SMC to pour $750-M investment in PAL

by Mary Ann Ll. Reyes, The Philippine Star

Posted at Apr 28 2012 10:11 AM | Updated as of Apr 29 2012 02:05 AM

MANILA, Philippines - San Miguel Corp. (SMC) is investing $750 million in Philippine Airlines (PAL) and affiliate Air Philippines Corp. to help finance a $1-billion refleeting plan for the flag carrier.

In an interview with The STAR, SMC and soon to be PAL president Ramon S. Ang said they plan to order at least 100 new planes for PAL and Air Philippines.
The 100 new planes, including single-aisle and twin-aisle models, will be divided across PAL and Air Philippines. Ang didn’t say how many aircraft the carriers would retire.
Ang also disclosed that they will be doing more business with Boeing Co.
PAL also plans to resume flights to Europe and bolster services to the United States, although the latter will have to wait until after US federal aviation authorities return the Philippines to Category I from its current Category 2 status.
PAL’s long-haul expansion plans depend on the Philippines improving safety standards, Ang said. The country is blacklisted by the European Union and has a Category 2 rating from the US Federal Aviation Administration, meaning it does not meet international regulations.
PAL will “immediately” resume flights to Europe once Philippine carriers are allowed in, Ang said, listing Paris, London and Spain as possible destinations. In the U.S., the carrier is looking at New York, Chicago and Florida, he said. It already flies to San Francisco, Los Angeles, Las Vegas and Vancouver in North America.
SMC and PAL majority owner Lucio Tan earlier signed investment agreements that will result in the issuance of new shares to the former for a minority stake in PAL and low-cost partner Air Phil.
Under the agreement, Trustmark Holdings Corp. and Zuma Holdings and Management Corp., the holding companies of PAL and Air Phil will issue new shares to San Miguel Equity Investments Inc., a wholly-owned subsidiary of SMC.
Trustmark and Zuma are majority owned by Tan.
The agreement will result in SMC owning more than 40 percent of PAL.
During the interview, Ang revealed that the carrier’s two main owners will provide $1 billion to help fund the fleet plan. SMC will inject $750 million in PAL and AirPhil, including a $500-million stake purchase, while Tan will deliver the rest, he said.
“PAL will institute more improvement, offer a better service and fly newer planes, PAL is a good company -- despite the problems, it’s always been above water,” Ang said.
The carrier wants to join a global alliance, Ang added, to spread its international reach and to help compete with Singapore Airlines Ltd. and Emirates Airline on long-haul routes. SMC may also build an airport near Manila to help the airline improve services and to extend its own push away from a traditional focus on food and beverages, Ang said.
PAL has 37 aircraft. The fleet includes seven Boeing jets and 30 made by Airbus SAS.
SMC started looking at an investment in PAL, then controlled by Tan, about a year ago, Ang said. The 71-year-old carrier was seeking new funds after losing market share to budget airline Cebu Pacific. PAL reported losses in the first three quarters of the fiscal year that started April 2011.
The carrier, which cut 2,400 jobs when it outsourced catering and other ground services, will add workers as it expands, Ang said. PAL may also hand domestic and short regional flights to AirPhil, while it focuses on long-haul, full- service trips, Ang said.
“Today in Manila, you are competing with low-cost carriers,” he said. ‘Therefore, you should also be a low-cost carrier to compete.’’
San Miguel may pitch plans for the new four-runway airport to the government in the “near future,” Ang said. Construction of the facility, able to handle 100 million passengers annually, could begin this year, he said.
The company, founded as a brewery more than a century ago, is already set to open a new airport on the resort island of Boracay within two years, Ang said. San Miguel has also invested in railways, roads and energy companies to bolster margins.