Lucio Tan Willing To Sell 40-60% Stake In PAL


https://i1.wp.com/static.rappler.com/images/lucio-tan-pal-afp-20130720.jpg
Image Source: Rappler.com

Taipan Lucio Tan is still willing to sell anywhere from 40 to 60 percent in flag carrier Philippine Airlines to a strategic partner that would provide the airline with aviation fuel.

This was revealed yesterday night by Tan on the sidelines of the Bangko Sentral ng Pilipinas’ annual Banker’s Night at the BSP compound along Roxas Boulevard.

According to Tan, he is currently in talks with a potential investor that would provide PAL with “oil” and that he is willing to sell “between 40 percent to 60 percent” in PAL.

He indicated that negotiations could possibly be completed this year. He also hinted that the potential investor/partner is from the Middle East.

Tan’s group recently reacquired PAL from Ramon Ang following disagreement over the re-fleeting strategy of the airline.

Jaime Bautista, current president of PAL, admitted this week that PAL is deferring some of the earlier aircraft orders made by Ang.

Likewise, PAL has also decided not to implement the reopening of additional air routes, and instead focus on its high-traffic destinations.

Source: Marianne Go, Philippine Star

Philippine Airlines: Clipped Wings


MANILA, Philippines – When San Miguel Corporation (SMC) acquired 49% ownership of Philippine Airlines (PAL) two years ago, the conglomerate committed to turn the national flag carrier into a profitable business.

Part of returning the legacy carrier to black was to add passenger aircraft into its fleet.

So in 2012, PAL ordered 44 units of Airbus A321, and 10 A330-300 twin-aisle jets. It intended to implement the re-fleeting plan to reduce fuel and operating costs, according to its former president, Ramon Ang. The 54 wide and narrow-bodied Airbus aircraft had a $7-billion price tag.

Two years later and in a disclosure to the Philippine Stock Exchange (PSE), PAL’s parent firm PAL Holdings Inc. posted a net income of P1.49 billion ($33.24 million*) in the second quarter of 2014, an upturn of P1.08 million ($24,096.39) worth from the same quarter last year.

From April to June this year, revenues jumped 47.4% to P27.3 billion ($608.75 million) compared to P18.52 billion ($412.98 million) in the same period last year as passenger revenues surged 51% while cargo revenues grew 33%. (READ: PAL is back in the black)

“But that’s normal because it’s the (April-June) peak season,” said Jaime Bautista, who assumed PAL’s presidency role from Ang in a board election held Thursday, October 23.

Tycoon Lucio Tan was also reelected as chairman of the board and chief executive officer.

Ang resigned effective October 23.

The ‘real’ figures

Bautista said the first and third quarters of 2014, were “almost break even or a loss.”

In the last two years, he said Philippine Airlines and budget carrier Air Philippines reported a loss of $500 million, the same amount San Miguel spent to buy minority shares of PAL in 2012.

In an unaudited January to August 2014 financial statement of Philippine Airlines and Air Philippines (the latest financial statement has yet to be released) shown to Rappler, it revealed a combined earnings of $11 million from that period. In comparison, PAL Holdings reported earnings of P45.40 billion ($1,013 billion) from March to December 2013.

However, another $13.75 million of “other income” has to be deducted from its $11-million January-August earnings because the amount accounted for the lease charges of the aircraft Ang acquired under the airline’s fleet renewal program.

In that case, PAL had an excess of liabilities of more than $2 million.

In 2013, the airline’s parent company, PAL Holdings Inc., reported a net loss of P11.85 billion ($264.24 million) ending December – over 4 times its P2.74 billion ($61.15 million*) net loss in the same period in 2012, while its comprehensive net losses was at P2.7 billion($60.25 million).

From April to December, passenger volume fell to 5 million, while total expense reached P61.5 billion ($1.37 billion).

