PAL Seeks US Judicial Protection Against Creditors Amid COVID-19

Philippine Airlines (PAL) is considering filing for bankruptcy court protection in the United States as it seeks time to restructure debts and ensure continuity of operations as the COVID-19 pandemic crushes demand for air travel across the world.

Sources told the Inquirer that a final decision has yet to be made, although the presentation, the first in the famous airline’s history, could happen in the coming weeks.

It comes amid a period of turmoil in the aviation sector, the slow pace of recovery of flights even within the Philippines due to a large number of COVID-19 restrictions and limited financial support from the government.

On the table is a filing of Chapter 11 in the United States. This is a type of bankruptcy protection that has been taken advantage of by global airlines, including some of the largest airlines in Latin America during the pandemic.

Unlike other forms of bankruptcy, a Chapter 11 petition does not mean that PAL will bankrupt. Instead, the plan will provide the flag carrier space to implement programs to survive the unfolding health crisis.

Chapter 11 procedures will give the airline a break as it restructures its obligations to creditors and lessors, many of them international companies.

This will also protect the airline from certain lawsuits and avoid scenarios that could lead to the liquidation of its assets, further deflecting recovery efforts.

In a statement Wednesday, PAL did not directly address inquiries about its plan to seek judicial protection from creditors.

“Philippine Airlines management and stakeholders continue to work on a comprehensive recovery and restructuring plan that will allow PAL to emerge financially stronger from the current global crisis,” PAL said. “Meanwhile, we continue to gradually increase our flights operated on most of our domestic and international routes in line with the recovery of the market.”

Nikkei Asia previously reported on the details of PAL’s restructuring. This will include the return of 20 planes or roughly 20 percent of its fleet to cut expenses and raise $ 505 million to roughly split between PAL owner Lucio Tan’s group and loans from private and Philippine government banks.

Finance Secretary Carlos Domínguez III told reporters Wednesday that his department was informed of PAL’s plans to seek judicial protection for his rehabilitation.

But he added that PAL “did not give details about the assistance they need from us.”

Plans to shore up its resources emerge when PAL also implements a workforce reduction program that affects 35 percent of its workers, or more than 2,700 employees, through the end of the year.

While it has survived past challenges, including a rehabilitation program in the wake of the 1997 Asian financial crisis, the scale of the pandemic is forcing airlines like PAL to take bigger steps to protect their businesses.

The International Air Transport Association (Iata) industry group also called on governments around the world to help their carriers as “initial support programs are running out.”

“The crisis is deeper and longer than any of us could have imagined,” Iata CEO Alexandre de Juniac said last month.

“Today we must once again sound the alarm. If these support programs are not replaced or expanded, the consequences for an industry that is already in trouble will be dire, “he added.

The damage caused by COVID-19 was reflected in PAL Holdings’ latest financial statement.

Losses from January to September of this year reached 28,850 million pesos, while revenues fell more than 60 percent to 45,300 million pesos.

During this same period, PAL Holdings’ capital deficiency increased to P24 billion from a capital of P4.9 billion at the end of December 2019.

This was despite massive capital infusions launched by Tan and the entry of strategic partner ANA Holdings from Japan the previous year.

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