Philippine Airlines to delay or drop Airbus orders in rehab plan

Philippine Airlines says it expects air travel demand to return to pre-pandemic levels by 2024 or 2025. Billionaire Lucio Tan, who controls the struggling flag carrier, is set to inject $505 million into the company.

CLIFF VENZON, Nikkei staff writer | Philippines

MANILA — Philippine Airlines will delay or cancel the delivery of over a dozen Airbus planes, company officials said on Monday, adding that the distressed flag carrier is looking to emerge from bankruptcy protection by year-end.

The airline was supposed to receive 13 narrow-body aircraft from European manufacturer in the next five years, until the coronavirus pandemic hammered the aviation industry.

“We were able to get the support of Airbus to basically postpone those deliveries and give us an option to cancel some of those aircraft beyond 2026 to 2030 … depending on how this recovery shapes up,” Nilo Thaddeus Rodriguez, the airline’s chief financial officer, said in an online news conference on Monday.

Philippine Airlines on Sept. 3 filed a “pre-arranged” Chapter 11 petition in the U.S. state of New York. The first hearing is set for this week, and the carrier aims to emerge from the bankruptcy process by the end of the year, airline president Gilbert Santa Maria said in the same briefing.

“Once we exit before the end of the year, we’re done. We will have a lighter balance sheet. We will have new capital, and our cost structure will be a lot lighter,” Santa Maria said.

“I don’t anticipate anything other than, you know, an asteroid hitting Manhattan to stop us from exiting,” the president said.

The Chapter 11 filing comes after a year of negotiations with over 40 parties, including suppliers, creditors and lessors, which agreed to cut Philippine Airlines’ financial burden by over $2 billion and allow it to shrink its fleet by 25%.

The company will return 22 aircraft, leaving it with 70 planes after the process, Santa Maria said.

Billionaire Lucio Tan, who controls Philippine Airlines, is set to inject $505 million into the company, a portion of which will be converted into equity. A further $150 million in new debt is being arranged.

Philippine Airlines said it would welcome financial backing from the government, which has expressed reluctance to rescue airlines. “You can never be too sure how this recovery or this pandemic plays out, so having them behind [the company] post-Chapter 11 is something we can explore and work out with them,” Rodriguez said.

The company said it will be business as usual during the restructuring, and expects revenue this year to be a third of the pre-pandemic level in 2019.

“We don’t see demand coming back to pre-pandemic level until 2024 or 2025,” said Dexter Lee, chief strategy and planning officer.

The company plans to add flights as travel restrictions are relaxed, and to boost its cargo business. Dedicating aircraft as cargo freighters “is certainly a possibility,” Santa Maria said.

“Our business plan is not anything extraordinary. We are not going to do what AirAsia did,” Santa Maria said, referring to the Malaysia-based regional budget carrier which is looking to become a super app like Grab.

“We are a traditional carrier. We are going reinforce our core business, improve our brand, improve our marketing and recover that way.”

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