PAL Holdings Inc., the parent company of Philippine Airlines and Air Philippines Corporation (which operates PAL Express), currently finances for its leased aircraft with terms ranging from 6 to 12.3 years.

A combination of low passenger demand during off-peak seasons, fuel price fluctuations, economic slowdown, competition, security and safety risks, plus the continuous expenses due to re-fleeting caused PAL’s break even or loss periods.

Too many wings

In an exclusive interview with Rappler, Bautista lamented that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs.

This has contributed to PAL’s losses, with the company’s total long-term obligations at P26.63 billion ($594.29 million) as of June 2014.

“Before his entry to PAL, we only had around 40 airplanes. Now we have 60 airplanes. And then we’re taking another delivery of 32 airplanes in the next 3 to 4 years,” Bautista said.

In its latest quarterly report though, PAL listed 85 aircraft in its fleet. Out of the 85, it owns 33 airplanes, while the rest of the 52 airplanes either under finance lease or operating lease.

The re-fleeting program involved acquiring a mix of brand new A330s and second-hand A340s. It was meant to decrease cash flow for the airline. Instead of retaining old aircraft, operating newer airplanes would save PAL from spending more on maintenance. That, Bautista said, was Ang’s idea.

The ambitious fleet renewal program aimed at increasing PAL’s fleet to 100 planes. In May, PAL completed an order for over 70 planes, even after booking multibillion net losses.

In September last year, PAL negotiated with banks and export credit agencies to finance its $9.5-billion fleet modernization program. The airline’s financial consultant that time, Ian Reid, then declined to provide details of how much are being negotiated for the financing.

TOO MANY WINGS. Bautista laments that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs. File photo from Philippine Airlines

TOO MANY WINGS. Bautista laments that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs. File photo from Philippine Airlines

The effects of such aircraft purchases are expected to take a toll on PAL’s income for the third quarter, where PAL is anticipating to report losses. PAL has not yet released its latest quarterly report yet.

Lacking pilots

Acquiring too many wings, however, won’t help PAL fly to profitability. Bautista explained that an airplane must have 6 sets of pilot comprised of a captain and a first officer, making it 12 pilots per aircraft.

“They lack pilots when I asked how many do they have,” he said.

Every month, a leasing company also charges PAL for the excess planes – which would not have been the case if the planes had been used in its operations, said Bautista.

Financing on aircraft leases is the bulk of PAL’s capital spending, Bautista said. Lease rates are pegged at around 1%. Therefore, a $100-million aircraft’s lease rate is worth $1 million. Whether PAL uses the planes or not, leasing companies charge the airline for all leased aircraft in its fleet.

As of June 30, PAL has 3 Boeing 777-300ER ($330 million) and Airbus 320-200 ($221.7 million) under finance lease. Its 3 Boeing 777-300ERs ($330 million); 10 Airbus 330-300s ($245.6); 7 Airbus 321-231s ($120.5 million); 18 Airbus 320-200s ($221.7); and an Airbus 319-100 ($94.4 million) are under operating lease. (The prices cited are based on Boeing’sand Airbus’ latest commercial pricing.)

“If you don’t use it, you’re wasting millions. We wanted to use (them), but we can’t find destinations,” he said.

Bautista described the re-fleeting lacking deliberation, costing the carrier money.

Realizing it added too many wings for its fleet, the Ang-led management in March 2014 negotiated with Airbus to reduce its A330 order from 20 to 15. It compensated the cutback by ordering 8 additional A321 NEO aircraft, but it did not proceed with the transaction. The Airbuses were meant to be used for PAL’s long-haul flights.

Also, part of the deal with Airbus was to purchase a $16-million Rolls Royce-made spare engine for every 5 airplanes, Bautista saidwho credited Ang for sealing a deal with the airplane engine maker as Rolls Royce’s performance is said to be superior than other brands.

PAL is also negotiating with Rolls Royce whether they could return the deposit of the excess spare engines, but Bautista said, since the transaction has been booked as a sale, Rolls Royce is reluctant to do a refund.

