Tan Claims Philippine Airlines Back for $1 Billion

According to the latest reports, Lucio Tan has successfully regained control of Philippine Airlines after San Miguel Corporation decided to sell back its 49-percent stake in the carrier in a deal valued at $1 billion. 

Image Source: Forbes
In an interview with Interaksyon, San Miguel President Ramon Ang confirmed that the company's stake in Philippine Airlines had indeed been sold back to Tan. "Yes, sold," said Ang, confirming that the diversified conglomerate had signed the deal.

While no official details have been made available, it is believed that San Miguel Corporation has signed an agreement of intent to complete the sale with a group owned by Tan. The one billion dollar valuation covers San Miguel's equity stake in the carrier, in addition to advances and loans. 

Anonymous sources have revealed that the agreement will close pending conditions set by San Miguel that includes the delivery of the entire payment within a week. However, both parties are still claiming publicly that a deal has yet to be completed. 

At the Philippine Stock Exchange, PAL Holdings issued a disclosure following a report published in the Philippine Star indicating that the pending transaction was a done deal. "Please be informed that based on verification made this morning, the representatives of San Miguel Equity Investments Ins. and the Lucio Tan Group are still in discussion and have not signed on definite agreement in regard to the disposition of equity interests in Philippine Airlines and Air Philippine Corp," said the disclosure.

PAL Holdings controls approximately 90 percent of Philippine Airlines, which boasts a market value of nearly $3.4 billion. Tan sold 49 percent of PAL Holdings to San Miguel Corporation in 2012 in a deal worth $500 million. As part of the deal, San Miguel was also given management control of PAL Express and Philippine Airlines. 

It remained unclear for several weeks as to whether Lucio Tan would be able to liquidate his assets to raise the necessary capital to purchase back full control of Philippine Airlines. But the latest news suggests that Tan has been successful with insiders claiming that the Tan group borrowed approximately $800 million from a number of banks including China Banking Corporation, Asia United Bank, BDO Universal Bank, and the Philippine National Bank, which is owned by Tan. The remaining $200 million will be covered using Tan's existing cash reserves. 

It is believed that Tan is planning on inviting another airline investor to buy into Philippine Airlines later this year. It was earlier indicated that Tan wanted to seek an investment from Etihad Airways, but the CEO of Etihad stated that the two parties were not presently in discussions over a possible equity stake. The future investment from a foreign carrier would be used to repay some of the bank loans, which have been guaranteed by shares of several companies owned by Tan. 

It remains unclear as to exactly why San Miguel and the Tan Group decided to end their partnership in Philippine Airlines. However, many reports have suggested that several members of the Tan camp were unhappy with the management control given to San Miguel Corporation and Lucio Tan himself has been displeased with a number of the decisions made by the diversified conglomerate. This led Tan to change his mind about relinquishing management control. Other reports suggested that it was a matter of pride with Tan enjoying the prestige that accompanies owning and managing the nation's flag carrier. When San Miguel took over management, a number of key Tan personnel were released from management. In addition, an early retirement plan introduced by Ang, will also lead to the loss of some of Tan's most trusted employees. 

Since acquiring management control of Philippine Airlines, San Miguel has made a number of changes including the re-branding of airphil express to PAL Express, the retirement of old fuel inefficient aircraft, and the acquisition of up to 100 new jets valued in the billions. This has enabled Philippine Airlines to expand its network. Under Ang's leadership, Philippine Airlines has restored and launched new flights to Europe, the Middle East, Australia, and is currently about to embark on an expansion in the United States.

However, it remains unclear if all of the changes introduced by Ang will stay when Tan regains management control. Tan has been known to be more conservatively minded in his management style. But it is likely that at least for the short-term, former PAL President Jaime Bautista will be taking back the reigns until a permanent CEO can be located.

Copyright Photo: Angelo Agcamaran/PPSG
Last month, PAL Holdings posted its first net income in several months, announcing a net income of P1.5 billion in the second quarter of 2014. The profit reverses a P1.1 billion loss that was posted in the previous year. In July, PAL President Ramon Ang told the Wall Street Journal that all of the airline's long-haul routes were profitable, with the exception of the new route to London. When San Miguel Corporation exits PAL, it is believed that the diversified conglomerate will be concentrating more on its food business.

A formal announcement on the buyout is expected within the week once the deal has been finalized. The prolonged talks have impacted the operations of Philippine Airlines, which was forced to postpone the launch of flights to New York from the fourth quarter of 2014 to the first quarter of 2015. Earlier this month, it was revealed that Philippine Airlines would launch flights from Manila to New York's JFK Airport on March 15, travelling via Vancouver, Canada. The flight will be operated four times weekly. PAL had originally wanted to launch the new route in October of this year. The carrier has also been eyeing a number of new destinations including San Diego, Florida, Chicago, Paris, Rome, and Amsterdam, among others. 

