Tan Presents Buyout Proposal for Philippine Airlines, Wants Etihad as Partner

The battle for control of the nation's flag carrier continues as the Lucio Tan Group presents a buyout proposal to San Miguel Corporation for its 49 percent stake in Philippine Airlines. The Tan Group has been busy working to raise the nearly $1 billion required to buy out the diversified conglomerate. Once control has been regained, Tan reportedly wants to take on Abu Dhabi based Eithad Airways as a partner.

Copyright Photo: Lester Tangco/PPSG
The buyback offer was presented to San Miguel President Ramon Ang last Friday. Sources indicate that Tan has offered to pay $372 million for the 49-percent stake in Philippine Airlines, which is less than the $500 million San Miguel paid to acquire it two years ago. In addition, a further $800 million comprising the balance of the buyback offer would be settled over a two-year installment period. 

However, insiders are suggesting that San Miguel believes the payment period is too long, especially given that Tan has not offered any guarantee on the payments. One source revealed in an interview with the Philippine Inquirer that, "Without any payment guarantee, a two-year installment period is a long time. And the offer is, frankly, a bit low."

As for Ang, he has simply stated that the talks are on-going, which at this point suggests that the offer is not attractive enough for San Miguel Corporation. However, it does indicate that PAL will likely be headed for a management change in the near future. Ang has apparently resigned himself to the likelihood that Lucio Tan will regain full control of the carrier. In a recent interview with Bloomberg, Ang stated that, "They're offering to buy us out. Talks are ongoing." However, he added that San Miguel Corporation was not in talks to buy them out. 

It is believed that the re-purchase of the San Miguel stake could take shape as early as the middle of this week. Lucio Tan's son, Lucio Tan Jr, has returned from Singapore after rounding up lucrative international financing for the acquisition. If Tan does indeed finally regain control, it is quite likely that Jaime Bautista will be reinstated as President of Philippine Airlines, at least for an interim period, with hopefully more management control this time around. 

The Tan Group is hoping to seal the buyback deal with a target date of August 27 for full ownership to be restored. According to sources, talks between the two sides have narrowed focus to the value of the buyout and the payment terms. Although it remains unclear why Tan wants to buyback Philippine Airlines and its uncertain future, sources indicate that it could be pride and prestige, or the fact that the flag carrier is rumoured to be back in the black. 

Early reports have suggested that Philippine Airlines is set to report a profit of P1.5 billion for the second quarter of 2014, representing the first profit that the airline has posted in several years. In addition, the airline forecasts to post a profit of more than P1 billion by the end of the fiscal year, amidst improved operations. According to sources, "PAL under Mr. Ang's management, is confident it will end the year with profits given its current position. It is currently projecting net profits of more than a billion for the year ending December 2014." 

With Philippine Airlines poised for expansion in Europe and the United States, Tan may just want one last chance to make Asia's first shine. It is believed that the Tan Group is planning to offer up to 40 percent of Philippine Airlines to Abu Dhabi-based Etihad Airways as a foreign strategic partner. 

In April, Etihad Airways and Philippine Airlines signed a strategic partnership agreement covering loyalty programs, airport lounges, sales and marketing programs, cargo, airport operations, and code share flights. When the agreement was signed, it was indicated that Philippine Airlines would welcome Etihad as an equity partner. However, Etihad Airways President & CEO James Hogan denied any reports that the carrier was planning to make an investment, reaffirming that the agreement did not cover equity partnership. 

Meanwhile, Philippine Airlines continues to adjust its operations to improve yields and efficiency as the carrier re-aligns its fleet on certain routes. The flag carrier is set to pull its fleet of new Boeing 777-300ER aircraft out of its London, Vancouver, and Toronto routes in favour of the busier San Francisco and Los Angeles flights. In addition, Philippine Airlines is introducing its 414-seat all-economy A330-300 aircraft this month on the daily flight to Bangkok, ahead of its original launch in late October. It will now be the only daily flight offered between the Thai capital and Manila by Philippine Airlines. 

5 comments:

  1. Why dont tan sell all his share to smc then pal under smc sells 40% to etihad. I dont trust lucio (fer) tan anymore. Ang helped the flag carrier recover yet lucio wants to buyback his share at a bargain and installment for the span of 2 years. Lucio shouldn't be managing the flag carrier. Ang is a visionary while lucio is a cheapskate.

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    1. I totally agree that Tan is a cheapskate. Why do the worst people stay too long on earth? Another case-and-point: Enrile. LoL

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  2. I prefer Tan over Ang. Tan cares about quality and service and not much on profit. Tan is buying back the carrier after he sees the quality Philippine Airlines is at. (333 config, no ife etc. 93rd place in skytrax) For example: Tan and his board of directors (Tan's Family) were appalled and angry at Ang when he switched to a Chinese maintenance group instead of Lufthansa Technik in NAIA. The transfer of maintenance caused the airline's quality to deteriorate.

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    1. Yes because Tan owns majority of Teknik, which he spun off (with the Catering) and charging PAL at higher rates...

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  3. 에볼플레이 먹튀검증 안전노리터

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