PAL’s fleet utilization is also low.

Their new aircraft has an average utilization of 4 hours per day, Bautista said, which is far lower than the ideal usage of 14-16 hours per day. Apart from the low usage, Manila’s congested runway has put a break on their ambition to mount additional destinations, on top of the fact that budget airlines such as Cebu Pacific, TigerAir, and AirAsia have already eaten up their share in the market.

Because of the re-fleeting program, PAL’s liabilities have reached $1.5 billion, said Bautista.

Botched deals

On top of the aircraft buying spree, there are those unprofitable ventures that PAL got into.

Ang, who is president and chief operating officer of San Miguel Corporation, hinted in 2012 that they were considering a deal with a regional airline. It would have been PAL’s first overseas venture since it commenced operations on March 15, 1941.

Then in 2013, PAL struck a $10-million deal with Cambodia’s hotel and telecommunications empire Royal Group to revive Cambodia Airlines, but it did not push through.

According to Bautista, Ang’s interest was rooted in an intention to use some of PAL’s aircraft for Cambodia Airlines. The revival of Cambodia Airlines was seen to compete against other domestic airlines in Cambodia. With the Royal Group of Cambodia, Cambodia Airlines would serve regional destinations to become the fastest growing airline.

The deal was supposed to make PAL a 49% shareholder of Cambodia Airlines. Royal Group would own the majority 51% shares.

It was reported that PAL was bound to pay a $1-million down payment in July 2013. However, Bautista said the botched deal had already cost PAL $5 million.

The Center for Asia-Pacific Aviation (CAPA) warned PAL in February 2013 against investing in Cambodia Air, describing the venture as “risky.” CAPA said, “the group is better off focusing on reducing expenditure and improving profitability of its Philippine operation.”

Bautista said PAL has fixed expenses worth $5 million payable in the next 5 years. This is because a company that has been tapped to develop the reservation system for its Cambodia operations have been contracted despite securing an airline operator’s certificate before pushing for a joint venture agreement with the Royal Group of Cambodia.

Thanks to long-haul ventures, PAL’s profit saw an upturn, except for the Manila-London service which was last serviced 15 years ago.

The slot PAL got though as it started flying again in November 2013, required the airline to arrive in London at 3:30 pm. For passengers, it meant departing from NAIA Terminal 2 at 7 am, on top of a 3-hour wait or check-in time for international departures.

“Is that a good timing for departure? It’s not,” Bautista said.

CAPA had earlier warned PAL, including Garuda Indonesia, that they would face “intense competition” from Singapore Airlines, Thai Airways, Malaysia Airlines, Vietnam Airlines, and Royal Brunei Airlines.

Apart from competing with large carriers, PAL is not a member of global airline alliance SkyTeam, which makes their European service inferior even when competing with Garuda, which joined the alliance in March this year.

Manila’s under-maintained international airport, as well as its geographical location weakens the demand for such flight.

Non-disclosure

Apart from the airplane buying spree and the unprofitable ventures, there were also other transactions that apparently, Ang did not disclose to the Lucio Tan group, Bautista said.

“In the beginning it was OK because Ang would always report to the board. After a few months when he started buying planes, he had many transactions not reported to the board,” Bautista said.

For instance, Ang terminated PAL’s contract with a call center and procured a contract with a San Miguel Corporation subsidiary, San Miguel Information Technology Systems.

In 2010, PAL outsourced its non-core airline functions such as call center reservations operations to a Philippine Long Distance Telephone Company subsidiary.

“The San Miguel call center he put up is a little bit expensive, which he promised to be cheaper,” Bautista said.

Future

THE WORK AHEAD. “We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” PAL President Jaime Bautista says. Photo by Mick Basa / Rappler

THE WORK AHEAD. “We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” PAL President Jaime Bautista says. Photo by Mick Basa / Rappler

Bautista said their return “means more work.”

