Cebu Pacific mulls Zest Air investment

MANILA, Philippines - Publicly-held Cebu Air Inc. (Cebu Pacific) of taipan John Gokongwei is interested in acquiring budget airline Zest Airways Inc. of Ambassador Alfredo Yao.

Cebu Pacific corporate secretary Rosalinda Rivera said in a disclosure to the Philippine Stock Exchange (PSE) that the airline has been approached by ZestAir for a possible investment.

“Please be advised that Cebu Air has been approached to indicate its interest in this opportunity. However, any interest which the company may have at this point is at best indicative and non-binding,” Rivera said.

She pointed out that the airline is presently not doing any due diligence on ZestAir.

For his part, Cebu Pacific president and chief executive officer Lance Gokongwei said in an interview with reporters on the sidelines of the 65th anniversary celebration of the Civil Aeronautics Board (CAB).

“We will look out any other opportunity, if it makes sense to the company and shareholders why not,” he said.

Gokongwei said the industry is growing very fast but airlines are also facing difficulties on the back of high aviation fuel prices in the world market.

“It is growing very quickly, at the same time it is very difficult, primarily because the price of fuel is high,” he added.

According to him, there is intense competition in the airline industry that continues to benefit passengers in terms of cheaper airfare.

“There is intense competition given that there are six commercial airlines,” he said.

For his part, Philippine Airlines president and chief operating officer Ramon S. Ang was mum on the possibility that the national flag carrier would take over ZestAir after expressing interest in acquiring a regional airline.

“No comment,” Ang said.

A disclosure sent by PAL Holdings Inc. corporate secretary Cecilia Pesayco to the PSE stated that the airline’s parent firm was aware of ongoing negotiations for the acquisition of ZestAir.

“Please be advised that we have no knowledge of the alleged interest of PAL in acquiring ZestAir,” Pesayco told the exchange.

Yao announced last July that it was pursuing talks with strategic investors including Hainan Air of China for a possible 40-percent stake in ZestAir in preparation for plans for the airline to go public over the next two years.

“It is still ongoing we don’t know what will happen. Hopefully (we complete negotiations) this year. In the airline business you cannot do it by yourself and it is better if you have a partner,” Yao stressed.

Zest Air is currently under a five-year refleeting program which aims to add up to three aircrafts to its fleet every year. It has an existing fleet of 12 Airbus A320 and nine turbo-propped engine aircrafts.

However, according to Rappler.com, Cebu Pacific Air is not keen on forging a deal with the 4th largest player, Zest Airways Inc.

Rappler.com reported that in an interview with reporters on Thursday, October 2, Cebu Pacific president and CEO Lance Gokongwei said there are no talks with the owners of Zest Air, considered the most vulnerable in an industry with strong and growing industry players.

“We are not in any current discussions with Zest Air,” Gokongwei said when asked if the group is keen on taking a stake in Zest Air which is currently seeking new investors.

“We would look at any opportunity if it makes sense with the company and our shareholders,” he added.

He acknowledged that there is currently “intense competition” among players of the liberalized local aviation industry, but this is benefitting consumers.

“The airline industry is growing very quickly...[There is] just intense competition given that there are six commercial carriers. But at the end its beneficial to the consumers. That’s what it’s all about. The government’s liberalization [of the airline industry] has created clear benefits to the consumer,” he said.

Gokongwei added that the airlines’ main challenge remains the cost pressure of jet fuel prices.

“[Competition] is very difficult because the price of [jet] fuel [has] gone tremendously [high],” he shared.