PAL to beef up fleet with three Boeing aircraft

Flag carrier Philippine Airlines will beef up its fleet with the addition of three Boeing 737-300s in preparation for increased flight frequencies in the East Asian region, particularly the Taiwan market.

PAL corporate secretary Eduardo Ceniza informed the Securities and Exchange Commission that the airline intends to lease three B-737s for five years, although two will be immediately sub-leased to sister airline Air Philippines with a lease payment guarantee in the form of a standby letter of credit in favor of PAL.

Both PAL and Air Philippines are majority owned by beer and tobacco magnate Lucio Tan.

Ceniza said PAL will utilize one of the aircraft for its operations for two to three years and, thereafter, will also sub-lease to Air Philippines for the remainder of the five-year period.

He said PAL needs an additional B-737, its 10th, to enable it to meet the capacity requirements due to the increase in the Taipei frequencies to nine times weekly, from the initial schedule of three times a week.

The move will also make PAL take advantage of the emerging commercial opportunities in the regional charter market by offering extra section flights, ad hoc and longer term charter flights while at the same time getting the benefit of testing new routes before opening regular scheduled operations to such new routes.

Ceniza added PAL also plans to mount a thrice-a-week long-term charter for the Manila-Kaoshiung-Cebu route which is estimated to give PAL additional utilization of 1,254 hours per annum and an estimated $12,000 per round trip in margin before fleet costs.

The PAL official said the company intends to maintain a high on-time performance (OTP) by avoiding numerous flight delays and cancellations due to mechanical breakdowns and grounding of aircraft associated with tight aircraft rotation as what had been experienced last year.

On the other hand, the sub-leasing of the two B-737s and the third one after two or three years will also benefit PAL through lower lease rates offered by the lessor for the package of three as compared with leasing one aircraft independently; saving on integration costs due to the aircraft’s similarity with PAL’s other air vessels; and additional income from the lease management fee (equivalent to five percent of monthly lease rental) to be collected from Air Philippines.

Ceniza said the plan to lease the three aircraft has been approved by the SEC and its appointed permanent rehabilitation receiver and the majority of its creditors.

In the first nine months of PAL’s fiscal year ending March, the airline made a huge turnaround in its financial performance as it recorded a net income of P300 million, a complete reversal from the P122-million loss in the same period a year ago.