“We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” Bautista said.

To address the issues causing PAL to hemorrhage money over the expensive re-fleeting program, Bautista said an aircraft leasing company has been engaged to help sublease the excess jets.

However, as potential buyers know why PAL is selling the unutilized Airbuses, Bautista said the airplanes would be subleased at a lower price. PAL has already subleased some of its airplanes to VietJet, he added.

Another 10 units of Airbuses for PAL will arrive next year. Another 10 units will arrive in 2017, and another 8 units in 2018. For the hard-pressed airline, it means another chain of challenge.

The Japan International Cooperation Agency (JICA) has showed the Philippines that it would need to pour P436 billion ($9.72 billion)to replace the old and congested Ninoy Aquino International Airport.

A better airport, one that could accommodate more aircraft and passengers, is what the flag carrier is wishing for.

“That’s the reason why we are not able to maximize utilization of airplanes because of the limited infrastructure facilities,” Bautista said.

The ambitious re-fleeting program would have not jeopardized PAL’s business performance only if the volume of aircraft ordered per year harmonized with the rate of how the market grows annually.

“It’s just [about] timing. The market grows an average of 6% to 7% a year. But the increase in our capacity is almost double in the last two years. So that’s the challenge,” Bautista said.

The challenge to expand their market, however, will be a turbulent ride.

One of its operations, the Cebu hub which served flights between Cebu and other destinations in Visayas, have been stopped because budget carriers that have turned into formidable rivals in the industry have eaten up PAL’s market share.

“We have to stop it to reduce losses or else we continue to lose money. We have to be very careful in mounting more flights,” he said.

PAL’s long-haul service will also experience a slight shrink, as Bautista said the incoming management is not keen on expanding in Europe.

This time, PAL wants to make its presence strongly felt in the US and the Middle East.

Now 57, Bautista, a certified public accountant who started his career with the country’s largest auditing firm Sycip Gorres Velayo & Co., and helped Tan in many of his major business deals, is looking to improve the airline’s cash flow.

“How can we operate without acquiring more equity from the owners or borrowing money from the banks? How can we have a positive cash flow? We have to be very creative in thinking of plans to generate cash,” he said.

Despite what happened with the San Miguel group, Bautista thinks a partnership is still an option.

“I personally think there’s a need for PAL to look a strategic partner. And we will recommend to the owners that we should go toward that direction of getting a strategic partner,” he said.

A strategic partner could be a carrier anywhere in the world as long as it “should have airline operations,” Bautista said.

The aviation business in general is a difficult one, especially for Asia’s oldest commercial carrier which history included the Asian financial crisis, its $2-billion debt that led to its closure in 1998, and the rehabilitation plan it sought for in 1999.

In 2000, PAL made a drastic turnaround from an unfortunate streak of 6-year loss. But a year later, the September 11 attacks happened and demand for flights dropped. Few years later, it went through turbulence again, including the global recession in 2009, which spiked jet fuel prices, hurting its operations. In 2010, PAL announced it would let go of its non-core airline services, which earned ire among its more than 3,000 affected employees.

“This year should be a good year only if we’re not burdened by the overcapacity of our planes. That’s the problem that we [are dealing with],” said Bautista.

Analysts have continued to point out that PAL would still be a risky venture: it’s capital-intensive, with jet fuel prices and competition among budget airlines already a serious trouble. Ramon Ang’s exit was a right move, they said, and many have wondered: why, despite previous pronouncements that Tan would leave its airline business, would it want to have a troubled airline back?

“Mr. Tan thinks PAL is a very important asset of the country …. And it will take a guy like Mr. Lucio Tan, who is willing to risk a big amount of his fortune [to make it work],” said Bautista.– with reports from Mick Basa and Lynda C. Corpuz/Rappler.com

LT Buys Out Minority Investors of Philippine Airlines


MANILA (Reuters) – Philippine Airlines (PAL) owner Lucio Tan plans to buy out minority shareholders in parent PAL Holdings Inc at a discount to the listed firm’s current market price, a senior airline official said on Friday.