51 comments:

  1. Now you guys will miss Ang...

    ReplyDelete
  2. Why do they mention specific cities when talking about expansion except for Florida? Any idea what city(ies) they may be targeting in Florida?

    ReplyDelete
    Replies
    1. Miami. That's what I heard from the news.

      Delete
  3. Now you guys will miss Ang...

    You'll miss PAL too once it's gone under.

    ReplyDelete
    Replies
    1. With Lucio Tan back, is it time for PAL to re-brand to PALPAK?

      Delete
  4. I hope this puts a stop to PAL's recent strategy of announcing new routes without having the required aircraft in place. Hopefully Tan will put right the damage that is being done to the PAL brand by deploying ageing ex-Iberia planes.

    ReplyDelete
    Replies
    1. Before PAL talks about expansion on new routes to Europe and the US, it should place orders first for the right aircraft to service those routes. Certainly, no one wants to fly on those ageing ex-Iberia A340-300s!!!!

      Delete
    2. ageing they may be, but they are still an upgrade from the recently retired a330 and the original a340s. i personally find the iberia a340 conventional 2-4-2 a more comfortable ride than the new a330's 3-3-3.

      Compared to the 777s, that's another story. better facilities, although i am still not a fan of our 777's economy seating setup.

      Delete
    3. Sana lagyan ni Tan ng personal IFEs ang lahat ng international at long haul flights at tanggalin na lang ang wifi na mabagal naman at mahal pa.

      Delete
    4. Ang made a terrible mistake taking out the IFEs on newly ordered aircraft, and in taking on the old, second-hand Iberia A340s... who wants to fly intercontinental with no IFE??? I immediately switched my London flights (every 6 weeks) away from PAL. This is year 2014 not 1914!!!!

      Delete
    5. Bear in mind that with the old set-up, Tan was still the CEO, the man with the final say with aircraft specification. Know also that there is a board in PAL, a group of about 15 men majority of whom are the sons and relatives of Tan who approved the aircraft specification. If a mistake was made in choosing the 2nd-hand A340s Tan bears the responsibility as well. But who is stopping Tan from installing IFEs on these A340s now that he has taken over. No one except Tan himself for not wanting to spend some more. Precisely Tan approved those A340s because they were at a discount, Now that their decisions are being criticized, it is as if Tan never had a hand in choosing those A340s. Stop the blame game. Moving forward, Tan should stop criticizing Ang, just take note that PALs passengers demand IFEs on long haul flights and spend extra cost to get those IFEs on those A340s.

      Delete
    6. So glad to have switched my upcoming LHR-MNL flight in December to CX, particularly now that it looks like it will be flying to Terminal 3!

      Delete
    7. An Airbus A330 aircraft is roughly $250 million U.S. worth today and definitely the Boeing 777 is more expensive. Where will PALget this money if it does not have solid revenue like Korean Air or Singapore Airlines? How about those extra expenses like landing fees, airport expenses, local salaries for airline employees in destinations like Miami airport (if it interests you that PAL will open a flying permit/slot there?). The airline business entails a lot of political, local, business (market target that fills its aircraft in order to be profitable) to other international protocols and safety permits. Therefore, for you to easily criticize Lucio Tan for not doing drastic action that fast is very shallow and absurd. Just wait and see and hope that PAL will do its best to compete, gain profits, make good business, etc., because it is a "rat race out there". Thank you.

      Delete
    8. It is true- the airline business entails a lot of political, local, business, international protocols , safety permits, etc. But Lucio Tan is in that business already for 15 years and after such a long long time he should have already gained the expertise in dealing with those repetitive situations. Why is it as if these are still challenges to him at this time, like Lucio Tan is still having a hard time dealing with them? If Lucio Tan is still clueless at this late late stage in the game How will PAL succeed when it will be still him running the show after Lucio takes in a partner. Who was it who said that Lucio Tan already had an Expat consultant from prestigious airlines years before he let SMC in but the children overruled the Expats recommendations because allegedly the Tan family want the prestige of PAL but rejects the cost that goes with maintaining that prestige.

      Where will PAL get the money? Why pass the problem to the public? Isn't Lucio Tan in Forbes Richest Man in the Philippines at No. 2 with a net worth of $2B? It should be easy for Lucio to do the magic for PAL with his fortune and 15 years experience in the aviation business. Expectations are high because SMC did so much in just 2 years.

