MANILA, Philippines – Philippine Airlines (PAL) has filed for Chapter 11 bankruptcy protection in the United States in order to pursue a lender-backed restructuring plan as a result of pandemic-related global travel restrictions, which has resulted in escalating losses.
According to a statement released on Saturday, September 4, 2021, the airline’s proposed restructuring that includes a contract with the majority of aircraft lessors and lenders to decrease debt payments by $2 billion and reduce its fleet size by 25%, which must be approved by a court in the southern district of New York.
“The restructuring plan, which is subject to court approval, provides over $2 billion in permanent balance sheet reductions from existing creditors and allows the airline to consensually contract fleet capacity by 25%,” the company said.
The Chapter 11 petition, which helps a company to keep operating while restructuring its finances, In addition, the company will file a parallel application for recognition in the Philippines under the Financial Insolvency and Rehabilitation Act of 2010.
“We welcome this major breakthrough, an overall agreement that enables the PAL to remain the flag carrier of the Philippines and the premier global airline of the country,” President/CEO Lucio Tan said.
During the restructuring process, PAL will borrow $505 million in long-term stock and debt financing from its primary shareholder and local banks, as well as an additional $150 million in debts from new investors.
“PAL will continue to operate flights in the normal course of business in accordance with safety regulations, and the company expects to continue to meet its current financial obligations throughout this process,” the PAL said.
The bankruptcy process comes as PAL begins to reduce its fleet, with the return to lessors of two planes in July and the postponement of additional plane deliveries from last year and this year to 2026 and 2030. Downsizing is essential for the airline’s cost-cutting measures, as the firm announced earlier this month that persistent losses had put pressure on its liquidity position.
PAL, which reported a net loss of 73 billion pesos last year (2020), has lost significant income this year incurring P16.56 billion in the first half of the year. During the period, operating expenses dropped nearly 49% this year, with labor costs also falling when the corporation began cutting off 2,300 employees in March, with those who remained to receive significant wage cuts.
“We are grateful to our lenders, aviation partners, and other creditors for supporting the plan, which empowers PAL to overcome the unprecedented impact of the global pandemic that has significantly disrupted businesses in all sectors, especially aviation, and emerge stronger for the long-term,” President/CEO Lucio Tan said.
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