Airlines in the Philippines

[seven13]

Unless another investor, perhaps a foreign one, would be interested. The big ? mark is, who will be interested? On LTGs part of press releases, they are vocal about selling 40% of the airline to a foreign investor. They must be actively looking for that STAR right now.

Well, despite PAL being in the red for a lot of years, it might have grown LTGs other companies such as Asia Brewery, LTP, MacroAsia and what else? It could have offset the losses of PAL and might have profited more from his other companies.

[Evodesire]

They were eyeing on EY. But I wonder if EY would want to invest with the LTG as its partner. HEres another thing. They said LTG will sell 40% of the shares to EY. Why cant they just sell 51% to SMC? Sheer pride of having the PAL logo on the calling card?

[seven13]

EY has declined for the 40%. I guess if you are the second richest man here in PH, you wouldn't wan't to lose to anyone (except to the richest man) is unacceptable. I'm not sure if anyone heard of the Chinese concept of "to have a Face". I think it somehow played a role as to why LT wouldn't let go of PAL or be on the minority owner side.

[Evodesire]

HAs it got to do with LT not wanting to lose a company in favor of ECJ?

[seven13]

Who's ECJ? Sorry, not aware of that person.

[Evodesire]

Edgardo "Danding" Cojuangco Jr. Chairman of the Board of SMC.

[Evodesire]

seven13 wrote

EY has declined for the 40%. I guess if you are the second richest man here in PH, you wouldn't wan't to lose to anyone (except to the richest man) is unacceptable. I'm not sure if anyone heard of the Chinese concept of "to have a Face". I think it somehow played a role as to why LT wouldn't let go of PAL or be on the minority owner side.

So at the end of the day, its just maybe for pure selfish reasons even if the LTG is aware they cannot fuel the aggressive expansion of PAL.

With what the LTG did to SMC, I doubt that the former would be able to find a partner to take the 40%. And its just sad that SMC is letting go after they were able to turn around the airline.

I guess Airboy can correct me if I am wrong. The crew doesn't like the new planes especially the A321s and monoclass A330s but they do prefer and feel more secured with the RSA management team. Especially for those crew who were there since the LT era.

[cabinpressure]

Evodesire wrote

So at the end of the day, its just maybe for pure selfish reasons even if the LTG is aware they cannot fuel the aggressive expansion of PAL.

A high price for pride, that's for sure. It seems like an expensive, emotional business decision. I wonder though, since it was reported before that LT enjoyed handing out his PAL business card, if anyone but him in the group actually wanted PAL back so desperately.

seven13 wrote

Well, despite PAL being in the red for a lot of years, it might have grown LTGs other companies such as Asia Brewery, LTP, MacroAsia and what else? It could have offset the losses of PAL and might have profited more from his other companies.

At the expense of PAL maybe? (Playing the devil's advocate here )

[chowpau]

Arianespace wrote

I just got a scoop WHY LTG has to buy back PAL now from SMC.

Because It would be difficult for them to get back control of the airline had they waited for another year as SMC plans to announce new long haul fleet orders. Be aware that SMC has been financing almost all the aircraft orders of PAL.

It was agreed in the beginning that both companies would fund new fleet acquisitions. At the end however it was mostly SMC money that is pouring in. Advances that is. I did recall why SMC investors were cautious to the idea.

So, there is this impending long haul fleet order by SMC which was flagged by LTG. Why was it stopped?  SMC was putting more money at PAL that eventually would put LTG in jeopardy, meaning SMC will have more investment at PAL than LTG could put up. LTG does not want to put more money in. Problem was SMC heads management so they have no recourse but to approve its plan for capital expenditures. After all Its in the management deal.

This would however put LTG in a bind because as the years progress more money is poured by SMC in the form of advances to aircraft orders. While the aircraft itself is funded by a loan, the bank requires equity shares for every aircraft orders delivered and that is where SMC money goes.

And the bottom line, While its investment ($500m) remain as it is, its advances ($750) however is growing by the year. If you can recall, SMC and LTG agreed to pool $1bn for aircraft acquisitions, $500 for SMC and $500 for LTG. The problem there was that the latter failed to provide its counterpart. So SMC covered for its shortfall and paid aircraft equity. By 2016 it would have been $800m. Two years after that It would have been very difficult for LTG to pay $1bn cash for SMC advances alone by 2018, and you add to that another $500m refund of their investment. And that is not counting another set of aircraft orders.