      Delete
    9. Do not forget that PAL is no longer a state/public airline financed by the Philippine government but is now a private entity financed by Mr. Lucio Tan and other private stockholders.. So do not include the Philippine public/citizens in this discussion. Lucio is Lucio, he has freedom from want, therefore, it is better to emulate his wits and wisdom in becoming a billionaire. Or just positively dream you'll be able to achieve what he has accomplished. Do not despise.

      Delete
    10. Lucio is very fortunate that he was one of the dictator Marcos cronies. So if we have PDAF today how was it called during the time of dictator Marcos and how did such PDAF benefited the cronies. I agree. we should emulate their wits.

      Delete
  5. Hopefully this this will bring back the soul and sprit of philippine airlines that the unqualified forigners tryed to distroy in addition to making pal loose its identity and work under the umbrella of another airline by trying to show loses on some routes to justify the importance of certaine partnership that would help and save the airline .while in reality its for personal interests

    ReplyDelete
    Replies
    1. foreigners
      tried
      destroy
      lose
      losses
      certain

      tagalog na lang po

      Delete
    2. Pedant alert! His English is much appreciated by a non-Tagalog speaker such as myself...

      Delete
    3. That means that the Filipinos are speakers and writers of good English. They do not let any other Filipino make a senseless grammatical and spelling error that's why they are proposing to let the poor soul say it honestly in his own language. That makes sense and it is the honest way to correct mistakes.

      Delete
  6. I really don't get it...what is the perspective now for PAL after it is back in the hands of the family that ran it into the ground before? What makes anybody think the clearly inept CEO from before will do a better job this time around? PAL was facing extinction before RMA took over, thanks to the mismanagement by Lucio Tan. So why the euphoria?

    ReplyDelete
    Replies
    1. i agree. i can see cebu pacific smiling more. with a slow response by the more conservative LT, pal will find it hard to fend off the agressive expansion of cebu pacific.

      Delete
    2. I agree. I think Tan is actually the silent partner of Gokongwei because Tan's lackadaisical attitude towards PAL is actually helping Cebu Pacific.

      Delete
    3. Sorry, don't agree at all. I'm a foreigner resident in Asia since 1980, Manila since 1997. Prior to the 1998 crisis, PAL was very progressive, flying to many points in Europe and the US as well as having a good Asian network. Many Filipinos knock PAL for being Filipino, whereas other airlines were forgiven delays, etc - but PAL had a very good product overall. Look at the cabin refurbishment of the 747 fleet done under Tan/Bautista. That put the customer first. I don't think Ang would have done that. And everyone seems to have forgotten how Ang categorically stated that there would be 5 European destinations by early 2014. Was that commitment met???

      Delete
    4. These 747s were already retired because PAL has to let its passengers know that it has modernized its fleet and it has one of the youngest fleet in Asia at 3.5 years average. Are you saying that Tan might as well recall his old planes to bring back the age of his fleet to 15 years average.

      Delete
    5. PAL was very progressive before 1998 because it has little or no competition then. PAL was the only choice - it was a monopoly. If PAL was doing good during those days it was not because of the genius of Tan/Bautista.

      But how did PAL fare when the more dynamic airlines entered the scene. Did PAL lose its dominance in the domestic market to Cebu Pac?

      Delete
  7. Hope the exit helps SMC revive its stock price.

    ReplyDelete
    Replies
    1. Well don't look at the stock price of SMC but instead look at the stock price of Cebu Pacific. Financial analysts are recommending a buy on PAL's rival as they are anticipating Tan's re-entry in PAL will put the brakes on PAL's take-off.

      Delete
    2. Ang laki-laki ng inutang ni Lucio Tan sa mga ka-rancho niya. Naka-sangla na mga crown jewels ng empire niya. Bakit niya gagastusan pa uli ang PAL kung magbabayad utang pa siya? Hindi na magbubukas nananaman ng wallet yan, magkukuripot na. Kaya yun iba ay alam na and susunod na kabanata!

      Delete
    3. Alam mo, kung ayaw pala ni Lucio Tan gastusan ang PAL ay dapat hindi na niya ito binili. Kasi sa mga panahon ngayon ay hindi na pwede ang papatay-patay na kagaya ng style ni Lucio Tan. Marami na pagpipilian at ang ibang airline ay marami ng gimmick.

      Kailangan talaga gastusan ni Lucio Tan ang PAL. Dapat talaga siya bumili ng maraming eroplano at ayusin ang serbis ng PAL. Dapat ipakita ni Lucio Tan na PAL ang dominant na airline sa Pilipinas kaya nga yan Philippine Airlines. .

