PAL revives stake sale to investors

Taipan Lucio Tan has revived plans to sell a significant stake in Philippine Airlines (PAL) to a strategic investor who could help the flag carrier soar to even greater heights, industry sources said.

The STAR learned that PAL’s management recently formed a team to “receive some offers,” which could come from foreign carriers to help the company better navigate the global aviation industry after the COVID-19 pandemic.

“The process (of the sale) has started and there is a team handling that,” a source confirmed.

However, the Tan family “is not relinquishing control” and the size of the stake it is willing to give up depends on the offer it would get, said the source.

Instead, the Tan family is willing to sell a 20 to 25 percent stake in the airline, which would be a “minority but significant stake” and attractive enough for a new investor to come in at this time.

The family of the tobacco and airline magnate deems that now is a good time to sell, especially because PAL has been performing well.

According to its latest financial report, PAL’s parent PAL Holdings Inc. has doubled its net income to P15.16 billion between January and September 2023 from a year-ago level of P6.76 billion, buoyed by the recovery in overseas and domestic air travel.

The airline’s revenues soared by 38 percent to P134.58 billion during the period, outpacing the 28 percent jump in expenses to P109.7 billion.

As costs soar and supply chain issues hound the industry, a new investor could help PAL address these challenges.

However, nothing is final yet at this time and plans are at a “very early stage.”

Another source said PAL already considered selling a stake early on after its historic restructuring.

“The family is open to opportunities for strategic investors that will help bring the airline to a new level. It is not something they have not done before. If you are selling a majority or a controlling stake, you will get a better offer, but that’s not on the table,” said another source.

For the Tan family, selling a stake in PAL would simply help elevate the airline and make it an even bigger carrier while at the same time helping the family recover their investments.

Another source said PAL management has also been approaching airline experts to help in the sale.

The share sale will come from existing shares of the family – and not new shares – but details are still being threshed out.

A source said the sale would likely be at the PAL Holdings level.

Japan’s ANA Holdings acquired a 9.75 percent stake in PAL Holdings in 2019 but during the Chapter 11 process, ANA’s stake was diluted to roughly 4.75 percent.

As part of the Chapter 11 process, Tan, PAL’s majority shareholder, increased his stake in PAL to 90 percent from 80 percent after a $255 billion cash infusion.

Tan’s Buona Sorte Holdings separately extended a $250 million loan for a combined $505 million lifeline to PAL.

PAL filed for Chapter 11 in September 2021 and successfully exited the process by December 2021 with a $2 billion reduction in debt, as agreed with its major creditors and a streamlined fleet – anchored on 70 aircraft, from island-hoppers to wide body long-haul aircraft including NEOs, A350s and B777s.

Getting a strategic partner for his different businesses has been the direction of Tan in recent years and it has worked well for the group.

Tan’s Fortune Tobacco Corp. has partnered with Philip Morris to form PMFTC, while Asia Brewery partnered with Calidad Pascual to bring in dairy products to the Philippines.

In 2012, San Miguel Corp. (SMC) acquired 49 percent of PAL but two years later, Tan’s PAL again took over from SMC.

Shortly after the buy back from SMC, the Tan Group sounded plans to take in a strategic partner for PAL.