Philippine Airlines May Lease Boeing 777 Fleet

The President of Philippine Airlines, Ramon Ang, says that the airline is preparing a contingency plan in the event that the Philippines fails to receive its upgrade to Category 1 status by the US Federal Aviation Administration.

According to Ang, the airline is considering leasing out its six Boeing 777-300ER aircraft to help reduce maintenance costs. Each Boeing 777 aircraft costs Philippine Airlines $20 million per year to operate and maintain. This will amount to an annual savings of $120 million.

Photo Copyright: Angelo Agcamaran/PPSG

Philippine Airlines placed its order for Boeing 777 aircraft before the country's aviation category was downgraded due to a failure of the country to comply with international civil aviation safety standards and practices as set by the International Civil Aviation Organization. Philippine Airlines had originally intended to utilize the aircraft to replace its ageing Boeing 747 and Airbus A340 on routes to North America as this would help to reduce fuel costs and improve profit margins. The airline also wanted to utilize the aircraft for expansion to new US destinations like San Diego and New York. But none of this is possible while the country remains under Category 2 status.

Local authorities have reported that the results of a recent audit by ICAO officials earlier this year was positive and that the country had adequately addressed their concerns. The Philippines was subsequently removed from the list of member countries with unresolved significant safety concerns. But the FAA has yet to react to the ICAO findings.

Ramon Ang said that the inability of the airline to use its Boeing 777 aircraft on routes to the US have resulted in losses of approximately $40-50 million per year. Philippine Airlines currently uses its Boeing 747 aircraft on routes to the US which consume significantly more fuel than the Boeing 777 aircraft. Given the age of the older Boeing 747 aircraft, they are also more susceptible to constant breakdowns resulting in higher maintenance costs. Ang says that fuel and maintenance consume as much as 60% of sales revenue. If the Boeing 777 aircraft could be used, that figure could be brought down to around 40%.

PAL's North American routes are its highest performing routes accounting for more than 40% of its revenue. To date, Philippine Airlines has received 5 of the 6 previously ordered Boeing 777 aircraft with the newest aircraft arriving this month. While all were intended for North American routes, only two are currently being utilized to service destinations in Canada. The remaining aircraft are serving regional routes within Asia. But According to Ang, there is no way for the airline to make a profit using Boeing 777 aircraft without being able to use them for US flights.

Philippine Airlines is expecting delivery of one additional Boeing 777-300ER, eight A330-300, and eight A321-200 in 2013. The A330 aircraft will be deployed on routes to the Middle East, Australia, Korea, and Japan while the A321 will be used to service regional and domestic destinations. The first A321 is due to arrive in August.

PAL recently entered into an agreement with Airbus to lease an addition four ex-Iberia A340-300 aircraft. These aircraft will be deployed on routes to Canada and the United States in the event that the Boeing 777 aircraft end up being leased out. The aircraft are due to arrive in the near future.

Yesterday, Philippine Airlines announced that it has applied to fly to Sao Paulo, Brazil via Los Angeles by the end of the year. Ramon Ang believes that there is a lot of demand for these flights and that the airline intends to capture traffic originating from the US heading towards Brazil particularly in time for the 2014 FIFA World Cup. Ang has no doubt that it will be a profitable route with the ability to drop off passengers from Manila in Los Angeles and pick up passengers originating in Los Angeles headed to Brazil.