are joining has generally been well received, although the worst is not yet over for the carrier, which has already been forced to shut down once since September. PAL must still convince creditors that its rehabilitation plan can work, as their support is considered crucial if the carrier is to operate financed aircraft outside the Philippines.
It must also convince a new shareholder to provide much-needed cash. The airline is said to be in talks with institutional investors from the USA and from Asia, but a deal is not considered imminent and PAL chairman Lucio Tan has indicated that he will have to provide bridge financing in the interim. Tan has been called a "hero" by Philippine president Joseph Estrada for keeping PAL aloft despite daily losses of Ps25 million ($660,000).
The first order of business for the former Cathay executives was to meet creditors and convince them that PAL has a future. It is proving a tough fight, as the SEC has said that it "will not hesitate" to close the carrier if it deems the rehabilitation plan unworkable. An SEC ruling on the plan is expected this month.
It is widely believed that the executives have been assured of enormous financial rewards if they are able to turn the carrier around within five years. Some also believe that Cathay has privately given a nod to the move, telling its former employees that it may be willing to take another look at a PAL stake in future.
The executives have joined PAL through their newly established Regent Star Services consultancy, to get around a Philippine law barring foreigners from directly taking senior management positions. The executives are already familiar with PAL's books, having been involved in due diligence during Cathay's aborted talks to buy a stake.
The group is led by Cathay's former general manager for Taiwan and the Philippines, Peter Foster, now PAL's new chief company advisor. Former finance director at the trading division of Cathay parent Swire Pacific, Michael Scantlebury, is acting as senior financial advisor. New senior advisor for ground services and training, Andrew Fyfe, is the former head of ground services and training for Cathay's European operations. New senior advisor for maintenance and training, Richard Wald, is the former head of maintenance and engineering for Cathay's European operations. A senior commercial advisor for sales and marketing is also expected.
Source: Airline Business