The voluntary tender offer comes hard on the heels of business tycoon Tan’s $1 billion (621.85 million pounds) deal to acquire San Miguel Corp’s 49 percent stake in PAL Holdings. With a free float of 10.22 percent and a market value of $3 billion, PAL Holdings controls around 90 percent of Asia’s oldest airline.

The tender offer price, which will be announced next week, will be lower than current levels, PAL General Manager Jaime Bautista told Reuters by telephone.

“We are already in control but if the minority is willing to sell, we will commit to buy them out at the same economic terms that was agreed with San Miguel,” Bautista said, adding the tender offer will be completed next month.

The valuation used to acquire San Miguel’s shares is lower than the present market price, Bautista said. Following a brief trading suspension early on Friday, shares in the thinly traded stock rose as much as 3.3 percent to 5.60 pesos ($0.1247) apiece, in a largely flat market.

In a stock exchange filing, PAL Holdings said it has received a notice of voluntary tender offer from two Tan-led companies.

Last month, the Tan group purchased San Miguel’s 49 percent stake in Trustmark Holdings Corp, which owns 89.78 percent of PAL Holdings.

The flag carrier is considering delaying delivery of Airbus planes it has on order as it reviews operations after the Tan group resumed management control.

(Reporting by Neil Jerome Morales; Editing by Michael Perry and Kenneth Maxwell, Reuters)

Tan gets back PAL for $1.3 B


LT

MANILA, Philippines – The group of taipan Lucio Tan yesterday officially took back full control of national flag carrier Philippine Airlines Inc. (PAL) after paying as much as $1.3 billion to diversified conglomerate San Miguel Corp. (SMC).

The Tan Group celebrated the successful buyback by holding a party at the headquarters of Philippine National Bank (PNB) on Macapagal Boulevard in Pasay City.

In his message, Tan said he was happy to take back full control of the national flag carrier, which he described as “special” to him.

“PAL is more than an airline company for me. It goes beyond investing – it is like family. PAL is never far from my thoughts,” the 80-year-old taipan said.

The Tan Group was determined to take back full control of PAL – at whatever cost.

“Whatever life’s problems, this is a place I can always return to and feel safe, secure and loved. Indeed, this is the reason why I decided to regain full ownership of PAL – because I love PAL,” Tan added.

A source privy to the negotiations yesterday confirmed that the payment amounting to as much as $1.3 billion was delivered to SMC for its 49
percent stake that it had acquired in April 2012.

This brought to a close several months of negotiations between the two major shareholders of Asia’s oldest airline.

The payment was also made exactly one week after both groups signed an agreement signifying SMC’s intent to sell and the Tan Group’s intent to buy the PAL shares.

The source pointed out that the amount represents the $500-million investment made by SMC to acquire a 49 percent stake in PAL two years ago, as well as over $800 million in advances made to the national flag carrier for its operations as well as massive fleet renewal program.

The source said the Philippine unit of Swiss bank UBS AG handled the transaction.

With the completion of the buyback, the Tan Group could take over management control of the national flag carrier. Tan serves as chairman of PAL while SMC president Ramon Ang is president and chief operating officer.

Former PAL president Jaime Bautista, who served as chief negotiator for the Tan Group during the talks, has been appointed general manager of the airline.

“The first step is to go back and review where we stand and plot a new direction,” Bautista said.

The source added that Ang is expected to remain PAL president and COO at least for another month or during a transition period.

In April 2012, SMC’s wholly owned subsidiary San Miguel Equity Investments Inc. (SMEII) acquired a 49-percent equity interest in Trustmark Holdings Corp. for $500 million. Trustmark owns 97.71 percent of PAL Holdings, which in turn owns 84.67 percent of PAL through PR Holdings Inc.

