Cebu Pacific restructuring to wipe out P16 billion deficit

MANILA, Philippines — Low-cost carrier Cebu Pacific is pursuing a restructuring plan to eliminate more than P16 billion in deficit, nursing its balance sheet prior to the closing of its largest plane order.

Cebu Pacific’s parent Cebu Air Inc. yesterday said its board of directors approved the proposal to use its additional paid-in capital to erase its retained earnings deficit.

This means Cebu Air will tap a portion of its additional paid-in capital of P20.66 billion to wipe out its deficit of P16.27 billion.

Once the restructuring is pursued, Cebu Air will clean its balance sheet of any deficit. Further, the airline will be left with an additional paid-in capital of P4.39 billion.

Additional paid-in capital is the excess paid by investors above the par value of a stock. This also covers contributions from investors like assets and cash that did not result in the creation of new shares.

Airlines around the globe sustained a financial meltdown at the height of the pandemic as their industry dealt with lockdown measures that limited, if not prevented, air travel.

Now that travel activities are back to normal, airlines are starting to regain financially, and Cebu Pacific is eager to return to expansion mode to serve the rising demand.

Cebu Pacific doubled its profit to P2.2 billion in the first quarter of the year, from P1.08 billion a year ago, attributed to higher revenue from the increase in flight bookings.

Further, the airline owned by the Gokongweis will purchase as many as 152 aircraft from plane maker Airbus for $24 billion, or around P1.4 trillion. The transaction, set to be closed within this quarter, marks the largest aircraft order to date in Philippine aviation.

Cebu Pacific signed a memorandum of understanding with Airbus for the firm order of 102 A321neos, including 50 purchase rights, securing jet supply for future requirements. The airline also selected Pratt & Whitney as the supplier of jet engines for this aircraft order.

Operationally, Cebu Pacific is aggressive in expanding the reach of its service network, committing to open new routes and additional frequency by October in hubs outside of Manila.

The airline offers the widest domestic network among Philippine carriers, reaching 35 local destinations and 25 international cities, going as far as Asia, Australia and the Middle East.