Lucio Tan determined to bring PAL back to recovery

“He continues to fish.”

“Fishing or cutting bait” is a familiar warning to people who are into the sport of fishing. The warning simply means that if, after waiting a long time and throwing a lot of bait into the water, he still hasn’t taken a bite, an angler should either stop throwing more bait into the water – either other words, pack – or should continue to wait for the fish to bite.

I remember “Fishing or Cutting Bait” ​​when I contemplate the situation of Lucio Tan, one of the taipans of this country, in relation to the national airline, Philippine Airlines (PAL).

When, before March 2020, Mr Tan reached an agreement with the Philippine government for the sale of the airline, the national flag carrier – the oldest airline in Asia, having been founded by Colonel Andres Soriano in 1946 – was saddled with debt resulting from decades of poor performance by private sector and government managers, poor policy-making, government abuses and corruption. Businessman advised that he was known, Lucio Tan knew what he was getting into when he signed the sales agreement. He signed the deal anyway.

What made Lucio Tan decide to acquire PAL with all his problems, what motivations motivated this decision, the public does not know. Maybe Mr. Tan had always dreamed of owning an airline, or maybe the prestige of owning the national flag carrier was the big motivating factor. Whatever the underlying reason, Lucio Tan decided to tackle the financial albatross that was PAL.

The fourth richest man in this country was quick to take steps to reduce PAL’s financial instability and gradually restore operational normalcy. Management changes were ordered, arrangements were made for the purchase or lease of new aircraft, and the expansion of PAL’s route matrix was implemented. Then a disaster that no one had foreseen occurred. On March 16, 2020, the Philippine government began its campaign against the COVID-19 virus by placing the most productive area of ​​this country – NCR (National Capital Region) and the immediately surrounding region – under strict ECQ (Enhanced Community Quarantine). Subsequent lockdowns came in quick succession, earning the Philippines a reputation as the country with the longest lockdown.

Like the worlds of all airlines in the world, the world of PAL has collapsed. With borders closed and airline schedules drastically reduced, 2020 has become a disastrous year. Losses continued into 2021. In the first three quarters of 2021, PAL suffered an overall loss of 27.19 billion pesos, a 29% drop in consolidated revenue and a decline of around 14 billion pesos in passenger revenue.

Faced with this near-catastrophic decline in PAL’s fortunes, Lucio Tan might have decided that the time had come to cut the bait. He didn’t: he decided to continue fishing.

The first manifestation of the decision to continue fishing was the bankruptcy petition filed in the US Bankruptcy Court for the Southern District of New York by PHI (PAL Holdings Inc.), PAL’s company. Attached to the bankruptcy petition was a reorganization plan approved by all – 100% – of PAL’s creditors, which included major aircraft manufacturers and lessors, equipment suppliers and maintainers, overhaul service providers and certain financed lenders.

The reorganization, approved by the bankruptcy court, included, among other things, a $505 million investment in equity and long-term debt financing from PAL’s majority shareholder. This person is actually Lucio Tan, who controls PHI.

To give effect to this provision of the approved reorganization plan, PHI filed a request at the end of December with the SEC (Securities and Exchange Commission) of this country to increase the capital of PHI to 30 billion pesos (instead of 13 billion pesos).

Through these legal and other measures, Lucio Tan has made it clear that, far from wanting to let go of PAL, he will fully support the nation’s standard bearer until stability is restored. The “Capitan” – Mr. Tan’s name in PAL circles – can be expected to keep his word until PAL comfortably lays the friendly skies down again.

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