And I said "But of course". I did not see that coming.

its all about the money...I know and heard for a long time that the kapitan is kuripot

[seven13]

Evodesire wrote

HAs it got to do with LT not wanting to lose a company in favor of ECJ?

Actually, I have nio idea. I was just merely speculating on my previous posts but it seems like it played a role. Not just about money matters, but LTs ego, too, did play a role. Rumors before said that it was his children that wanted to take PAL back; in the end, why did he give into his childrens' desires? The LT group was actively looking for a major inverstor (foreign/local) and to a point where he wanted to leave this industry. So I think, to serve his ego + being a Chinese in which the concept of "having a 'face' to show people" pretty much led to the decision of LT taking back the company

[Evodesire]

So is it all final that PAL is now with the LT group?

[airboy007]

pretty much everything is final because JJB is now reviewing the entire airline operations, and all changes that were going to be implemented were put on hold and we're on status quo in the office now due to the management change.

thats also the reason for the deferment of the aircraft orders i guess.

I really hope, for the benefit of the airline, that the LT group gets a partner ASAP as the long haul aircraft orders are pretty urgent, and I would hate to see the A340s being the main long haul aircraft for PAL instead of being just being interim.

[Evodesire]

I really wonder where PAL under LTG will get the money for new long haul aircraft. EY has declined already. And it took the LTG to go out and scramble for money just to buy back PAL from SMC. And I really do doubt that someone would be crazy enough to partner up with the LTG after what they did to SMC. Hoping for the best for PAL but expecting the worse. And I did read that the PALEA is now up on their guards. And I heard also that FASAP is keeping their guards up with the LTG in place. I believe almost all LT companies have had labor problems and disputes.

[Evodesire]

Well just to share my obervations for both LTG (before the SMC takeover) and RSA management on PAL:

SMC (in just two years)

Pros:
1. Very aggressive on its plans and expansions
2. Financially backed
3. Opened new routes like Haneda (Tokyo), Abu Dhabi, Dubai, Darwin, and Dammam
4. Returned to routes after years and made them profitable like London, Toronto, Riyadh, Brisbane.
5. Booked an order of $9B worth of Airbus jets comprising of A321 and A330s making it the country's biggest single jet order in history.
6. Returned to the black from the red in two years

Cons:
1. Flimsy marketing (not until lately)
2. Went from full service carrier to hybrid somehow causing an identity crisis. Well, think about the bare interiors and leather seats of the new jets.


LTG (before RSA takeover)

Pros:
1. Placed an order of 6 777-300ERs making it now the present flagship aircraft of the airline.
2. Full amenities and interiors for its aircraft like AVOD, etc.
3. Great marketing.
4. Dual branding making PAL different from AirPhil Express (PAL Express). Former as an FSC and the latter as an LCC. The latter in fact was a huge threat to Cebu Pacific.

Cons:
1. Cash strapped
2. They have had quite a number of labor disputes hampering operations that had caused heavy losses.
3. Not aggressive. How many new and profitable routes did they open since JJB took office? I think they banked too much on the US expansion killed by cat 2 wherein they forgot that there is still cash in regional and medium haul flights.
4. Heavy losses for PAL.
5. JJB does not have the same power as RSA in making decisions. LTG seems to conservative in running the airline, as compared to Cebu Pacific that is very very aggressive
6. Lack of foresight. As compared to RSA.
7. Lack of strategic planning and moves as compared to RSA. Notice how RSA foils the long haul expansion plans of Cebu Pacific.

[swahi]

looking at the pros and cons, pal is not looking good. if only we can say the same as the commercial of metrobank, "you're in good hands...with metrobank".

cash strapped? or kuripot?

[Evodesire]

Lucio Tan is 2nd richest in the Philippines. Danding Cojuangco is 19th richest. SMC group by itself should have more assets and cashflow than those companies under the LTG. Fortune Tobacco I think has been sold already. Basically, LTG's bread and butter are Eton, Asia Brewery, Macroasia, and PNB. Maybe kuripot in a way that he would rather have his own pockets fueled than his businesses?

Heres another thing. LTG invited a new investor way back to be able to order new aircraft and to bring back PAL to the green. SMC delivered just that and all of a sudden, LTG did a hostile take over by buying out San Miguel. And then they will look for another investor (like EY) to take 40%.

[cabinpressure]

Evodesire wrote

2. Full amenities and interiors for its aircraft like AVOD, etc.

Funny, a lot of anonymous comments on the blogs were hoping for LT to take back PAL just for this reason alone. Careful what you wish for.

