Philippine Air mulling Chapter 11, in talks to reduce its fleet

Philippine Airlines Inc. is in talks with plane lessors about reducing its fleet size and has told them it’s considering a Chapter 11 filing in the U.S. to carry out a restructuring, according to people familiar with the plan.

The airline could return at least two Airbus SE A350s to lessors and four of the 10 Boeing Co. 777s in its fleet, some of the people said, asking not to be identified as the information is private. Two A350s are in the process of being taken back by aircraft lessors and will be redeployed to other carriers, one person said. Prior to the negotiations, Philippine Airlines had six A350s.

One lessor reached an agreement with the airline for it to keep a 777 and an A330, a person involved in the discussions said, asking not to be identified. Work on restructuring lease contracts and reaffirming commitments is ongoing, another person said.

Philippine Airlines is working on documentation for a pre-packaged bankruptcy, people familiar said, with Seabury Capital advising on the restructuring. Cirium had previously reported that Seabury was an adviser on the Chapter 11 plan. Seabury didn’t immediately respond to emailed requests for comment.

Founded in 1941, the airline said in a statement it is working with stakeholders “on a comprehensive restructuring plan” that will enable it to emerge from the global crisis financially stronger. Flights and operations won’t be affected in any restructuring, it said.

Representatives for Airbus said the company doesn’t comment on fleet planning at individual airlines. Boeing declined to comment. Philippine Airlines’ lessors include GE Capital Aviation Services and Goshawk Aviation Ltd., according to Cirium. Calls to GE Capital Aviation’s Singapore office and an email to Ireland-based Goshawk seeking comment weren’t immediately returned during Asia hours.

Philippine Airlines would join dozens of carriers and other aviation businesses, including Latam Airlines Group SA and lessor AeroCentury Corp., in being felled or forced to restructure after global travel was decimated by the pandemic.

The tourism industry accounted for nearly 13% of the Philippines’ gross domestic product in 2019 and employed 13.5% of its labor force. Then Covid-19 came, and international arrivals slumped 82% last year to less than 1.5 million.

While air travel within some countries is recovering as vaccination rollouts gather pace, a return to pre-pandemic levels of traffic could still take years as the virus mutates and governments take different approaches to opening borders. The International Air Transport Association has warned carriers globally will lose about $48 billion in 2021 amid setbacks in restarting travel.

PAL Holdings Inc., the holding company of Philippine Airlines, has reported losses since the first quarter of 2017, including nearly 29 billion pesos ($607 million) in the first nine months of 2020, its latest published figures show.

The airline said in November it was working on a recovery and restructuring plan, without providing details. In February, it said that it would cut 2,300 jobs or about a third of its workforce by mid-March.

Philippines Finance Secretary Carlos Dominguez has told private banks to take the lead in assisting airlines, saying the government didn’t want to take ownership.