Philippine Airlines in Talks with Middle Eastern Investor

Lucio Tan, owner of national flag carrier, Philippine Airlines, has revealed that he is in discussions with a Middle Eastern investor over a possible stake in the company. After regaining complete ownership of PAL from San Miguel Corporation late last year, Tan has been on the hunt for a strategic investor to assume as much as forty percent of Philippine Airlines. 

Copyright Photo: Angelo Agcamaran/PPSG
According to Tan, the potential transaction is currently under negotiation. However, he declined to name the identity of the investor. It is believed the negotiations may be completed within the year and that if successful, would provide the carrier with a new source of oil.

Philippine Airlines desperately needs a strategic investor in order to support on-going efforts to turnaround the troubled flag carrier and fuel international expansion. Unfortunately, the carrier has had difficulty attracting investment due to the highly competitive nature of the Southeast Asian market and the limited synergies with other carriers. 

A partnership with a Middle Eastern carrier would be a positive strategic move for the carrier as it aims to build a more global network. In April 2014, Philippine Airlines established a partnership agreement with Etihad. But Etihad has stated that it has no intention of acquiring a stake in Philippine Airlines. 

It would seem that Philippine Airlines would have the best chance of finding a strategic partner in Asia, but even that has proven to be challenging. It was previously rumoured in 2013 that All Nippon Airways was considering an investment in the carrier. But ANA has since ruled out that possibility. ANA's top competitor Japan Airlines has also been ruled out as a possible investor.

Although Japan is a logical place for Philippine Airlines to source a strategic partner being home to 22 percent of the carrier's international seat capacity, the synergy with Japanese carriers is limited. South Korea is another market where PAL could source an investment. It is currently the largest source of inbound tourists to the Philippines with both Korean Air and Asiana maintaining a strong presence in the Philippines. But there are also limited synergies with Korean carriers and even fewer opportunities to use Manila as a transit hub. 

Philippine Airlines had previously advocated turning Manila into a transit hub under the leadership of San Miguel Corporation, but the Philippines is not positioned well geographically for the major share of transit traffic in the region. In addition, the transit traffic that it could attract between Australia and Europe, Australia and North Asia, and Singapore to North America would require a willingness to compromise yields and lower airfares in order to be competitive. Moreover, if Philippine Airlines pursued this strategy aggressively, it might impact any hope of obtaining a North Asian investor.

A Chinese carrier would be a good partner for Philippine Airlines as it has a limited presence in the Chinese market. But given the tense relations between the two nations, it seems an unlikely prospect at this point. Although Taiwan is a possibility, synergies are once again limited as the close proximity to one another puts them in direct competition for traffic. Singapore Airlines would be an outstanding partner for Philippine Airlines that has long struggled to establish itself as a premier carrier, but few synergies exist and Singapore Airlines does not seem to view PAL as a potential acquisition.

A European or Australian carrier could be valuable as a partner, but there are few options at this point. On the Middle Eastern front, Etihad would be the ideal choice to help PAL expand in Europe, while opening up further partnership opportunities with other European carriers. But it remains to be seen if their existing partnership could blossom into a strategic investment.

According to the Centre for Asia Pacific Aviation, Philippine Airlines needs to begin inking partnerships to support an expanded online network and to build a larger global offline network. But there are a number of strategic moves that have yet to be made. Philippine Airlines desperately needs a strategic partner that can provide network benefits and the capital required for expansion. Unfortunately, the list of potential suitors seems limited and few foreign airlines have shown any interest.

Meanwhile, Jaime Bautista, President of Philippine Airlines, recently announced that the airline would be deferring the remaining Airbus aircraft orders until 2024. Since regaining control of Philippine Airlines, Bautista has indicated that San Miguel's aggressive fleet expansion "lacked deliberation" with too many aircraft and no destinations to fly to. Under the leadership of the Tan Group, Philippine Airlines has decided to concentrate on strengthening its existing routes and expand high-traffic destinations, rather than opening additional air routes. Bautista believes that lower fuel prices and additional aircraft to be delivered in 2015 may boost Philippine Airlines' passenger traffic by as much as seven percent this year.

13 comments:

  1. Qatar Airways would be a good mix

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  2. I stopped flying PAL years ago cause of rude customer service from the check in counter to the flight attendants and the sad part is it's mostly towards their own countrymen.

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    1. We call it "pa - class" people. Most of them think that they belong to the chosen few rich RP families because there is still a class struggle in RP. If you have good looks, fair skin and speak good English, you can become a flight crew: which is a good thing. The problem is 98% of them refuse to work hard and they dislike Pinoys who are OFW, DH (domestic helpers) and provincianos. Try flying the carriers (CX, KE, OZ, SQ) from other Asian countries and you will easily compare and contrast the big difference. Guess who is "in the red".

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  3. i knew from the start that after LT group buy back from SMC never had the resources to expand the airline it was FOOLS PRIDE BETWEEN TAIPANS now under their leadership they are desperate in seeking allinces . partnership, investors to payt their debts from SM group

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    1. Filipino punk, what did i say about talking about me?

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  4. According to Tan, he is currently in talks with a potential investor that would provide PAL with “oil” and that he is willing to sell “between 40 percent to 60 percent” in PAL.

    If this would be the case, PAL would be selling its share in exchange for oil which is the biggest OPEX. I'm not sure if this would be a right call since oil is cheap for now or hedging fuel supply for short to middle-term would also be a viable option after deferring delivery of their new planes. Since oil production will be maintained for the near term, fuel prices will remain the same or even slide down further.

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  5. Imagine instead of going for a "D" check on its not so old aircraft,ramon ang opted for a buying spree of new A/C.yes,new a/c means lots of fuel savings...but ONLY IF U HAVE lots of reserve cash!imagine delta;china air,saudia (dey retired thiers recently) etc stil flying thiers 747-400's.but with PAL dey retired thier 74's coz dey want younger fleet.for fuel economy?yeah rigjt!

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  6. If I invest money and hold 40% of PAL, I am not going to let Tan and Bautista handle the management of PAL Tan says that a Middle Eastern capitalist is being groomed to infuse capital for PAL. That is fantastic! Hopefully, Mr. Tan has found Saudi or UAE princes (royalties) who can be flamboyant and are also Western-educated. Otherwise, I doubt Mr. Tan's statements. Unfortunately, PAL is a white elephant which continues to struggle as ever.

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    1. Bring back SMC group?

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    2. i totally agree

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    3. Bring back SMC?and purchase new airplanes instead of using existing fleet?it wil make PAL bleed more.

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    4. Bring back SMC? Might as well close down PAL if you are going to do that. RSA may be a good businessman but he does not know the airline business.All he is good at is press releases and leveraging his companies.

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  7. SMC group was better by leaps and bounds.

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