I do hope JJB gets more leeway now though.

[Evodesire]

Hoping for the best but still expecting for the worse... especially if LTG will bring back the same old management team before the SMC takeover

-------------------------------------------------------

PAL saga’s interesting turn

The checkered story of the flag carrier, Philippine Airlines, took another interesting turn last week with full ownership and management reverting to the camp of taipan Lucio Tan. This development ended a partnership with San Miguel Corp. head honcho Ramon Ang, the aggressive businessman who transformed the beer-based company into the highly diversified conglomerate that it is today.
SMC invested some $500 million in PAL in April 2012 in exchange for a 49-percent stake and full management control. Tan had agreed to a similar partnership for his lucrative Fortune Tobacco Corp., allowing Philip Morris to acquire a 50-percent interest and management control of the company.

In the two years that Ang led PAL, many positive changes happened to Southeast Asia’s oldest airline, and to the local aviation industry in general. First was the naming of a new management team led by Ang as president. On top of the team’s to-do list was to mend the severely fractured relationship between management and airline workers (the animosity had remained unresolved for decades). Immediately thereafter, an ambitious program was launched to replace PAL’s aging fleet. Deliveries started in the second half of 2013 with 12 Airbus units.

In the third quarter of 2013, the Aquino administration succeeded in having a European ban on flights coming from the Philippines lifted. This allowed PAL to mount flights to London beginning in November. It was even able to secure a slot in busy Heathrow Airport at no cost to the flag carrier. This airport slot reportedly trades at no lower than $20 million, if one is available. PAL continued its route expansion and, early this year, it launched flights to the Middle East, home to millions of overseas Filipino workers.
A major milestone in the local aviation sector was marked in the second quarter of 2014—the upgrade of the Philippines to Category 1 status by the US Federal Aviation Administration. It allowed the full utilization of PAL’s Boeing B777 to the United States starting in May. The aircraft, before the FAA upgrade, resulted in losses of $31.9 million in 2013.

Also this year, PAL added flights in premium profitable markets. It increased flights to Japan and secured slots at the Haneda Airport in Tokyo and opened Canadian routes that are now among the top five PAL earners. Last June, PAL also sealed a cooperation agreement with United Arab Emirates flag carrier Etihad, giving it more access to the Middle East market and connectivity to the rest of Europe, as well as synergies in the use of common facilities, front-desk offices at airport terminals and business lounges.
Only recently, PAL obtained approval for the use of the Russian overflight, cutting down flying hours to London by as much as two hours per trip.

In marketing, Ang’s team successfully completed the “One Brand” strategy this year (with the slogan “one face, one system, one quality”) to create a sustained positive image for both PAL and PAL Express. All domestic flights were moved to PAL Express for focus and to avoid overlaps and what businessmen call cannibalization. As a result, PAL Express became profitable this year.

Another management strategy was “the right plane for the right destination,” which implemented standards on fuel load per type of aircraft per destination. PAL noted that this significantly reduced technical stops on the US flights and resulted in savings of about $1 million a month. Fuel accounts for about 60 percent of the airline’s total cost.

All these were reflected in PAL’s financial statements. The adjusted comprehensive loss for the fiscal year ending March 2012 of $130.1 million was brought down to $122.6 million in fiscal year 2013, and further to $30.89 million as of December 2013 (first nine months of its fiscal year from April 2013). In the first half of 2014, operations turned around with an adjusted comprehensive income of $7.62 million.

These indications suggest that SMC’s entry into PAL, with Ang at its helm, was a good thing indeed. Tan’s group has hopefully learned something on how to keep the airline operating efficiently, profitably—and harmoniously with labor. At this point in the airline’s corporate life, going back to the old style of management will do PAL more harm than good.


Read more: http://opinion.inquirer.net/78488/pal-sagas-interesting-turn#ixzz3DMMiGD5X 
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[seven13]

cabinpressure wrote

Evodesire wrote

2. Full amenities and interiors for its aircraft like AVOD, etc.

Funny, a lot of anonymous comments on the blogs were hoping for LT to take back PAL just for this reason alone. Careful what you wish for.

I do hope JJB gets more leeway now though.

I do hope, he's free to do as he wishes for the airline!

[swahi]

Its done.

http://businessmirror.com.ph/~businfk5/index.php/en/news/top-news/38837-lucio-tan-completes-buyback-of-pal