With SMC on board, PAL embarked on a massive fleet renewal program involving the acquisition of 100 brand new aircraft.

PAL entered into its first purchase agreement with Airbus for a firm order of 44 A320 aircraft with options for 20 A321 NEO aircraft for delivery in fiscal years 2014 to 2020.

It also signed a second purchase agreement for a firm order of 10 A330-300 and options for another 10 aircraft for delivery in fiscal years 2014 to 2016.

However, PAL and Airbus agreed to a contract amendment last March wherein the number of orders of A330-300 aircraft would be reduced to 15 instead of 20.

It also agreed to acquire eight A321 NEO. The airline has until 2017 to exercise its right to purchase four A321 NEO aircraft.

As of end-June, PAL has received a total of 17 aircraft from Airbus, including 10 A330 and seven A321. The fleet of the PAL Group, including PAL Express, stood at 85 as of end-June.

With the Tan Group back at the helm, it is not clear whether PAL would pursue the ambitious fleet renewal program or put the aircraft orders on review.

However, the Tan Group is looking at taking in Abu Dhabi-based Etihad Airways as partner for a 40-percent stake in the national flag carrier.

Asia’s oldest airline is set to mount flights to New York via Vancouver in March next year instead of the original schedule of October as the US Federal Aviation Administration upgraded the aviation security rating of the Philippines back to Category 1 from Category 2 last April.

It is also looking at flying to other major cities in the US including Florida, San Diego and Chicago, as well as other cities in Europe such as Paris, Rome and Amsterdam after mounting direct flights to London last November after the European Union lifted the ban imposed on Philippine carriers.

PAL booked a net income of P1.49 billion in the second quarter of the year from a net loss of P1.08 billion in the same quarter last year.

Source: By Lawrence Agcaoili (The Philippine Star)

Lucio Tan Regains Control of Philippine Airlines


LT

MANILA–The Philippines’ second richest man will regain full control of Philippine Airlines (PAL) by buying back a 49-percent stake from San Miguel, the firms said Tuesday, in a deal reportedly worth US$1 billion.

Lucio Tan is to take back the stake he sold to San Miguel two years ago, according to disclosure statements filed with the stock exchange that did not disclose the price.

“The two biggest stockholders of Philippine Airlines … signed a joint agreement whereby (San Miguel Corp.) expressed willingness to sell its 49 percent stake to the group of Dr. Lucio Tan,” a San Miguel statement said.

PAL Holdings, the airline’s holding company, issued a similar statement.

Spokeswomen of the two companies declined to give the amount of the planned deal.

San Miguel paid US$500 million when it bought the stake from the LT Group, a holding firm controlled by Tan who is listed by Forbes magazine as the second richest man in the Philippines with a net worth of US$6.1 billion.

The 2012 deal saw San Miguel take management control of the flag-carrier even though Tan remained in control of the majority 51 percent shareholding.

San Miguel then invested more to help pay for a major modernization of PAL’s fleet, which included a 2012 order for 54 Airbus with a list price of US$7 billion. Since then, the airline has also been removed from European and U.S. aviation safety blacklists.

San Miguel President Ramon Ang, listed by Forbes as the 32nd richest man in the Philippines, has overseen the diversification of the firm from its base in the beer, food and beverage industries into infrastructure, power and airlines.

However San Miguel’s investment in PAL soured as two of the nation’s most powerful men decided they did not want to share control, according to Alex Tiu, a stock market analyst with AB Capital Securities.

“What insiders are saying is that this is more of a pride issue. It was either going to be full control to Ramon Ang or full control to the Lucio Tan group,” Tiu told AFP.

Media reports that Tan paid San Miguel US$1 billion for the stake sounded credible, Tiu added.

But Tan, who also has interests in tobacco, banking and beer-making, may also profit from full control of PAL, according to Tiu.

