PAL board okays buy-in talks with SMC

MANILA, Philippines - The board of directors of flag carrier Philippine Airlines (PAL) authorized yesterday company chairman Lucio Tan and vice-chairman Harry Tan to negotiate with potential investors for the sale of a stake in the company.

STAR sources revealed that the PAL board held a special meeting yesterday solely for the purpose of authorizing the company’s top two officials to proceed with the negotiations with San Miguel Corp. (SMC), which has offered to reportedly acquire a 46- percent stake in the carrier.

Sources also disclosed that while business tycoon Lucio Tan and SMC president Ramon Ang are close to clinching a deal, a number of issues are still being ironed out as of yesterday.

PAL is over 90 percent owned by publicly-listed PAL Holdings which, in turn, is controlled by Tan.

Tan has been in negotiations with Ang for sometime now but it was only yesterday that the former got the go-signal from the board to close a deal. The board reportedly discussed Ang’s offer yesterday.

PAL sources revealed that the sale of at least a 40 percent stake and assumption by the SMC group of management control of PAL will be finalized anytime now. As part of the proposed deal, Tan will retain majority ownership of PAL but the SMC group will be running it.

SMC earlier said that it was invited by Tan to participate and assist in the refleeting and modernization of PAL’s aircraft in preparation for the projected heavy influx of tourists in the coming years.

Due to lingering high fuel costs, PAL suffered a total comprehensive loss of $33.5 million for its fiscal year’s third quarter covering October to December 2011.

The flag carrier said total revenues dropped 3.8 percent to $386 million for the third quarter of 2011 compared to the same period in 2010.

Company officials pointed out that during the period PAL experienced weak passenger demand as well as declining cargo markets as the world economy struggled to recover.

While there were improvements in yields for both passenger and cargo compared to the same period last year, load factors lagged behind, the airline reported.

Total operating expenses amounted to $419.5 million, up by $34.8 million or nine percent over the same quarter in 2010. Jet fuel costs continued to put pressure on the airline’s bottom line as fuel prices rose to $129.75 per barrel in the third quarter from an average of $100.96 per barrel in the same period the previous year.

PAL recently completed the outsourcing of its non -core businesses, a move necessitated by its desire to reduce and rationalize costs. As the airline goes through its last quarter of fiscal year 2011-12, it continues to seek ways of enhancing revenues and lowering costs, officials emphasized.