      Delete
    4. Paano ninyo nalaman ang:
      mga utang in Lucio o ayaw niyang gastusan ang PAL? Kayo ba ay miembro ng familia o kamag-anak niya? Mahirap ang mag-inbento ng haka haka!

      Delete
    5. Are they saying the reports indicating that Mr. Tan raised the $1B by pledging his stake in PNB and PAL to BDO, ChinaBank, Asian United Bank, etc to raise the cash requirement not accurate? The case seems to be that Mr. Tan ran to his fellow taipans so that he will not lose face in raising the cash amount and meet the required deadline. Because Mr. Tan was a valued client, BDO provided the biggest share. Unfortunately, none wanted to be partners with Mr. Tan in running PAL presumably because of Mr Tan's failure to maintain PALs leadership in the local market and dismal ranking in international market, all indicators of very poor management and lack of direction. Hopefully, PAL can sustain its recent gains and show that it has better ideas than SMC.

      Delete
  8. I dont feel there is a real euphoria with the Tan buyback. Maybe this euphoria they are saying are just the loud celebrations coming from the lieutenants, friends or staff of Tan and his family who will at least be assured that their happy days are here again because of PAL. What is more apparent really is the quite nervousness and unease most people have for the future of PAL under Tan again. Will our generation witness the slow demise of the flag carrier? Can Tan sustain the gains made by Ang or will PAL go on a consistent nosedive from hereon? Is it 1 step forward for Ang and 2 steps backward for Tan? When Tan fails to meet expectations, will we hear the never ending finger pointing against Ang? Brace for a hard landing!

    ReplyDelete
  9. While facing the challenges of PAL, how different from RSA will LT be when giving the command to their lieutenants?

    RSA: Charge!
    LT: R e t r e a t!

    ReplyDelete
    Replies
    1. LT did just that. Upon taking over, he quickly: requested to defer the delivery of the remaining 40 new plane orders: cancelled the 757s and consequently, cancelling new routes to Australia.

      Next please...

      Delete
  10. It's the airline market, baby! Passengers of all nationalities, religion, political beliefs, skin color, etc would fly PAL if a PAL product like inflight food, ample flow of beverages, headsets, IFE's, genuine inflight services like natural smiles (no hiding in the lounge attendants) and other amenities that can compete with 5-star competitors. Period. Lucio Tan and family, do a spot audit on Singapore Air, Cathay Pacific, Emirates Air, Etihad, Qatar, Korean, ANA, Asiana and copy what these airlines are doing. That's how to compete in this business. Do not worry much about negative public outcry or management ideas at this time. Instead, get the upper hand of a volatile and real competitive airline market. Simple as that.

    ReplyDelete
  11. I still remember when PAL used to serve European routes like London, Rome, Zurich, Amsterdam, and Bahrain (Middle East) in the early 1980s as I also used to work in the Middle East where I was lured to traveling as a passion to offset the misery of working in a desert with a different culture but with a bountiful petro-dollar which kept me sticking. During my vacation time (twice a year) I used to fly PAL on that route and ending up back to Manila via Canada or USA (called round the world with PAL's airline partners Canadian Pacific, Cathay Pacific and Singapore Air for a thousand or more U.S. dollars, half of it paid by my bank employer). Then I just came to know (years after) that PAL has abandoned those routes. What struck my mind right away must be lack of revenues, due, in part, to mismanagement in a lucrative market. What a shame to see my country's flag carrier folding in that particular market whereas the other witty Asian airlines (SQ, CX, KE) became more robust and profitable. Anyway, last month (August, 2014) I traveled to Europe again (from USA where I reside now) and saw PAL's flashy advertisements all around London and other U.K. cities. Goodness gracious, PAL is back! I'm so proud of it. My only wish this second time around is for PAL to compete neck and neck with these 5-star airlines. You can do it, let's go!

    ReplyDelete
    Replies
    1. Sorry to say but its proud return to London is not going to cut it, particularly now that PAL is deploying old A340s with no IFEs.

      Delete
    2. Take it easy, there is always a logical reason why an airline like PAL decides to lease A340 aircrafts instead of buying new expensive A330's or B777's. One reason can be low load factor, so PAL can minimize deeper losses from flying half full A330's. So do not blame Mr. Tan who happens to be the controlling owner of a state airline called Philippine Airlines. He is the only one who can make company decisions. Just hope he will be able to convert PAL become another 5-star airline.

