Towards the start of the pandemic, we saw some airlines file for Chapter 11 bankruptcy, including Avianca and LATAM. You can now add another airline to the list.
Philippine Airlines files for Chapter 11 bankruptcy
Philippine Airlines (PAL) announced its decision to proceed with a financial restructuring as part of the US Chapter 11 process. A petition was filed yesterday (Friday) in New York District Court. There were rumors that this has been looming on the horizon for months, so it’s interesting to see it finally happen, especially 18+ months after the start of the pandemic.
For those unfamiliar with Chapter 11 is a globally recognized legal process that the airline hopes will secure new capital, lower debt and a better financial base. The airline has reached an agreement with shareholders, creditors, lessors and suppliers, which should allow the airline to be more sustainable in the future.
With this restructuring, PAL hopes to reduce its fleet by up to 25% and reduce existing debt by $ 2 billion. Additionally, with this restructuring, the airline hopes to raise $ 505 million in equity and debt financing from existing shareholders, and an additional $ 150 million from new investors.
What does this mean for the future of Philippine Airlines?
As described, Philippine Airlines hopes to continue to serve its customers and continue its mission “as the full service and flag carrier of the Philippines”.
For now, business should continue as normal for PAL customers and employees:
- The airline will continue to operate and even increase domestic and international flights as demand picks up and restrictions are lifted.
- Ticket credits will remain valid
- The Mabuhay Miles loyalty program will continue to allow passengers to earn and redeem miles
Just as has been the case with other airlines that have filed for Chapter 11, nothing substantial is expected to change on the front-end at this time.
Before the pandemic, Philippine Airlines wanted to transform itself into a five-star airline. I was fortunate enough to fly Philippine Airlines’ new flagship Airbus A350 in early 2020 and had a pretty good experience, but the airline still has a ways to go.
The truth is, PAL was in financial trouble even before the pandemic, and has been losing money for years. The airline was inefficient, lacked partnerships, and in general did not have a very competitive route network to serve connecting traffic beyond the Philippines.
So while the coronavirus pandemic has undoubtedly exacerbated the carrier’s problems, the reality is that some changes were expected to occur even before the pandemic.
At the end of the line
Philippine Airlines has filed for bankruptcy in US courts. Thanks to this, the airline will be able to restructure itself, in particular by reducing the size of its fleet, reducing its debt and obtaining new financing. This has been in the works for months, so it’s no surprise, especially since PAL was losing a lot of money even before the pandemic.
I suspect the airline will come out of bankruptcy very well and passengers shouldn’t be too affected.
Are you surprised to see Philippine Airlines go bankrupt?