US bankruptcy court gives green light to PAL loan financing

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Philippine Airlines (PR, Manila Ninoy Aquino Int’l) has announced that it has obtained US court approval to access funding for its Chapter 11 bankruptcy proceedings, the first step in reducing taxes by $ 2.1 billion. 6 billion debts of the national airline.

On September 9, Judge Shelley Chapman of the U.S. Southern District Bankruptcy Court of New York issued an order authorizing Philippine Airlines to draw up to $ 20 million from a $ 505 million loan facility run by the majority shareholder of the carrier, Buona Sorte Holdings Inc., which is owned by the family of magnate Lucio Tan.

The judge approved all of the “first day” motions on an interim or final basis for the voluntary restructuring of Philippine Airlines. This follows the airline’s September 3 filing of a voluntary request for Chapter 11 bankruptcy relief, which will allow it to restructure and reorganize its finances affected by the COVID crisis. 19.

“These approvals mark an important step in Philippine Airlines’ turnaround plan, which will reduce the company’s debt by $ 2 billion and help [it] recover from the impact of the global pandemic, ”the airline said in a statement. “This is an important step in our recovery plan and supports our ongoing operations,” added President and CEO Gilbert F. Santa Maria. “The combination of our substantial support from creditors and court approvals allows us to move towards accelerated emergence and full recovery,” he said.

Among the “first day motions” passed, the court issued an order confirming the authority of Philippine Airlines to continue its operations in the normal course of business. It also authorized Philippine Airlines to continue to pay suppliers and outstanding commercial creditors in the ordinary course for goods and services provided throughout the Chapter 11 process. The court also issued an interim order allowing, but not ordering not, Philippine Airlines to pay certain employee salaries and other compensation and to maintain employee benefits and has authorized all banks involved to honor all related transactions.

Philippine Airlines will further honor and maintain all customer programs, including valid tickets and travel vouchers, Mabuhay miles and benefits, and reimbursement obligations, subject to Philippine Airlines customary terms of use.

The proposed restructuring plan filed in the Southern District of New York will allow the airline to:

  • reduce its aircraft obligations by $ 2.1 billion;
  • secure an injection of $ 505 million in working capital to fund its ongoing operations during Chapter 11;
  • optimize the size, composition and cost of ownership of its fleet in accordance with new market conditions;
  • maintain and improve its main contracts and business partners to strengthen its viability during the pandemic and beyond; and
  • securing $ 150 million in debt financing from new investors to ensure it has sufficient liquidity and leads to complete its restructuring.

The airline hopes to exit the Chapter 11 process before the end of the year. PAL Holdings, the listed holding company of Philippine Airlines, and PAL Express (2P, Manila Ninoy Aquino Int’l), are not included in the Chapter 11 dossier.

According to documents submitted to the court, the airline owes $ 2 billion to aircraft lessors alone. The 20 largest creditors are:

  • Nanshi Aviation Leasing Limited / Goshawk: USD 271 million;
  • CIT Group (Ireland): USD 244.2 million;
  • SMBC Aviation Capital (United Kingdom): USD 240.8 million;
  • Aviation Pacific Leasing II PTE LTD: USD 125.7 million;
  • Pajun Aviation Leasing 3 Limited: USD 118.9 million;
  • Pajun Aviation Leasing 1 Limited: USD 118.8 million;
  • Pajun Aviation Leasing 2 Limited: USD 118.5 million;
  • Rolls-Royce: $ 89 million;
  • National Bank of the Philippines: USD 86.8 million;
  • Lufthansa Technik Philippines INC: USD 80.7 million;
  • Asia United Bank: USD 75 million;
  • GECAS: $ 74 million;
  • SAF Leasing II (AOE 2) Limited: US $ 66.5 million;
  • China Banking Corporation: US $ 65 million;
  • Avolon Aerospace AOE 95 Limited: US $ 63.3 million;
  • CIT Aerospace International: USD 61.2 million;
  • DCAL II Leasing Limited: USD 55.7 million;
  • Falcon 2019-1 Aircraft 1 Limited: USD 55.6 million;
  • JPA No. 112 Co. Ltd: $ 53.9 million; and
  • ECAF I: $ 51.9 million.

After being a leading player in the Philippine airline market with around 4,500 employees and over $ 3 billion in annual gross revenue before COVID-19, Philippine Airlines lost $ 2 billion in revenue after the restrictions pandemic travel has crippled the airline industry.

The carrier has taken a number of cost-cutting measures, including a 32% reduction in its workforce, and has entered into discussions with stakeholders that have resulted in several Restructuring Support Agreements (RSA) with its lessors and aircraft lenders outlining the material conditions of the draft Chapter 11 reorganization plan.

Meanwhile, the Daily Tribune reports that the Philippine government said this week that it would wait for the outcome of Philippine Airlines’ bankruptcy proceedings in the United States before allowing local public banks to help the airline.

“I don’t want LandBank (of the Philippines) and DBP (Development Bank of the Philippines) to step in and fund a company that goes bankrupt and we don’t yet know how it’s going to go,” the finance secretary said. , Carlos. Dominguez III said on September 9 during a virtual hearing of the government’s Development Budget Coordinating Committee on the fiscal year 2022 budget. “(Philippine Airlines) initially took a different route to file for bankruptcy. So I told them, the conditions I said before are still on the table, however, if you file for bankruptcy, we will have to wait for the outcome of the bankruptcy proceedings, ”Dominguez said.

The finance minister said his ministry began discussions with the airline industry in March 2020. A team from the finance ministry (DoF) and public banks has been formed to provide assistance to airlines. “I laid out the principles of our involvement from the start… we don’t want to end up owning an airline… and frankly the history of Philippine Airlines under government administration in the past has been dismal,” he said. he explains.

“What we will need in any restructuring is for Number One, the major shareholders, to put in place adequate additional capital. Number two, that all current creditors participate in alleviating the financial problem of the airlines. Number three, that local banks participate in the financing, ”he added. It is only after these conditions are met and the DoF is satisfied with the management of the company that the time is right for government financial institutions to participate, he said.


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