Philippine Airlines files for Chapter 11 bankruptcy

New York

PHILIPPINE Airlines Inc filed for Chapter 11 bankruptcy in New York with a lender-supported plan that helps the country's main carrier recover after the pandemic devastated global travel.

The company aims to cut US$2 billion in borrowings through a proposed restructuring plan, which needs court approval, it said. Philippine Airlines (PAL) will also get US$505 million in equity and debt financing from its majority shareholder, as well as US$150 million of debt financing from new investors. The carrier said it has support agreements from 90 per cent of its lenders.

The restructuring plan will allow it to reduce its fleet capacity by 25 per cent, it said. The "recovery plan" will allow the airline to return at least 20 aircraft, the company's management said in response to a Bloomberg News query. PAL also cut 35 per cent of its workforce early this year.

Chapter 11 lets a company continue to operate while it restructures. The filing last Friday comes after the airline spent months negotiating with its stakeholders. Billionaire owner Lucio Tan called the filing a "major breakthrough" for the carrier.

The restructuring plan allows the airline "to overcome the unprecedented impact of the global pandemic that has significantly disrupted businesses in all sectors, especially aviation, and emerge stronger for the long-term," Mr Tan, who is the chairman and CEO, said in a statement.

The challenges for PAL Holdings, the holding company of Philippine Airlines, predate the pandemic. It has reported losses since the first quarter of 2017. The company suffered a record 71.8 billion pesos (S$1.9 billion) loss in 2020, compared with a 10.3 billion peso shortfall the year before.

Shares of PAL Holdings have declined 7.6 per cent this year, extending a 17 per cent fall in 2020.

"After the restructuring, PAL Holdings will still be the major shareholder of PAL," the management told Bloomberg News. "PAL Holdings is not filing and its status and shareholders will remain the same."

The airline will continue to operate its passenger and cargo flights based on demand and travel restrictions.

The company also said it expects to gradually add domestic and international flights as the market recovers, it said in the statement. The company also received government support for being a partner of the state in the pandemic response, it said. BLOOMBERG