PAL eyes court protection from creditors, says DoF

PHILIPPINE AIRLINES (PAL) is planning to seek court protection from creditors as it works on a debt restructuring plan, Finance Secretary Carlos G. Dominguez III said on Wednesday.

In a Viber message to reporters, Mr. Dominguez said the flag carrier informed the Department of Finance (DoF) about the company’s plans but did not specify the kind of aid it is seeking from the government.

“PAL informed the DoF team of their plans last week but gave no details on any assistance they may need from us,” he said.

Asked if the Lucio Tan-owned carrier’s plans included seeking a court-backed debt restructuring, the Finance chief said “yes, they did.”

In a statement on Wednesday, PAL said the company is currently working on a comprehensive recovery and restructuring plan to help the company survive the pandemic-induced crisis.

“We will make the necessary disclosures at the proper time, once details are finalized. In the meantime, we continue to gradually increase our flights operated on most of our international and domestic routes in line with market recovery,” it added.

PAL announced last month its plan to lay off 35% or 2,700 employees out of its 7,800 workforce, urging employees to apply for voluntary separation instead.

The pandemic has pummeled the airline industry around the world, amid travel restrictions and a collapse in demand due to the pandemic.

Parent PAL Holdings, Inc. reported its net loss ballooned to P7.92 billion in the third quarter, from P5.16 billion during the same period a year ago as revenues plummeted by 77% to P8.47 billion.

This pushed the listed firm’s nine-month net loss to P28.85 billion, more than three times the P8.49 billion loss posted a year ago.

As of end-September, PAL Holdings had a debt-to-equity ratio of -8.69, versus 46.54 as of end-2019. A company having a negative debt-to-equity ratio means it has negative shareholder equity, or more liabilities than assets.

The listed airline operator reported a P24.12-billion capital deficiency as of Sept. 30.

“The disruption in the Group’s operations due to the repercussions brought about by the COVID-19 crisis had a negative impact on its equity position at the end of the period,” PAL said in its quarterly report.

Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said the company is in a “very risky position” right now, with its financial documents showing that it only has 35 centavos of assets for every P1.00 worth of liability.

“Looking at the bigger picture, total liabilities are 108.5% of total assets. So even all of the company’s assets are not enough to cover all that they owe at the moment,” Mr. Tantiangco said in a mobile phone message Wednesday.

As of Sept. 30, total liabilities reached P308.49 billion, while assets stood at P284.36 billion.

PAL’s move to tap the government for help is not surprising, Astro C. del Castillo, managing director at First Grade Finance, Inc., said. He believes it is the “best way” to protect the carrier’s assets while trying to hang on until the pandemic is over.

“Given that it was on the verge of its continuous expansion, obviously its exposure to debt is very obvious and logical. Given the strain on its finances, not much revenue and income during the pandemic, so indeed it has to be proactive in protecting its assets and financial condition,” Mr. Castillo said in a phone call interview Wednesday.

“Seeking government help is logical considering that it is a recognized national airline. Also, as a national carrier, given its reach, our OFWs (overseas Filipino workers) employed, and the spending capacity of the Filipinos, I think it’s just a good move to seek the help of the government,” he added.

Investors might have been considering the pandemic’s impact on the airline sector for a while now so the “price reaction will be limited, if any” at all, said Luis A. Limlingan, head of sales at Regina Capital Development Corp.

“Granted everyone has seen an erosion in their balance sheet, what is more important is that they can meet their debt obligations through interest payments (for) the short and medium term,” Mr. Limlingan said via Viber.

Moving forward, Mr. Tantiangco said the sector’s outlook remains bleak and clouded by uncertainty as the pandemic is far from over.

“Even if the COVID-19 crisis is already solved, economies around the world have already taken heavy damage which will take time to mend so demand for air transportation services are not expected to immediately return to their vibrant levels,” he said.

Shares of PAL Holdings dropped by 4.3% or by 33 centavos to close at P7.35 apiece on Wednesday. — Beatrice M. Laforga with inputs from Arjay L. Balinbin