Exactly as planned, Philippine Airlines has emerged from Chapter 11 bankruptcy protection within four months of entering. The airline completed its restructuring on December 31, 2021, after having filed for voluntary bankruptcy protection with the New York Southern District Court on September 3. PAL now intends to grow back its domestic and international travel markets. Philippine Airlines exits Chapter 11 on high hopes.
Philippine Airlines takes pride in completing the restructuring so quickly, highlighting in a press release that this is done “in contrast to other airlines that remain in the Chapter 11 process more than a year after filing in 2020.” It thanks its creditors and shareholders, industry partners, and employees for supporting the Plan of Reorganization, which was approved by the New York court on December 17. In October, the Court approved the $505 million in debtor-in-possession funding.
The flag carrier was forced to restructure after getting in serious financial trouble in the first year of Covid in 2020. Philippine Airlines lost 75 percent of its traffic as it was forced to ground for three months. Despite strict cost-cutting initiatives, the prolonged effects of the pandemic continued to hurt in 2021. PAL reduced its workforce from 4.500 to 2.300.
A key part of the restructuring is taking out $2.0 billion in structural cost savings from the balance sheet, thanks to agreements with lessors, lenders, and other creditors. Most savings come from aircraft-related obligations as it has reduced its fleet by 25 percent to seventy aircraft. Philippine reduced the number of Boeing 777-300ERs from ten to six and its A350-900s from six to two, with the surplus A350s taken up by Lufthansa. Its backlog for A321neo’s still stands at thirteen, but the airline confirmed in September that deliveries have been deferred from 2026 to 2030.
The $505 million provided by PAL Holding as DIP funding is also meant as a long-term equity investment also used for debt financing. The carrier has the option to obtain another $150 million in financing from new investors.
PAL wants to rebuild in network
The management of Philippine Airlines, which will stay on, has set a clear target for the future: “Philippine Airlines stands ready to help grow back the Philippines’ local and international air travel markets in ways that renew the tourism industry, serve the needs of global citizens including overseas Filipinos, and contribute actively to the recovery of the Philippine economy,” said Director Lucio C. Tan III.
The airline wants to reinforce its position in the region as the country’s sole full-service airline and the only one with a network of point-to-point flights to the US, Canada, and Australia, plus an extensive network in Asia and the Pacific. But although Philippine Airlines exits Chapter 11 on high hopes, it adds in a message to employees on its website: “Make no mistake: there are great challenges ahead, and the aviation markets have some way to go before full recovery. We will ask all of you to meet those challenges with the same dedication and fidelity to our mandate to serve the public and take great care of our customers. (…) For now, we have restored most of our domestic, Asian, Middle Eastern, and North American routes, although we are still considerably below pre-pandemic levels.”
Dedicated freighter fleet not ruled out
Born out of the pandemic as a necessity to generate revenues, PAL intends to build its dedicated cargo services. “PAL has evolved into a cargo airline where the development of cargo markets is now part of our business goals and strategic outlook. If business opportunities warrant, we are open to considering a dedicated cargo fleet in the future. Today, we are able to pursue market opportunities by deploying our existing passenger aircraft on all-cargo transport runs, in some cases by loading light cargo in the main passenger cabin.”