Cebu Air to raise US$500m, reduce fleet and network

[MANILA] Philippine budget carrier Cebu Air plans to raise US$500 million by selling preferred stock and bonds, joining airlines worldwide in trying to increase capital to help cope with the pandemic.

The proceeds from the US$250 million convertible preference share issue and US$250 million private placement of convertible bonds will be used to strengthen the carrier's balance sheet, it said in a statement. First-half revenue at the airline controlled by the family of John Gokongwei plunged 61 per cent from a year earlier to 17.3 billion pesos (S$485.2 million) and the company said it is operating only about 15 per cent of flights compared with pre-Covid.

Cebu Air is undertaking a business transformation that involves trimming down its fleet and network while improving operations as an abrupt drop in passenger traffic "casts uncertainty over the near term prospects of the company", it said, without providing more details of its downsizing plan.

Airlines in the Philippines have suffered a shaky restart amid one of the world's longest and strictest lockdowns, with lingering concerns over the virus and stringent movement restrictions damping demand for travel. Cebu Air in August dismissed more than 800 of its about 4,000 employees, while rival Philippine Airlines on Oct 5 said it may cut up to 35 per cent of its 7,000 workers as part of a larger restructuring and recovery plan.

The convertible preferred stock will be offered to existing shareholders and underwritten by parent JG Summit Holdings, while the convertible bonds are for new investors, Cebu Air president and chief executive officer Lance Gokongwei said in a mobile-phone message.

Cebu Air will seek shareholders' approval to increase its authorised capital and create a new class of convertible preferred shares. Shares of the airline were up 0.5 per cent at 37.30 pesos as of 11.14am Manila time. They've fallen 58 per cent this year, more than twice the benchmark Philippine stock index's 25 per cent drop.

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