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Philippine Airlines files for Chapter 11 bankruptcy protection

Philippine Airlines (PAL) has announced the decision to undergo a financial restructuring under the US Chapter 11 process. A petition was filed in New York district court yesterday (Friday). There had been rumors of this being on the horizon for months, so it’s interesting to see it finally happen, especially 18+ months into the pandemic.

 For those not familiar, Chapter 11 is a globally recognized legal process that the airline hopes will allow it to get fresh capital, lower debt, and a better financial foundation. 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 is hoping to reduce its fleet by up to 25%, and cut $2 billion in existing debt. Furthermore, 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 it’s described, Philippine Airlines hopes to continue to serve customers and continue its mission “as a full-service airline and flag carrier of the Philippines.”

 For the time being it should be business as usual for PAL customers and employees:

 The airline will continue to operate, and will even increase both domestic and international flights as demand recovers and restrictions are lifted

Ticket credits will continue to be valid

The Mabuhay Miles loyalty program will continue to allow passengers to earn and redeem miles

Just as has been the case at other airlines that have filed for Chapter 11, nothing substantial should change on the front-end for now.

 Prior to the pandemic, Philippine Airlines wanted to transform into a five star airline. I had the chance 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 that PAL was struggling financially even pre-pandemic, and has been losing money for years. The airline was inefficient, lacked partnerships, didn’t have a very competitive route network for serving connecting traffic beyond the Philippines, and the process of connecting at Manila Airport was possibly the worst in the world. 

So while the coronavirus pandemic no doubt made the carrier’s issues worse, the reality is that some changes needed to happen even pre-pandemic.

Bottom line

Philippine Airlines has filed for bankruptcy in US courts. With this, the airline will be able to restructure, including reducing the size of its fleet, reducing debt, and getting new funding. This has been in the works for months, so this doesn’t come as much of a surprise, especially since PAL was losing a lot of money even pre-pandemic.