SMC confirms buy-in talks with PAL

MANILA, Philippines - Diversifying conglomerate San Miguel Corp. (SMC) confirmed yesterday it was in talks with Philippine Airlines (PAL) owner Lucio Tan on a possible buy-in in Asia’s oldest airline.

“We confirm that the company was invited by Lucio Tan, the controlling shareholder of PAL Holdings, to participate and assist in the refleeting and modernization of the aircraft of PAL in preparation for the projected heavy influx of tourists in the coming years which will be beneficial to the tourism industry of the country,” SMC said in a disclosure to the stock exchange yesterday.

SMC president Ramon S. Ang said the company was conducting a due diligence audit on PAL to determine whether to proceed with the investment or not.

“In the event a definitive agreement is concluded, an appropriate disclosure shall be made to the exchange,” SMC said.

Shares of PAL Holdings, the listed holding company of the airline, inched up six centavos yesterday to P7.03 each from P6.97 Tuesday.

SMC shares likewise went up 60 centavos to P117.50 from P116.90.

Sources said SMC and PAL had signed an agreement before Christmas, allowing the food-to-infrastructure conglomerate to complete the due diligence work until Jan. 31, 2012.

PAL Holdings, however, flatly denied it, saying “there is presently no discussion on possible investment by San Miguel in PAL Holdings.”

Rumors about the sale of the flag carrier carrier have been persistent this year but both PAL and SMC officials had denied these reports.

The camp of telecommunications magnate Manuel V. Pangilinan was likewise earlier reported to take interest in PAL as part of an aggressive push into transportation and infrastructure.

On the other hand, SMC, which controls the largest brewery in the Philippines, has in recent years been heavily moving into oil refining, power generation and other infrastructure businesses to spur faster growth.

The conglomerate is shelling out $300 million to modernize and build new amenities in the Caticlan airport, the main gateway to Boracay Island.

Aside from this, SMC is also keen on bidding for the Public-Private Partnership (PPP) airport contracts for Palawan, Bohol and Caraga in Agusan.

PAL, on the other hand, has long implemented measures aimed at ensuring its survival.

As part of its restructuring program, the airline has been streamlining its operations in recent years but was met by stiff opposition from its employees’ labor unions.

PAL implemented an outsourcing program last Oct. 1, affecting some 2,300 airline workers involved in its airport services, catering and call center reservations. PALEA, the association of ground and service crew, has continued its protest against the outsourcing program.

PAL had incurred losses of roughly $300 million from 2008 to 2010.

In the second quarter of its fiscal year (July to September 2011), PAL incurred a net loss of $39.4 million, higher than the $26.7 million loss in the same period last year as jet fuel prices skyrocketed.

Total revenues, on the other hand, rose 4.7 percent to $420.4 million but total expenses grew 23 percent to $459.7 million.

Jet fuel, which continues to be the airline’s biggest expense, contributed the largest increase at $48.3 million or 33.9 percent from $142.5 million in 2010 to $190.8 million for the current three-month period.

Average jet fuel prices rose from $94.92 per barrel to $131.99 per barrel.

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