      Delete
    3. What could be the reason why PAL fails to sell the seats even if it has taken the first step to modernize its fleet? Is it lack of competency to sell and market its product? Is it poor planning? Is it lack of ideas from the people in charge of route planning? Is it because PAL has boring outdated ideas? Why is it the case that the other Asian carriers of Malaysia, Thailand, Japan, Korea, Indonesia have successful routes to UK? Something is really wrong with PAL and the return of Lucio Tan is not very inspiring at all.





      Delete
    4. World's reliable Skytrax airline review puts Philippine Airlines in a 3-star category only. The answers to your questions about PAL's marginality will be answered when PAL has achieved the 5-star rating. It's a long, long way to go.

      Delete
    5. Just note that metrics used by Skytrax in determining the star ranking of an airline are factors completely within the control of the airline alone. Skytrax looks at the level of SERVICE demonstrated in different areas of airlines operations. Clearly, these considerations should be within the full control of PAL management. So before any wise guy passes the buck to other entities just make it clear that Skytrax ranking has nothing to do with the condition of the airports. So if PAL is saying it is a failure in selling seats because PAL is 3 star only, I think it is because PAL is not innovative enough, not creative enough, and clearly lacking in new ideas. Maybe that is the problem with PAL. It is full of old ideas and it is nothing but a relic of the past. So sad.

      Delete
    6. It is logic, man! I hope you have flown the likes of Cathay Pacific, Korean Air or Singapore Airlines from Manila (a somewhat less modern and edgy airport) to Europe or to USA and I hope you also have tried to fly on PAL on the same routes. I will tell you that Skytrax is reliable and truthful, but that is not the issue. It is PAL who does not seem to envy these 5-star airlines by not coping up with stiff competition. For PAL to compete neck to neck, it should be able to match each of what these said airlines are doing. That is how to stay afloat with profits. PAL needs radical changes now, not later!

      Delete
    7. PAL will never achieve that 5-star rating because the people who own and run its operations are all but "mediocre" in their business approach and don't give much thought of what the other airlines in the region try to do and offer in terms of products and services to outdo their competitors. It probably is the least among their concerns.

      Delete
  12. With LT, Cebu Pacific has overtaken PAL/PAL Express in domestic market. Now that RSA has left PAL, I won't be surprise if CEB will overtake them as well on international market. LT has to borrow millions of dollars to finance this acquisition and the rest with his own money i doubt if he's willing to inject more into the airline. Those massive fleet acquisition and route expansion will now be in jeopardy under LT management. Poor PAL, your dark future is nothing but certain.

    ReplyDelete
  13. Do you think worse comes to worst, Ceb can even take over PAL in the intern. Market? What if Gokongwei takes over with PAL mgt? Wouldnt that be better?

    ReplyDelete
    Replies
    1. I think CEB already commented on that, they are not able to go into PAL because their business model is LCC while PAL is Legacy carrier, unless you prefer PAL to be LCC also!!

      Delete
    2. No, my point is, what if Gokongwei takes over the management of PAL (though they have been to LCC model for years)? I mean the Legacy carrier status and model will still be followed plus the good management skills of Gokongweis... I think with innovative ideas of LGokongwei, they can save PAL. Of course that is not assured since the model that CEB followed for years is very different from PAL.

      Delete
  14. edi ibig sabihin la n talagang pagasa mgkaroon ng increase, 6yrs ng walang increase ang pal,lahat ng bagay na binebenta nagtaasan na pwera lang sweldo,aba e maawa naman sila sa empleyado nila

    ReplyDelete
  15. may pagasa na sana ky rsa na magkaron ng salary increase tapos eto balik nanaman ky l.t. na gusto lang e kumamig lang kumamig tapos pag kesyo nalugi, na lagi nyang sinasabi kahit hindi naman, ayun tanggal agad ng tao ang nasa isip, wag naman puro kumpanya isipin sana naman pati mga empleyado bigyan nyo ng importansya kasi kung wala sila e wala din kyo

    ReplyDelete
  16. Now that Lucio Tan is in control of PAL and his son in law Joseph Chua as President & CEO, now is the time to talk to Lufthansa Technik to do the maintenance of PAL fleet. Joseph Chua is the Pres & CEO of MacroAsia which has 49% share of Lufthansa Technik Philippines. The Germans at LTP are not happy the way RSA treated LTP by sending PAL planes to Singapore Airlines Engineering Philippines in Clark.They also perform the daily maintenance & flight release of Airbus A320/321 & when there is trouble they call on LTP for help.Some planes are sent to China for annual check because of low labor rate, its full of deferred maintenance & again LTP is requested to fix befor returning to service which the Germans fine very insulting.Last week an A320 was grounded in Brisbane, again its LTP which exerted all efforts to unground the aircraft.

    ReplyDelete

Powered by Blogger.