MANILA, Philippines — Philippine Airlines announced Friday it secured a clearance from a US bankruptcy judge to access funding needed for its restructuring, in what the company called an “initial milestone in recovery”.
In a statement on Friday, the loss-making national carrier, which filed for Chapter 11 bankruptcy in New York last September 3, said it got an approval from the US court to tap the first $20 million of a debt and equity funding totaling $505 million.
The clearance was granted by Judge Shelley Chapman of the US Bankruptcy Court in New York, documents showed.
The Chapter 11 process allows a financially-distressed company to continue operations while it restructures its finances. The $505-million financing package, to be raised by existing shareholders and local banks, is meant to keep the company liquid during the recovery process.
At the same time, PAL said it received authorization from the US court to honor and maintain all customer programs, including valid tickets and travel vouchers, during the restructuring.
The judge likewise allowed the airline to pay ongoing suppliers and trade creditors “in the ordinary course” for goods and services, as well as keep its employees paid throughout the Chapter 11 process.
“This is a significant step in our recovery plan and supports our ongoing operations to continue serving our valued customers and connecting the Philippines with the world,” Gilbert Santa Maria, company president and COO, said.
“The combination of our substantial creditor support and the Court’s approvals enables us to progress toward an expedited emergence and full recovery,” it added.
PAL is pursuing a pre-arranged restructuring plan that would see over $2 billion of its debts forgiven and its fleet of aircraft reduced by 25%. Despite operating with a leaner fleet, PAL will no longer shed workers after the company already reduced its headcount by 30% in mid-March.
PAL officials also said European planemaker Airbus agreed to either postpone deliveries of new aircraft or cancel some of the company’s orders in the next five years. Once the bankruptcy protection is over, PAL will borrow $150 million from new investors “to facilitate post-restructuring activities”. The airline is hoping to exit the Chapter 11 process in “a few months.”
The Lucio Tan-led airline company now operates 21% of pre-pandemic flights to 70% of its usual destinations. Company officials said demand is unlikely to recover to pre-pandemic level “until 2024, 2025.” Revenues, meanwhile, are forecast to return to pre-crisis level “close to the back half of the decade.”
"As travel demand increases and restrictions ease, we continue to increase domestic and international flights, while maintaining the safety and health of our passengers and employees,” Santa Maria said.