The airline returned to profit this year under San Miguel’s stewardship.

PAL Holdings posted a net income of 1.49 billion pesos (US$34 million) in the second quarter of this year from a loss of 1.08 billion pesos in the same period last year, the company’s records showed.

PAL is also expected to benefit from the Philippines’ recovering economy, the government’s new tourism thrust and the airline’s removal from the safety blacklists, Tiu said.

Source: AFP, http://www.chinapost.com.tw/

Tan Set To Take Back Full Control of PAL: Taipan Eyes Etihad As New Partner


LT

MANILA, Philippines – The group of taipan Lucio Tan expects to take back full control of flag carrier Philippine Airlines Inc. (PAL) as early as this month.

After reclaiming management control of PAL, the taipan’s next move is reportedly to take in Abu Dhabi-based Etihad Airways as partner.

A source said negotiations regarding the buyback of the 49 percent interest of diversified conglomerate San Miguel Corp. (SMC) is expected to be completed in the next few weeks, paving the way for the return of full ownership of PAL back to the Tan Group on Aug. 27.

The source said talks between the Tan Group and SMC have narrowed down to the value of the buyout as well as the terms of payment.

SMC president and chief operating officer Ramon S. Ang confirmed that the Tan Group had made a formal offer to buy back the conglomerate’s stake in PAL.

However, he clarified that negotiations are still ongoing.

“Yes, still in talks,” Ang said in a text message.

Ang is president and COO of PAL while Tan serves as chairman of Asia’s first airline.

Tan chairs the 11-man board of PAL while directors include Lucio Tan Jr., Harry Tan, Michael Tan, Inigo Zobel as well as Ang, Aurora Calderon, Roberto Ongpin, Ferdinand Constantino and independent directors Antonio Alindogan and Enrique Cheng.

Estelito Mendoza serves as the airline’s corporate secretary.

The Tan Group is reportedly raising close to $1 billion to buy back the 51 percent of SMC and to pay the advances made by the diversified conglomerate to PAL for the purchase of brand new aircraft.

In April 2012, SMC’s wholly-owned subsidiary San Miguel Equity Investments Inc. (SMEII) acquired a 49 percent equity interest in Trustmark Holdings Corp. for $500 million. Trustmark owns 97.71 percent of PAL Holdings which in turn owns 84.67 percent of PAL through PR Holdings Inc.

Since then PAL embarked on a massive fleet renewal program program with an end view of acquiring 100 brandnew aircraft. It placed an order for the delivery of 65 Airbus aircraft worth $9.5 billion.

Ang earlier said that he was confident that the buy out talks would be concluded within the third quarter of the year so as not to derail the improvement in the airline’s financial performance.

He earlier has vowed to bring PAL back to profitability after posting heavy losses over the past few years.

Another source said the Tan Group wants to buy back the shares sold to the SMC Group more than two years ago as the national flag carrier is back in the black and is set to expand its flights to the US with the upgrade in the country’s safety aviation rating back to Category 1 from Category 2 and Europe with the lifting of the ban in July last year.

The source pointed out that PAL is set to report a profit of P1.5 billion for the second quarter of the year the first time in years that the airline would be in the black.

PAL is looking forward to booking a profit of more than P1 billion this year given improving operations.

“PAL under Mr. Ang’s management, is confident it will end the year with profits given its current position. It is currently projecting net profits of more than a billion for the year ending December 2014,” the source added.

Meanwhile, another source said the Tan Group could offer up to 40 percent of PAL to Etihad Airways as a foreign strategic partner after completing the buy-back of the shares of SMC in the national flag carrier.

In April, both PAL and Etihad Airways entered into a strategic partnership agreement covering codeshare flights, loyalty programs, airport lounges, joint sales and marketing programs, a Philippines domestic air pass, cargo, and the coordination of airport operations to provide a better guest experience at their Abu Dhabi and Manila hubs.

