PAL, hat in hand, seeks ‘forbearance’ as losses top P100 B
Lucio Tan was joking when he told colleagues that the fastest way to become a millionaire is for a billionaire to own an airline.
Unfortunately for the taipan, the joke is again being inflicted upon himself.
According to regulatory disclosures, COVID-19 related losses incurred by his PAL Holdings had reached P82.6 billion as of March.
In all, the flag carrier’s holding company has racked up over P100 billion in losses since 2017, when jet fuel price rose to an average of $75.59 per barrel, which, whoops, is about the same level today.
To survive the still ongoing pandemic, “PAL has drawn on bridge funding from its major shareholder (translation: Lucio Tan), deferred payments through the forbearance of lessors, lenders and suppliers, carried out a retrenchment program, and implemented cost-cutting measures,” the company said in a report to stakeholders.
Moreover, “the group has not made principal and/ or interest payments due in respect to its long-term obligations since April 2020, resulting in breach of certain loan covenants and default provisions in the lease and loan agreements.”
According to regulatory disclosures, PAL Holdings owes nearly P149 billion in long-term aircraft lease and another P33 billion in “long-term debt.”
Total liabilities to be settled amounted to nearly P206 billion as of end-March, including accounts payable of nearly P49 billion “that are payable on demand, but are expected to be renegotiated in the future.”
“Due to the difficulty in sourcing additional financing, the group is embarking on a financial restructuring plan to ensure the group’s business continuity,” PAL Holdings said, referring to the bankruptcy protection case that the flag carrier was reported to be filing in the United States.
To partially erase the company’s P120-billion capital deficiency, Tan is expected to pony up another P24 billion, in addition to the P17.2 billion that the taipan had already forked out since 2019 to keep the flag carrier flying.
In addition, PAL Holdings is also hoping to borrow another P12 billion from “the government and private financial institutions,” a scenario that Finance Secretary Carlos Dominguez III, a former PAL president, had already outlined in October 2020, on condition that “the private sector banks have to cough up the majority of the assistance.”
PAL Holdings said the ongoing negotiations with creditors include the “refinement and validation of the group’s fleet and network strategy, and the consideration to file a prenegotiated court-rehabilitation in an overseas jurisdiction.”
The fleet reduction is apparently already cast in stone, as Tan himself said in the 2020 annual report that “we are reducing the size of our fleet to align with post-COVID market realities, with priority on younger and more fuelefficient aircraft.”
As of end-2020, PAL had 60 planes in its fleet with an average of 5.6 years, while sister PAL Express had 37 planes with an average of 8.6 years. In contrast, low-cost carrier Cebu Pacific has an average age of 5.75 years.
Given that the restructuring and the new money are still up in the air, external auditor SGV deemed it “inappropriate” to issue the customary opinion on PAL Holdings’ 2020 and first quarter 2021 financial statements
“The ultimate outcome of the negotiations with the lessors and creditors, the application and approval of the financial restructuring, the arrangements to secure additional financing and the impact of the financial difficulties and uncertainties on the group’s ability to continue as a going concern cannot be determined at the present time,” said SGV partner Catherine Lopez.
Heard through the grapevine
The coronavirus pandemic has killed whatever chances of rehabilitating the Ever-Gotesco real estate and retail empire.
In addition to the P4.68-billion capital deficiency as of end-2020, Ever-Gotesco’s total current liabilities exceeded its total current assets by P1.28 billion. The group has ceased mall operations since 2017.