Cebu Air to raise $500 million, reduce fleet and network

Philippine budget carrier Cebu Air Inc. plans to raise $500 million by selling preferred stock and bonds, joining airlines worldwide in trying to increase capital to help cope with the pandemic.

The proceeds from the $250 million convertible preference share issue and $250 million private placement of convertible bonds will be used to strengthen the carrier’s balance sheet, it said in a statement. First-half revenue at the airline controlled by the family of John Gokongwei plunged 61% from a year earlier to 17.3 billion pesos ($358 million) and the company said it is operating only about 15% of flights compared with pre-Covid.

Cebu Air is undertaking a business transformation that involves trimming down its fleet and network while improving operations as an abrupt drop in passenger traffic “casts uncertainty over the near term prospects of the company,” it said, without providing more details of its downsizing plan.

Airlines in the Philippines have suffered a shaky restart amid one of the world’s longest and strictest lockdowns, with lingering concerns over the virus and stringent movement restrictions damping demand for travel. Cebu Air in August dismissed more than 800 of its about 4,000 employees, while rival Philippine Airlines Inc. on Oct. 5 said it may cut up to 35% of its 7,000 workers as part of a larger restructuring and recovery plan.

The convertible preferred stock will be offered to existing shareholders and underwritten by parent JG Summit Holdings Inc., while the convertible bonds are for new investors, Cebu Air President and Chief Executive Officer Lance Gokongwei said in a mobile-phone message.

Cebu Air will seek shareholders’ approval to increase its authorized capital and create a new class of convertible preferred shares. Shares of the airline were up 0.5% at 37.30 pesos as of 11:14 a.m. Manila time. They’ve fallen 58% this year, more than twice the benchmark Philippine stock index’s 25% drop.