Philippine Airlines Seeks Strategic Investor, Wants to Join Alliance

One year after Lucio Tan Group regained control of Philippine Airlines, the national flag carrier is now ready to look for a strategic investor as it looks to build its international network, join an airline alliance, and expand its long-haul fleet. 

Copyright Photo: Angelo Agcamaran/PPSG

Last year, when Jaime Bautista resumed leadership of Philippine Airlines, his top priority was to clean up the mistakes of the previous administration in an effort to improve the attractiveness of the airline to investors. When PAL was under the control of San Miguel Corporation, Bautista stated that former PAL President Ramon Ang had ordered too many aircraft and increased capacity beyond the needs of the carrier.

Since then, Bautista has undertaken a complete review of the Philippine Airlines route network and revised the carrier's short and long-term fleet plan including the deferral of past Airbus orders. It was only after these important tasks had been completed that Bautista could assure investors of the true financial health of the airline. 

With Philippine Airlines continuing to post a profit, Bautista is now ready to execute the next phase of his plans that includes the acquisition of new long-range aircraft to replace the ageing A340 fleet, while seeking a new strategic partner to help fund expansion, which will also pave the way for the carrier to enter a global airline alliance.

According to Bautista, Philippine Airlines is contemplating an additional public offering for the national carrier on the Philippine Stock Exchange. However, the carrier would like a strategic investor in place before any possible offering takes place. "PAL Holdings is controlled by the Lucio Tan Group so we're looking for a possible strategic partner that could help management," said Bautista. He added that the a good strategic partner would enable Philippine Airlines to join an airline alliance and increase the carrier's value.

Philippine law enables foreigners to own up to forty percent of Philippine Airlines. According to Bautista, PAL would like a foreign partner that is also an air carrier, that can cover different regions to offer Philippine Airlines more connection opportunities in expanding its network. He confirmed that the carrier is willing to sell up to 40 percent.

In a 2014 report released by the Centre for Asia Pacific Aviation, it was noted that an investment from a Japanese, Korean, or Singaporean airline was highly unlikely given the overlapping networks and limited synergies with Philippine Airlines. A partnership with a Chinese carrier would offer potential given the small footprint that Philippine Airlines currently holds in the country but is highly unlikely due to the tense state of relations between the Philippine and Chinese government. 

However, the report also noted that an investment from a Middle Eastern carrier, such as Etihad, which already has an existing relationship with Philippine Airlines could offer much potential and would be a sensible move given the geography of both carriers for connections and PAL's desire to expand its footprint in Europe. A US based carrier would also be a strong prospective investor given the large overseas Filipino population in the United States and strong demand for PAL to expand.

The funds raised from the investment would be used for the carrier's refleeting program, which includes the purchase of eight Boeing 787 or A350 aircraft either through a purchase or lease agreement that is expected to close by the end of this year. The new wide-body aircraft would replace the remaining six Airbus A340 aircraft in the fleet, while adding two additional aircraft for expansion. Deliveries would be expected in 2017 or 2018.

Bautista is hoping that a new investment will be on the table prior to the delivery of the new aircraft. The addition of the aircraft would enable the carrier to cut fuel and maintenance costs, as well as enhance the carrier's network in the United States and Europe.

Meanwhile, Bautista's priority continues to be improving the attractiveness of the airline to potential investors and improving the service of Philippine Airlines is at the top of the list. "My thrust now is more on improving the service of PAL, making it very customer-friendly and customer-focused," said Bautista. "I want PAL to be a five-star airline, with good service from the time they buy their ticket to the time they get their baggage from the carousel."