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Tuesday, March 19, 2024

Lucio Tan determined to bring PAL to recovery

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“He is continuing to fish.”

“Fish or cut bait” is an admonition familiar to people who engage in the sport of fishing. The admonition simply means that if, after waiting a long time and having thrown a lot of bait into the water, he still has not had a bite, a fisherman either should stop throwing more bait into the water – pack up, in other words – or should keep on waiting for the fish to bite.

I am reminded of “Fish or cut bait” as I contemplate the situation of Lucio Tan, one of this country’s taipans, in relation to the national flag-carrier, Philippine Airlines (PAL).

At the time, prior to March 2020, that Mr. Tan reached an agreement with the Philippine government for the sale of the airline, the national flag-carrier – Asia’s oldest airline, having been founded by Col. Andres Soriano in 1946 – was saddled with debt resulting from many decades of malperformance by both private-sector and government managers, bad policymaking, abuse by the government and corruption. Shrewd businessman that he was known to be, Lucio Tan knew what he was getting into when he signed the sale agreement. He signed the agreement nonetheless.

What made Lucio Tan decide to acquire PAL with all of its problems, what motivations went into the making of that decision, the public does not know. Perhaps Mr. Tan had always dreamed of owning an airline, or perhaps the prestige of owning the national flag-carrier was the great motivator. Whatever the underlying reason, Lucio Tan decided to take on the financial albatross that was PAL.

The fourth-richest man in this country lost no time taking steps to reduce PAL’s financial instability and gradually restore it to operational normalcy. Top-management changes were ordered, arrangements were made for the purchase or lease of new aircraft and the expansion of PAL’s route matrix was put into effect. Then a disaster that no one had foreseen happened. On March 16, 2020 the Philippine government opened its campaign against the COVID-19 virus by placing this country’s most productive area – NCR (National Capital Region) and the immediately surrounding region – under the severe ECQ (Enhanced Community Quarantine) lockdown. Subsequent lockdowns followed in quick succession, in the process earning the Philippines the reputation of being the country with the longest lockdown.

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Like the worlds of all the world’s airlines, PAL’s world crumbled. With borders closed and airline schedules drastically slashed, 2020 became a disaster year. The losses continued into 2021. During 2021’s first three quarters PAL incurred a comprehensive loss of P27.19 billion, a 29 percent drop in consolidated revenues and an approximately P14 billion fall in passenger revenues.

Faced with this near-catastrophic decline in PAL’s fortunes, Lucio Tan could have decided that the time had come to cut bait. He did not: he decided to continue fishing.

The first manifestation of the let’s-continue-fishing decision was the bankruptcy petition filed with the U.S. Bankruptcy Court of the Southern District of New York by PHI (PAL Holdings Inc.), PAL’s operation. Attached to the bankruptcy petition was a reorganization plan approved by all – 100 percent – of PAL’s creditors, which included primary aircraft manufacturers and lessors, equipment providers and maintainers, overhaul service providers and certain funded lenders.

The reorganization, approved by the Bankruptcy Court called, among other things, for a $505-million investment in long-term equity and debt financing from PAL’s majority shareholder. That person in effect is, Lucio Tan, who controls PHI.

To give effect to this provision of the approved reorganization plan, PHI filed with this country’s SEC (Securities and Exchange Commission) at the end of December an application for an increase in PHI’s capital to P30 billion (from P13 billion).

By these legal and other measures, Lucio Tan has clearly indicated that, far from wanting to let go of PAL, he will fully back the nation’s flag-carrier all the way toward restored stability. The “Capitan” – Mr. Tan’s name in PAL circles – can be expected to keep his word until PAL comfortably files the friendly skies again.

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