(Bloomberg) – Philippine Airlines Inc. has filed for Chapter 11 bankruptcy in New York with a plan backed by lenders that helps the country’s main airline recover after the pandemic devastated global travel.
The company aims to cut $ 2 billion in loans through a proposed restructuring plan, which needs court approval, he said. Philippine Airlines will also obtain $ 505 million in equity and debt financing from its majority shareholder, as well as $ 150 million in debt financing from new investors. The airline said it has support agreements from 90% of its lenders.
The restructuring plan will allow the airline to reduce its fleet capacity by 25%, he said. The “recovery plan” will allow the airline to return at least 20 aircraft, while it will have to cut 35% of its workforce, company management said in response to a query from Bloomberg News.
Chapter 11 allows a business to continue operating while it restructures. Friday’s presentation comes after the airline spent months negotiating with its stakeholders. Billionaire owner Lucio Tan called the presentation a “breakthrough” for the airline.
The restructuring plan allows the airline “to overcome the unprecedented impact of the global pandemic that has significantly disrupted business in all sectors, especially aviation, and emerge stronger in the long term,” said Tan, who is the president and CEO, in a statement.
While the end of the lockdowns eased the pressure on travel at the beginning of the summer season in the Northern Hemisphere, the delta variant of Covid-19 has recently started to harm many airlines, especially in the US and China. . Tan has previously said that the airline, which was founded in 1941, was working on a comprehensive restructuring plan.
Read more: Airlines in the Philippines seek credit assistance as they struggle to survive
Philippine Airlines is the latest international airline to reorganize in the United States, under the United States bankruptcy code. By using Chapter 11, the company will submit its reorganization plan to the final decision of a US judge.
Bankruptcy experts say that the United States is often the preferred location, in part because the law in the United States is more favorable to a business and in part because creditors’ contracts are often based on state law in New York or Delaware. Chile-based Latam Airlines, Aeroméxico and Colombia’s Avianca Holdings sought judicial protection in New York last year, blaming the drop in air travel caused by the coronavirus.
The pandemic has forced airlines to suspend flights, lay off employees and seek financial help. In June, PT Garuda Indonesia chairman said the airline was considering options that included restructuring debt and renegotiating contracts with aircraft lessors.
The challenges for PAL Holdings Inc., the holding company of Philippine Airlines, predate the pandemic. It has reported losses since the first quarter of 2017. The company suffered a record loss of 71.8 billion pesos ($ 1.4 billion) in 2020, compared to a deficit of 10.3 billion pesos the previous year.
“After the restructuring, PAL Holdings will remain the largest shareholder in PAL,” management told Bloomberg News. “PAL Holdings is not filing and its status and shareholders will remain the same.”
The airline will continue to operate its passenger and cargo flights based on demand and travel restrictions. The company also said it hopes to gradually add domestic and international flights as the market recovers, it said in the statement.
The company also received support from the government for being a partner with the state in responding to the pandemic, he said.
The case is Philippine Airlines Inc., 21-11569, United States Bankruptcy Court for the Southern District of New York (Manhattan).
(Add details about fleet, job cuts in the third paragraph).
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