During the formal signing of the agreement last July 10, Ang said PAL was open to taking in Etihad Airways as equity partner.

Etihad Airways president and chief executive officer James Hogan earlier said the Philippines is a very important market for the airline but pointed out that the agreement does not cover equity partnership.

Hogan clarified that the broad scope of the commercial agreement reflected the strength of the relationship between the airlines and the close ties between the United Arab Emirates and the Philippines.

Etihad Airways is finalizing the acquisition of a stake in Alitalia. It holds equity investments in Airberlin, Air Seychelles, Virgin Australia, Aer Lingus, Air Serbia and Jet Airways,

SMC associate general counsel Mary Rose Tan earlier confirmed to the Philippine Stock Exchange (PSE) that there are ongoing talks with the Tan Group.

Atty. Ma. Cecilia Pesayco, assistant secretary of PAL Holdings, also confirmed the ongoing talks between SMC and the Tan Group.

SMC’s plan to exit PAL is seen to shore up the conglomerate’s warchest in line with an aggressive expansion plan.

In 2007, the conglomerate started selling parts of key businesses into high-growth and capital-intensive sectors like power generation, mining, infrastructure and telecommunications.

Since the entry of SMC, PAL has embarked on a massive refleeting program aimed at acquiring 100 new aircraft to replace its fleet.

Source:  (The Philippine Star)

Lucio Tan In Talks With Foreign Firms For Sale of Philippine Airlines Stake


LT
PAL Chairman Lucio Tan

MANILA – Tobacco and airline magnate Lucio Tan is in talks with foreign companies interested to acquire 51-percent stake in flagship carrier Philippine Airlines (PAL).

The majority stake in Asia’s oldest airline is still on the selling block, Tan said on the sidelines of the annual reception for the banking community hosted by the Bangko Sentral ng Pilipinas.

“Foreign parties. Local wala,” Tan said when asked about the profile of companies interested in PAL. Tan, one of the richest men in the country based on the Forbes list, is also involved in tobacco, banking, property, and liquor enterprises.

Diversified conglomerate San Miguel Corp. (SMC) owns 49 percent of PAL and is in charge of the carrier’s management, while Tan controls the remaining 51 percent.

Early this month, SMC president and chief operating officer Ramon S. Ang said the conglomerate is unlikely to boost its stake in PAL.

“The investment of SMC in PAL is 49 percent. I don’t think we will increase anything,” Ang said.

“SMC will only stick to that 49-percent investment,” Ang said.

San Miguel
San Miguel Main Headquarter

In April 2012, SMC’s wholly-owned subsidiary San Miguel Equity Investments Inc. acquired a 49-percent equity interest in Trustmark Holdings Corp. for $500 million. Trustmark owns 97.71 percent of the airline’s parent firm PAL Holdings Inc., which in turn owns 84.67 percent of PAL through PR Holdings Inc.

Since the entry of SMC, PAL has embarked on a massive re-fleeting program aimed at acquiring 100 new aircraft to replace its existing fleet. It expects to save as much as $400 million from fuel and maintenance costs per year as part of its re-fleeting program.

It has entered into a $9.5-billion contract with EADS Group for the delivery of 65 aircraft. PAL also signed a $7-billion deal to buy 45 A321 and 10 A330-300 last August while it exercised an option to purchase 10 more A330-300 worth $2.5 billion in September.

To help PAL return to profitability this year, PAL is banking on the ongoing re-fleeting program involving the acquisition of fuel efficient aircraft as well as the lifting of the ban on local airlines to fly to Europe.

As of last year, PAL had a fleet of 48 aircraft composed of five Boeing 777-300ER, five Boeing 747-400, six A340-300, eight A330-300, 18 A320-200, four A319-100 and two A321-200 while budget carrier PAL Express has a fleet of 14 A320, four Bombardier Q300 and four Q400.

Source: Neil Jerome C. Morales, The Philippine Star